|Copyright 2014 by Virgo Publishing.|
|By: Michael L. McCune|
|Posted on: 03/01/2002|
This month's travels take us to the southeastern United States. The Southeast is a fast-growing area of the country, with lots of new and existing self-storage facilities. Let's hear what our local experts have to say about their respective cities and regions. The Southeast brokers contributing to this survey are Bill Barnhill, Omega Properties, Mobile, Ala.; Rob Czukor, Coldwell Banker, Miami; Art Lancaster, David Treppendahl Commercial Real Estate, Baton Rouge, La.; and Frost Weaver, Weaver Realty Group, Jacksonville, Fla.
1. Have you seen the impact of a recession in your area?
Barnhill: Yes, there has been a rise in unemployment due to the closing of a major paper plant. Additionally, small businesses are reporting a slowdown.
Czukor: Yes, occupancy rates have increased as people who have been "downsized" move to smaller, more affordable housing. They still need space to store their things.
Lancaster: We have not seen any signs of the recession affecting the supply or demand for self-storage in Louisiana.
Weaver: The economic recession does not appear to have had an adverse impact on the self-storage industry in our area. There has not been a decline in overall rental rates or occupancy. The most noticeable impact has been in commercial-office leasing, where occupancy has declined as well as rental rates in most areas of Florida.
2. Are investors still interested in self-storage and, if so, what kind of investors are they?
Barnhill: Investors are still interested in self-storage. In our area, it appears most of the inquiries are from individual investors who already own several facilities.
Czukor: Yes, we have buyers in our marketplace and very few sellers. The buyers who have remained active since Sept. 11 are more professional investors, not the part-time real estate investors who seek short-term properties to flip for a quick profit.
Lancaster: Yes, investors still are interested in self-storage. Most of the investors we have seen are interested in buying and rehabilitating existing facilities rather than developing new projects. Most of the investors are already self-storage owners, so we haven't seen too much new blood in terms of buyers.
Weaver: Inquiries for acquisition opportunities continue uninterrupted. Most of our contacts are individuals or private companies from out of state. Most are current owners of other self-storage facilities, but we also have a considerable number of first-time investors looking to diversify their real estate portfolios. In addition, there is a significant number of individuals looking to relocate to Florida with the goal to acquire and operate a self-storage facility as part of their semi-retirement plan.
3. Are the local banks continuing to make loans in your area? Are the falling rates having any impact on buyers?
Barnhill: Local banks are still actively in- volved in financing self-storage. The falling rates have contributed to enhanced interest from individual investors.
Czukor: Yes, banks are still lending. However, they are looking much more carefully at the buyer and the property. The banks' lending requirements are being followed much more closely.
Lancaster: Yes, local banks are still making loans here, but very carefully. It isn't too easy to get a loan for a self-storage project from a bank here in Louisiana. The falling rates have not had any significant impact on buyers that I have seen.
Weaver: Most of the banks are continuing to seek loan opportunities, including self-storage. There is a strong emphasis on the credit worthiness of a potential borrower. While the declining rates have been favorable to buyers, they have not been a stimulus for new buyers. The lower rates have been a factor in negotiating sales prices because of the positive leverage created.
4. Are you seeing any signs of overbuilding? Is it really a big deal in your respective area?
Barnhill: Certain areas show signs of overbuilding; however, there are still pockets of opportunity in various cities.
Czukor: Maybe. We have seen a lot of new facilities come online this past year, most of which have rented up ahead of schedule. However, we do have in excess of 20 new facilities in all phases of planning and construction. This may cause an overbuilding situation here in the southern Florida area in the future, possibly around 2003-2004.
Lancaster: Yes! The New Orleans market has become overbuilt. The market here in Baton Rouge is getting that way. As I stated before, most buyers are buying rehabilitation projects because they know the market is getting overbuilt and the consequences of that will not be good for business.
Weaver: New construction has slowed down. There has been overbuilding in some of the major market areas, but Florida continues to grow and there is positive absorption.
5. Are there many conversions (i.e., a warehouse to self-storage) in your area? If so, are people concerned this could add too much storage space?
Barnhill: We are seeing very few conversions, but adding space such as this is viewed no differently than addition of traditional new space.
Czukor: No. We see very few conversions in the south Florida area. Most of the current projects coming online or being built are class-A-type facilities.
Lancaster: No, we have not seen any conversions in the Baton Rouge market. I believe there may be a few in New Orleans, but not enough to concern people that there would be too much space.
Weaver: There has been little conversion that I am aware of. There is still land available in most areas where there is growing demand. There is an increasing trend in densely populated areas to develop new properties with two or more stories.
6. Which, if any, REITs are active in purchasing self-storage properties in your area?
Barnhill: We have not seen any REIT activity in southern Alabama.
Czukor: We have seen Stor-All and Public Storage as active players in the past year. U-Store-It has just built two new facilities that opened in 2001.
Lancaster: U-Store-It was the last REIT to buy in this area, and that was more than a year ago. So activity from REITs has been pretty insignificant.
Weaver: There appears to be little REIT activity at the moment in new acquisitions. Most activity appears to be private investors.
Michael L. McCune has been actively involved in commerical real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In January 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real estate brokers dedicated to the buying and selling of self-storage facilities. For more information, call 800.55.STORE or visit www.selfstorage.com.