Is Now the Time to Sell?

By Mike McCune

Great markets are wonderful, but we all know they willeventually end. What does that mean, in general, for self-storageowners?

First of all, it doesn't mean you should panic. After spending27 years in the commercial real-estate business, I think I cansafely say that self-storage remains one of the very bestlong-term real estate values. The relationship between theyields, level of investment and the relative risks makesself-storage a stellar real-estate investment. If you are holdinga well-located self-storage facility for a long-term investment,I could not recommend selling the property, even though I mightfeel that we may be near the top of a real-estate cycle. Not onlycan't we find a better investment, it is difficult to overcomethe tax impact of a profitable sale.

However, with all of that said, there are reasons to sell thatare independent of the long-term investment virtues ofself-storage. Some of those reasons may be retirement, estateplanning, changes in your local market that could negatively andpermanently impact your property, or possibly partnershipobjectives. In the event that you are considering a sale for oneof these or other reasons, this may be the best time in themarket cycle to attempt to achieve the best price on yourself-storage property.

One of the best, but most often ignored rules in real estateis to sell when the news is good, not when the first bad newsappears. As we have all seen in the Wall Street Journaland other publications, today's economic news is a politician'sdream come true. Take our little test (see News O' Meter), anddetermine if you think the news is going to get much better overthe next year (circle the appropriate numbers, and then add themup). While our list may not be entirely comprehensive, I think wehave covered the large issues that will affect the real-estatemarket in the next year.

If you scored a negative number, and you are thinking aboutselling, it might be a good time to get ahead of the curve. Thereare some things that may impact the self-storage market more thanthey will the general market. For example, with Congress talkingabout capital-gains tax reduction, there will be manyself-storage owners wanting to sell. The good news is that theymay save some taxes, but they may also put a lot of property onthe market just as the cycle turns. A little analysis wouldsuggest that being the first to sell is going to be better thanbeing the last to sell.

As we all know, self-storage is not the investment secret thatit once was. This great investment has attracted not only newbuilders, but the experienced old hands as well. Many areas arebeginning to show some rate pressure and more-than-seasonalvacancies because of additional projects competing for the samecustomer. While the effects are not yet serious in most cases,the full effects of the building boom are just becoming evidentin many areas. While we shouldn't expect a return to the 1980s,it is likely that the rate and vacancy pressures will continuefor some time and may well accelerate. Obviously, this is a trendthat isn't helpful to an owner with a short- or intermediate-termobjective of selling.

In summary, if you are a long-term owner, you may want tosharpen your management and marketing skills for the next phaseof the cycle, but you need not (and should not) run for the exit.On the other hand, if you are thinking about selling in the nearfuture, I think the old saying, "the sooner thebetter," has some real significance.

Mike McCune is president of Argus Real Estate Inc.,located at 82117 St., Suite 300, Denver, CO 80202; (800)55-STORE; fax: (303) 299-8821.