Given the unsettled investment markets, how are buyers and sellers reacting?
Blake: Buyers have reacted immediately and are looking for lower risk and higher cap rates than they were a year ago. Sellers, not surprisingly, seem hesitant to admit that the days of doing “8 cap on pro forma” deals are over. At the moment, there seems to be a wider gap between buyers and sellers because buyers have adjusted to the changing market, but many sellers have not.
Cinelli: Many buyers are looking for self-storage projects to purchase, but the frenzy is over. The properties need to meet higher expectations than ever before. Sellers who’ve been in the business for a while are becoming disillusioned and are looking to get out of self-storage, finding that the business now is not exactly what they bargained for.
Mendola: In this unsettled market, sellers and buyers seem to be acting in a usual way when the market begins to turn. Sellers want the valuations of six to nine months ago and buyers want to buy at a value that is reflective of these uncertain financing markets.
Shields: Both buyers and sellers look at the economy and the financing market a little differently. The buyer sees the economy?especially the housing market, on which self-storage is so dependent?and wonder, if he bought or developed a facility, could he stabilize it? How long would it take, and could he keep it stabilized? The conditions for financing are a whole other set of concerns. Sellers find themselves with devalued properties, fewer buyers in the marketplace, and buyers with difficulty finding financing.
Buyer’s potential profit has been reduced by higher loan rates and low leverage, so they need more return from the property they are buying. Buyers are also figuring in more risk in the cap rates than in the past.