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Self-Storage Real Estate Outlook: The North-Central States

Michael L. McCune Comments

Our roundtable of experts this month discusses the self-storage market in the North Central United States. Panel members are Bruce Bahrmasel of LandStar Realty Group, Chicago; Larry Goldman of Prudential Commercial Real Estate, Kansas City, Mo.; Peter Hitler of Investment Real Estate Specialists, Mequon, Wis.; Pat Jordan of Jordan Realty Inc., Minneapolis; Bob Randklev of Skogman Commercial Real Estate Group, Cedar Rapids, Iowa; and Dave Smith of Re/Max Commercial Midwest, Omaha, Neb.

How are buyers and sellers reacting to the current unsettled investment markets?

Bahrmasel: Buyers are waiting on the sidelines more than last year. The idea that they better act now before someone else gets it has been totally replaced with the notion to wait longer because prices may not have bottomed yet. Sellers have been less flexible in their attitudes to a changing market and still wish to price properties on lower cap rates than buyers will pay. Some have tried to maximize value by offering seller financing.

Goldman: They are concerned about tougher underwriting standards and rising long-term interest rates, as there is a smaller universe of lenders chasing their projects. Specifically, sellers are concerned about the diminishing value of their projects due to lower interest rates driving capitalization rates higher.

Hitler: They are very cautious. We have had several requests for storage valuations, which indicates owners are thinking about selling and planning their retirement. Buyers appear to be looking for under-valued facilities not currently on the market.

Jordan: Buyers are still shopping and sellers are reluctant to consider selling, believing inflation will raise property values, even if cap rates decline. A segment of buyers and sellers is waiting until after the presidential election before making financial decisions.

Randklev: We’ve had a very busy first half of 2008 but most of the activity has been in multi-family apartments. I don’t know that the buyers/sellers are overly concerned as rates are still low. Yes, the volatility has increased cap rates and reduced values, but many feel this is a market correction not something to fear. 

Smith: Basically, everyone is taking a wait-and-see attitude. Many owners are talking about building new facilities or expanding existing ones, but are waiting until after the elections to commit. There is much anxiety about capital gains taxes, and many owners are saying that, if they do sell, they will pay taxes at a known rate rather than defer to an unknown situation.

Any trends with facilities using rent concessions or incentives to attract and keep customers?

Bahrmasel: Facility owners in Illinois are more actively trying to attract new customers. Rent concessions and other offers, i.e., free trucks for move-ins or free first months, are being advertised in areas with significant competition. Still, owners have expressed the need to more aggressively monitor collections. 

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