Self-Storage in the Western States: Real Estate Snapshot

Michael L. McCune Comments
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With banks cutting back on development loans, are you hearing about postponed new projects or good development sites staying on the market for long periods of time? Do you know of any projects in the planning phase?

Arnold: Bank financing is available to experienced developers who will put perhaps 25 percent of their own money into the project. Good sites can only be defined as “good” if they are priced right. If the seller wants $10 per square foot for a site that would be great for self-storage, it is not a “good” site. In the Oregon market, several new projects are in the planning stages in major areas.

Laney: The current changes in the money markets have impacted some developments as entitlements were secured in 2007, but the financing window has either closed or conditions have changed to meet new lender requirements. There have been some syndication requests for partnership formation and dissolution as these new developments have changed members.

Layton: Certain projects in my market have gone through entitlement, but the developer does not have the ability to perform on the entire project and therefore tries to sell a turnkey development. In strong markets, this is an easy sell, but in overbuilt or saturated markets the properties will often sit until the developer is forced to either build or foreclose. Many people are still looking to build, but may have difficulty finding the right site with the proper zoning.

Lucas: In recent weeks, I’ve spoken with several local lenders who are out of the market for at least 90 days. Several projects were on the drawing boards but owners couldn’t secure loans to begin construction. Several clients are also seeking a refinance on their facilities, but the terms being quoted today do not provide much flexibility.

It takes a stout heart to build a new facility and requires a lot of capital strength, but many experienced developers are continuing to build and really prime locations are being considered.

What is the general attitude of owners as they see cap rates increase and values go down? How are the recent economic changes affecting decisions to hold versus sell,or make capital improvements to make the properties more competitive?

Arnold: Most owners, if they are aware of cap rates increasing, are unconcerned. Once they are considering selling, they become concerned and will probably decide to hold on for a while. Some re making capital improvements to enhance their properties, but not all investors can afford to do that.

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