Weaver: My current experience is that most financing is through regional or local community banks that have a current banking relationship with the potential buyer. However, there appears to be some funding available through national contacts. An example of a current loan quote I have recently reviewed was a 6.8 percent fixed for five years, based on 67 percent LTV. For a three-year fixed product, the rate was slightly below 6 percent with the LTV up to 70 percent.
There is controversy about self-storage being a recession-proof business. What is your experience as to changes in rental rate, concessions, overall occupancies and turnovers?
Barnes: Recession-proof is not the best way to describe self-storage; I would classify it more as recession-resistant. Self-storage has not been as widely affected by past recessions as the retail sector has been. Overall, rental rates have decreased some while rental concessions have increased. This is due to the economy as well as overbuilding in some markets. Though some facilities might be able to sustain their occupancy by increasing concessions, the financial occupancy has declined somewhat.
Eisenman: Occupancies have softened in some areas by as much as 15 percent, but most are seeing a reduction of around 5 percent. While self-storage is performing better than other commercial real estate segments, it reflects the overall weakness in the housing market and general economy. While the days of being recession-proof may be over (if they ever existed), it still appears self-storage is weathering this “perfect economic storm” without the damage other real estate and businesses are experiencing.
Riggs: There is a consensus that we now know: Self-storage is not recession-proof. While we can expect occupancy rates to track the economy to some degree, what was not anticipated is the impact of lending completely shutting down. So even if we have motivated sellers and qualified buyers, the hoops these buyers must jump through and the LTV requirements have proven to be prohibitive. Move-outs and late payments are on the rise making 2008’s net operating income (NOI) and values plunge. Rental rates are stable, but concessions are common, which is not what a new lender wants to see.
Many small communities are one or two industry towns, so it doesn’t take much to change the game. In Virginia and Maryland, new facilities and expansions that were planned are now on hold or some newly acquired vacant properties are back on the market. What’s interesting is that vehicle storage is doing well and is increasing in many areas.
Weaver: Recent experience would indicate that self-storage is not recession-proof. The downturn in the housing market has had a definite negative impact on self-storage facilities, especially in the smaller cities. For urban, well-located, established properties, there has been some drop in the occupancy of 5 percent to 10 percent. There is a definite indication that some renters are seeking to move out of their storage units to eliminate costs. I have not noticed a decrease in rental rates in North Florida, but owners are definitely being more creative in their concessions.