What do buyers in today’s market look like?
Eisenman: Buyers of self-storage fall into many categories now just as they have in the past. Those who are in the industry probably see the future in self-storage as brighter than those outside and may be more inclined to try to acquire more properties during this economic slowdown.
LaGroue: The landscape for purchasing self-storage properties has drastically changed over the last year and a half. There are three potential buyers in today’s market: institutional buyers focusing on limited areas of the Florida panhandle; individual investors looking for a deal; and newcomers that are still looking to enter the self-storage business. While these three different types of buyers have varying goals, they are all faced with the reality that cap rates are trending upward around 9 percent and it’s becoming more difficult to obtain favorable financing.
Regardless of the type of buyer, we’ll see the gap between sellers’ expectations and what buyers are willing to pay shrink. In our markets, we’ve also encountered some investors who are looking for “deals” contact local banks to inquire about distressed properties or properties on the verge of being distressed in hopes of entering a market at a discount.
Riggs: I still continue to receive many inquiries on my self-storage listings, so I can only assume there is still strong interest in this asset class. But the offers we’re now seeing are from bargain hunters and “bottom feeders” offering wacky terms. I feel there is a level of angst with average buyers not knowing what’s going to happen next in this economy and fearing that they may be buying too soon.
It appears that these buyers are waiting to hear the “bell” ring and the town crier say we’ve hit bottom. Once this happens, they will make their move. I have heard of several direct buys in Washington D.C., and other major MSAs not hitting the radar. This is not surprising because this region has a history of low turnovers.
Weaver: My experience is most potential buyers would be considered investors seeking value-added purchase opportunities. There is a noticeable wider gap between current asking prices and initial offers. Buyers are testing the owners' true motivation, which can make the negotiations lengthier in attempting to find common ground. The good news is that there are viable buyers in the marketplace. They are definitely being more selective and analyzing the property operations more thoroughly.