To manage the expectation gap between buyers and sellers, brokers must document every sale in their local market and track every listing to demonstrate which properties are receiving offers. By tracking all comparable assets in their respective market, brokers can show sellers the true value of their property. A seller may have been offered a certain dollar amount in the past, but in today’s market, the price at which deals are being trading has likely dropped between 30 to 60 percent.
- When hiring a professional, experienced broker, you can expect:
- Expert market knowledge
- Extensive access to private and institutional equity
- Custom-tailored marketing
- Strong banking relationships
- Ability to negotiate on the client’s behalf
- Appropriate underwriting to match current market conditions
Commercial property sales were abnormally high in ’06 and ’07 because of the frenzy in the market. Since then, the capital markets crisis has caused the shift to the other extreme, which has pushed property sales to abnormally low levels. In 2008, sales volume dropped approximately 70 percent over last year’s pace. In the next several months, investment sales are likely to remain hampered due to the ongoing credit crisis and a major price expectations gap between buyers and sellers.
By mid-2009, many brokers expect financing to become at least moderately more available as banks begin to lend again, albeit with tight standards. Also expect to see the pricing gap to begin to narrow in the next two to three quarters. For lower quality assets in secondary and tertiary markets and/or distressed properties, sellers will have to become realistic about pricing in order to clear the market.
On the other hand, there are no indications of wholesale discounting of quality real estate in strong markets so buyers will have to recognize that value. Most activity will continue to be driven by private capital in the first phase of the recovery.
The market is evolving to keep up with the changing economy, shifting demographics, land-use issues and consumer tastes. One thing that does not change for investors, however, is the importance of proper due diligence and the value of a qualified broker. Investments in self-storage can be very profitable, but it pays to make the right decisions up front.
Michael Mele is vice president investments and senior director of Marcus & Millichap’s National Self-Storage Group in Tampa, Fla. He can be reached at 813.387.4700; e-mail firstname.lastname@example.org.