Additionally, there will be a continued migration from single-property ownership to greater representation by the regional players and national real estate investment trusts (REITs). That said, from an equity standpoint, we are finding investors who are extremely interested in the self-storage market—particularly on the income side of this asset class.
The story is simple. It’s easy for investors to understand this real estate sector. Self-storage is driven by people in transition: birth/inheritance, marriage/divorce, retirement, military enlistment, job relocation, business expansion and contraction. We see self-storage facilities throughout our neighborhoods. Many of us have at one time or another rented a self-storage unit.
Today, we’re seeing a steady flow of equity into self-storage and, in this economic turmoil, cash is king. To be successful in this challenging market, the investor needs to find a property that is priced right, with or without debt in the transaction. Being flexible is one of the keys to surviving the financial crisis. If an investor doesn’t have this flexibility, fewer options are available.
Some economists predict the commercial real estate market is teetering on the edge of an imminent fall. According to the Urban Land Institute’s “Emerging Trends” report, “The credit crisis and ensuing recession promise to drag commercial real estate markets into a difficult period marked by value losses, rising foreclosures and reduced property revenues.
In 2009, expected total real estate private-equity investment returns will likely register in negative territory for the first time in nearly two decades. After an unprecedented meltdown, housing values should finally hit bottom during the year, followed by later corrections in the commercial sectors.”
Looking at the performance of publicly traded REITs, as reported by the National Association of Real Estate Investment Trusts, we see a more defined story. While REITs as a whole were down nearly 38 percent in 2008, those specializing in self-storage were up 5 percent, the only property sector to post positive returns. That’s a full 43 points above the average. The next closest sector was healthcare, down 12 percent.