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Self-Storage in the North-Central States: Real Estate Snapshot 2009

Michael L. McCune Comments
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Hitler: In Wisconsin, the vast majority of storage facilities are owner/operator-based, and most have been owned for 10 years or more by the current owner. Consequently, they are not saddled with the debt levels of many recent storage deals.

Having said this, we are seeing a couple of properties surface that were either refinanced or built within the last five years that are unable to make their debt payments and are soon to be in receivership. The workout will likely come from a third party with storage-management experience that can stabilize the property’s operation and enable it to be sold at a valuation close to the mortgage amount.

Johnson: Due to the short-term nature of self-storage rentals, lenders are being required to take a harder look at credits, usually requiring 25 percent to 35 percent of equity in transactions. Also, the regulation “mark to market” approach is causing appraised values to diminish by using higher cap rates. Owners are adjusting by being more realistic about the activity from potential buyers. Also, some owners may choose to escrow funds to guarantee a higher occupancy level and help a transaction close.

2. Many owners across the county have told us that their rates, occupancies and concessions are currently stable, but they are seeing delinquencies increase. What is the experience of owners in your area and how are they addressing delinquencies?

Bahrmasel: Owners in my market have reported increased concern over delinquencies. Some say they’re being more aggressive in their collections and voicing concern that renters who are more than 60 days past due don’t go beyond the point where an asset turns into a liability.

Brehmer: The owners I’ve spoken to in Northeast Ohio say delinquencies have only marginally increased. Moreover, they’re leasing units to foreclosed homeowners who are seeking storage for excess belongings as they move into smaller homes. This will tell whether these tenants will pay until the total rent eclipses the value of the stored items. Rents in these areas are also holding steady.

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