What Happens Next
The potential impact could result in a disheartening situation, one owners and operators should be aware of and thinking about. However, it may not be a devastating situation for everyone.
Although interesting and trying times lie ahead, there will be unique opportunities that arise. Our industry still appears to be in a relatively good position if we consider there are still many underserved markets. Although there are definitely markets that are overbuilt or have significant product still in lease-up, many also have considerable room to grow.
One positive aspect of the industry’s financial state is there is a large number of owners who are underleveraged, having little to no debt on their facilities. Being underleveraged in boom times is generally perceived as negative; however, it may prove to be a positive situation in our current economy. Since acquiring financing has always been more difficult in the storage-asset class, people with low financing are now in great shape.
The downside is this situation will hurt the industry’s bottom line. Even if the industry is 50 percent leveraged, interest rates are still going up, weakening cash flow. It won’t break people in good positions, but it will hurt. The owners who will be hurt the most are those looking for take-out financing or extended bridge loans on highly levered development properties still in the process of stabilizing.
However, opportunities will still unfold down the road. We will see opportunities arise in two key areas:
- An owner may be forced to sell if his property has been too highly leveraged due to lease-up expectations, and those expectations were not met.
- An owner may be forced to sell if he is getting margin calls on periphery businesses, and liquidity needs to be placed elsewhere.
As a result of the economy, we may also see self-storage move back to more traditional growth, as owners focus more attention to traditional ways of running a business, concentrating on renting and occupancy.