Portfolio growth will happen through development and the odd acquisition. More depressed product will be sold. We will not see the consolidation we have seen over the past few years. The market will return to value buyers and less financial engineers. There will be adjustments in cap rates. How much they adjust will depend on how much product hits the market and in what time frame, as well as the degree of distress on the owner. If everything hits the market at the same time, cap rates will have more meaningful movement, and the worst product will be the last to go, unless priced properly.
Financing the Best
One point to highlight in this economic transition is investors are only investing in the best operators. Likewise, the best operators cannot rely on banks or financiers the way they have over the last five years. Capital will come in the form of mezzanine financing or equity. With their capital, some storage owners will be in excellent positions to take advantage of distressed assets that fit their portfolios as well as the ability to take advantage of cheaper land or buildings for conversion.
We are currently seeing investment opportunities with operators and developers who have good track records with existing facilities or developments. There is opportunity to invest with these businesses to foster growth through acquisition of land or build onto existing properties. Matching equity with existing business operators and developers is one unique situation arising in the absence of big institutional financing.
We are also seeing less competition from more traditional forms of commercial real estate providing self-storage owners with increased opportunity to compete for prime real estate and buy at attractive prices. Our industry is still in demand, and we have more opportunity to grow in underserved markets compared to more traditional real estate. While other forms of real estate asset classes may weaken, self-storage should remain competitive and continue to grow.
Michael Foy founded Foy & Co. Investment Real Estate Services, a full-service company specializing in raising equity and brokerage services for the Canadian self-storage market, in 2002. The company publishes the “National Self-Storage Review," an industry newsletter that reports on the Canadian self-storage market. Jenna Charlton is the company's communications coordinator. For more information, visit www.foyco.ca.