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Self-Storage Real Estate Challenges: Pricing, Debt and the Market

Michael L. McCune Comments
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If you make up your mind to sell, you must accept that the value available in the market today will likely set the price, and lenders may be even more difficult than the buyers themselves. This doesn’t mean you must accept the first buyer’s offer, but you should know that qualified buyers are scarce and be willing to negotiate.

The buyers in the current market fit into one of two general categories. They’re either experienced self-storage owners looking for good deals, who have the equity and ability to finance purchases, or they’re “bottom feeders” who make quick, but low offers and may or may not have the ability to close a deal. These buyers, however, may be the only option for some troubled properties.

While the market is slow and inconsistent in pricing, we’re beginning to see some modest convergence in sale prices reflected in a narrower spread of cap rates. The rates (and, hence, prices) are highly dependent on location, market and quality. The actual sales we’re seeing at this time often tend to be in the 9 percent to 10 percent cap-rate range.

I’ve seen sales at an 8 percent cap rate and some as high as 11 percent. You should know cap rates are still volatile and may be trending generally higher, according to some analysts. However, if someone tells you they know the current cap rate, you can bet they don’t know for sure.

Fortunately, self-storage is probably the best kind of real estate to own right now. Given the miserable performance of all other commercial real estate, this is now merely a consolation prize. But for the longer pull, we’re optimistic about our industry. This contraction of this highly speculative real estate market, funded by grossly errant, greedy lenders will bring constrained funding for new projects and allow markets to adjust to new realities.

The performance of self-storage in the worst downturn in the last 80 years has shown the business to be quite adept at competing and remaining profitable in the marketplace. This bodes well for the future of our industry. Ultimately, the real estate side of the business will also reach equilibrium. At least, it always has! 

Michael L. McCune is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE.

Related Articles:

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Problems and Opportunities Play Major Role in Self-Storage Investment Market

National Self-Storage Snapshot: Real Estate

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