What’s the quality of buyers in your market?
[Scale: 1 = limited interest, 3 = somewhat serious, 5 = serious/qualified]
Cinelli: Four. Most of the buyers we see today have serious interest in buying facilities, but their criteria for properties has gotten more strict. They are only looking for facilities with qualified financials that can be verified.
Mendola: Three. Buyers have the financial ability to invest, but their criteria for rating an investment is very strict.
Shields: Three. Recently I’ve seen more buyer inquires as to what’s available in the market. Cap rates have risen somewhat, and buyers seem to feel that conditions aren’t as scary as before. Optimism isn’t quite there yet, but buyers are serious enough to position themselves to react if the lenders ease up a bit. Buyers are also realizing that not all real estate, in this case self-storage, is being sold at a “fire sale.”
Average response: Three. Clearly there are buyers in the market today who are waiting to capitalize on the lower prices and distressed facilities on the market. Time will tell if the gap between the buyers and sellers will narrow to the point that more transactions will begin to take place and the market can approach equilibrium.
How serious are the sellers in your market?
[Scale: 1 = just checking values, 3 = testing the market, 5 = really want/need to sell]
Blake: Two. There are not many sellers out there, and the properties I’ve seen tend to be distressed and/or overpriced.
Cinelli: Two. Sellers in our market are not serious enough to make the right deal. Many are holding out for higher prices and don’t recognize that cap rates have gone up and values across the market have gone down. There are some situations in which sellers need to sell their properties because of pressure from the bank, but we’re not seeing many of those yet.
Mendola: Three. Sellers today are testing the market. Almost all of the sellers of properties I’ve listed are not over leveraged and have sufficient cash flow to pay their mortgages. As a result, they’re not willing to dilute their equity with a discounted sale price.
Shields: Three. It’s difficult for many sellers (any owners of real estate) to come to the realization that the present value of their property isn’t what it was from the historically high real estate market of a few years ago. If their facility could sell for a 7 percent cap rate at the height of the market, it’s now at a 9 percent cap rate. This is causing many sellers to question if they want to sell. Do they test the market or wait and see if it comes back up?
Average response: Two and a half. Sellers in today’s market are generally not willing to come down on their listing prices unless they’re under pressure from their lenders. As many sellers aren’t in dire financial situations, many choose to test the market and see what kind of offers they can bring in, but they’re not particularly motivated to go through with a sale unless it’s on their terms.
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 www.selfstorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE.