I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the Southeast. I asked them to comment on their local markets, including occupancy levels and pricing. Joining us in the discussion are:
- Allen Barnhill, Omega Properties Inc., Atlanta
- Bill Barnhill, Stuart LaGroue and Shannon Barnhill Barnes, Omega Properties Inc., Mobile, Ala.
- P. John DeStefano, Commercial Investment Group LLC, Charleston, S.C.
- N.J. “Joey” Godbold, Percival McGuire Real Estate, Charlotte, N.C.
- Grady Riggs, Long and Foster Real Estate, North Bethesda, Md.
- W. Frost Weaver, Weaver Realty Group, Jacksonville, Fla.
1. Why is the Southeast a good place to invest in self-storage at this time?
Allen Barnhill: Self-storage offers a great combination of risk and return for a real estate investor. Over its history, and even more important, through the recent economic upheaval, self-storage has proven to be one of the most resilient and consistent performers of any commercial real estate investment category.
DeStefano: The root causes of the current economic downturn are the same factors that drive demand for self-storage (loss/change of job, downsizing household, etc.). Self-storage has proven to be somewhat resilient over the past 18 months compared to other property types (retail, office, multi-family, residential). Self-storage is also well-positioned to recover more quickly than other property types that are dependent on job growth and economic stimulus.
Godbold: We’re seeing self-storage holding up well in this market compared to other real estate investments. While occupancy rates and collection issues are haunting operators, the industry hasn’t been hit as hard by the recession as most office and retail products. Investors are disenchanted with the stock market and are looking for more tangible and predictable investments, and they see that in self-storage.
LaGroue: Potential investors should purchase self-storage properties because, as a whole, the storage sector has continued to outperform almost all other asset classes of commercial real estate and will most likely continue to do so. Self-storage has certainly felt the pains caused by the recession with declines in occupancy and income figures.
However, it has not been affected as badly as retail, office and industrial, and I don’t anticipate that it will. There will also be some buying opportunities from owners or sellers who have upcoming maturities they are unable to refinance due to a lack of funding.
Riggs:Historically, we know self-storage owners tend to sell only when they experience life-changing events, and their decisions are not driven by the commercial real estate market. Entry barriers are generally high for self-storage projects, so as long as an investor can get financing, a well-placed and managed facility is still a good, solid cash-flow generator.
Weaver: There are two primary categories of self-storage properties today, and different types of potential investors. Class-A self-storage properties can provide a stabilized cash flow with less risk than other types of commercial properties. In general, the price for these properties is less than replacement cost.
There’s a broad second category of properties that have experienced decline in occupancy based on the economy and the significant decline in new housing starts. These are not returning a net income that can be capitalized, but can be purchased at prices significantly below replacement cost. For the entrepreneur, there is significant upside as the economy in the local area improves.