Self-Storage in the North-Central States: Real Estate Market Snapshot 2010

Ben Vestal Comments
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McDonald: Minnesota is slowly seeing a shift from traditional print advertising to more Internet advertising and other types of media such as TV and radio. Owners in the larger markets of Minneapolis and St. Paul are focusing most of their marketing resources on their websites, and some are trying social-media marketing. In the smaller markets of northern Minnesota, print ads in the Yellow Pages and newspapers, along with billboard advertising, are still the primary methods.

Soltis: In Michigan, several owners are promoting their facilities with free rent concessions. Owners are always looking for additional ad venues to increase traffic, but it may take a while before these alternative sources become their primary advertising methods.

As we see large investors re-enter the acquisitions market, should potential sellers hold off for a while longer, or is now a good time to sell?

Bahrmasel: Many potential sellers in Illinois have seen their values erode over the past couple of years and, as a result, they may not be able weather the next trauma. They’re concerned about getting reasonable financing when their loans come due, and worried that higher interest rates may devalue their properties further. If they’re thinking about selling, they may want to do something sooner rather than risk uncertain circumstances later.

Brehmer: Selling is a timing issue. Some owners seem to be motivated by projected capital-gains changes, others by financing rolling over. Owners who are considering selling should consult a qualified real estate professional to make sure they understand all the market factors before deciding on the timing that’s best for their situation.

Goldman: The seller’s individual circumstances should be the deciding factor. There’s not a lot of transaction velocity in this area, but there wasn’t much velocity even a few years ago when financing was looser, as sellers were not eager to part with their storage projects. The concern I have going forward is the threat of inflation and significantly higher interest rates.

Hitler: Transaction activity has slowed down 30 percent to 40 percent in the previous 12 months due to a difficult lending environment and unrealistic seller expectations on property value. These factors, coupled with near historic lows in financing, have created pent-up demand among strong, well-qualified buyers for appropriately priced facilities and, consequently, a very favorable selling environment. In addition, owners who are likely to sell in the next 12 to 18 months should accelerate those plans, because it appears capital-gains taxes will be increasing next year and will reduce the after-tax proceeds sellers keep.

McDonald: The gap between buyers and sellers appears to be widening. Sellers need to be realistic about the value of their facilities and acknowledge the higher levels of vacancy and higher cap rates when pricing their facilities. It’s still a buyer’s market and will be for quite some time. Sellers should consider all these factors, along with their personal objectives, before deciding to sell or hold.

Soltis: There seems to be a reasonable number of investors in Michigan looking at deals from $500,000 to $3 million. Sellers should base their decision to sell or hold on the prevailing cap rates in their markets. We can offer property at below a 9 percent cap rate, but it would have to be a class-A facility with good actual upside.

Ben Vestal 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 SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail bvestal@argus-realestate.com.

Related Articles:

Self-Storage in the Southeast 2010: Real Estate Snapshot

Self-Storage in the South-Central States: Real Estate Snapshot

National Snapshot 2010: The Self-Storage Real Estate Market

Take Advantage of a Buyer’s Self-Storage Market

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