Self-Storage Real Estate in the South-Central States: Insight on Facility Occupancy, Sales and More

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Cerruti: We’re still seeing a lack of buyers in Louisiana because of stringent lending practices. Aggressive local banks are usually the best choice when looking to secure financing for a self-storage purchase. With the uncertainty in the economy there are fewer risk-takers in the market, so I recommend owners hold off on selling now unless they must.

Goldman: Between concern for an increase in capital-gains taxes in 2011 and the belief interest rates will be increasing in the next few years, potential sellers are more interested than ever in selling their facilities. Generally, the fundamentals of storage investment are more compelling than other property types and other investment vehicles, so buyers are still active throughout Arkansas. 

Jones: Sellers who have attractive assumable financing in place are realistic about value, and those who have a stabilized performing property will find a receptive market for their property, as there is money on the sidelines waiting to be invested for the right opportunity. If inflation occurs, holding would not be a bad strategy, as prices will increase.

LaGroue: Now’s a good time for potential sellers to consider listing and selling their properties, especially if the property is stabilized and has been for at least the previous 12 months. New facilities currently in rent-up tend to be more challenging to sell because it’s hard to finance those properties, and potential buyers would be assuming the risk during the continued rent-up phase. Another important reason to consider selling now is the implications that will arise in 2011 when capital-gains tax rates will most certainly increase.

Minker: If an individual has a reason to sell his self-storage property, now’s as good a time as any. With a potential change in the capital-gains tax rate and other estate-planning activity, this is the time to be looking at one’s plans to take a facility to market. The day of the “tire kickers” is over. The investors we’re dealing with have funds available and can get facilities financed if they make economic sense. We do see potentially more facilities going back to lenders, which may be competing for the current investor’s dollar.

What is the current state of the local economy and how to you think it has affected self-storage?

Barnes: The economies of the coastal areas of Alabama, Mississippi and Florida have been adversely affected by the Gulf Coast oil crisis. Banks are worrying that some customers may not be able to repay loans due to the repercussion of the oil crisis. The unemployment rate is still about 10 percent, so many people have lost their homes. Some of those who rent storage have been slow to pay, making collections more difficult and delinquencies rise. From an investment perspective, the economy has made it difficult to obtain financing, especially for a property that’s struggling to rent up.

Browder: The economy in Memphis is flat with slight uptick in optimism for near-term economic improvement. Chattanooga is upbeat because of a new Volkswagen automotive plant beginning operation. Nashville has been side-tracked by the early summer flooding but will recover and return to solid growth within 6 to 12 months. Knoxville is flat to slightly positive. In all these markets buyers have been less aggressive, choosing to wait for more solid signs of stabilization in the housing market and improving job outlook.

Brownfield: Houston, Austin, San Antonio and Corpus Christi are all ranked by Moody’sEconomy.com as “recovering” markets, meaning they measure positive in four areas—employment, housing starts, home prices and industrial production. National buyers like Texas a lot right now, especially the major markets. They know our state’s economy and long-term population trends are favorable for the storage business. Today’s buyers won’t pay for vacancy, so that puts real pressure on sellers to improve their marketing, to spend smarter on marketing tools, and to look for ways to increase occupancy and rates while also controlling expenses.

Cerruti: The Louisiana economy is hurting, but the effects are somewhat mitigated because of money still coming in from Hurricane Katrina. The Gulf Coast oil spill will have a short-term negative impact on this area, but the new mayor of New Orleans brings hope of a turnaround.

Goldman: Generally speaking, the economy in Arkansas is weathering the storm better than most of the country, although northwest Arkansas is slowly recovering from an overzealous building boom from a few years ago.  Even in that area, we’re seeing reasonable growth in occupancy, which should continue as there’s practically no financing for new storage development.

Minker: The north Texas area remains one of the stronger areas in the United States, but it has felt the impact of the economic downturn. The Texas unemployment rate dropped to 8.2 percent in June, down from 8.3 percent in May, and continues to trend well below the U.S. unemployment rate of 9.5 percent. While the United States continues to have negative job growth over the past year, the Dallas/Fort Worth area has had more than 25 percent of the job growth for the entire state of Texas, which bodes well for the local economy as a whole.

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.

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