These are unique times in the self-storage real estate market. To get answers to questions relevant to today’s facility owners, buyers and sellers, I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the western region. I’ve asked them to comment on the state of the market in their areas and share thoughts on how the industry will perform moving forward. Joining us in the discussion are:
- Steve Boldish, Coldwell Banker Commercial NW, Medford, Ore.
- Mike Dunn, Mike Dunn & Associates, Costa Mesa, Calif.
- Larry Hayes and Steve Hall, Larry Hayes & Associates, Missoula, Mont.
- Joan Lucas, Joan Lucas Real Estate Services, Denver
1. As the economy and real estate market start to recover, should self-storage owners consider selling, buying, or continue to operate their properties and see what happens? How is the economic recovery progressing in the major market areas in your territory?
Boldish: Cash investors are seeking high returns, as might be expected. Now’s a good time to buy if you can handle the risk associated with low occupancy and perhaps three to five years before the market fully recovers. I’ve advised sellers with good cash-flow properties to hold rather than sell unless there are circumstances forcing the sale. If they don’t have to sell, it’s better to wait and evaluate the market in six-month intervals.
Dunn: Until the economy recovers, owners in Southern California should continue to operate. This is still a buyer's market and, unless there is a pressing personal concern (death, divorce, partnership break-up), most sellers will not be able to obtain top price for their property. The exception is institutional-quality properties, which are likely to experience competing offers. Institutional buyers will generally not pay the prices seen two years ago, but will pay good value for a property with 12 to 24 months of a quality income stream.
The economic recovery is still a way off in Southern California. Unemployment remains high, job loss continues in the public sector, and state and local government instabilities weigh heavily on the business and public communities. The major storage companies see this as a time to buy and are looking to invest in quality storage deals. Outlying suburban properties or smaller (below 50,000 square feet) will generally not be considered by major players. I see a continuing consolidation of storage properties of more than 50,000 square feet.
Hayes/Hall: Without specific reasons for selling now, we recommend they continue operating their properties and increase marketing efforts to build occupancies and gain value increases from higher revenue and improvement in regional economics. Throughout Montana and Idaho, some areas are improving, while other areas have continued to stagnate. There is a definite advantage to buyers and sellers to act while interest rates are low because as interest rates escalate, it will hurt both parties. Our economic recovery is doing well, and Montana is one of the only states still in the black.
Lucas: The market really is rebounding in Colorado. There’s more activity now than we’ve seen in a year. Owners are still reeling from the downturn; however, some are starting to see an increase in occupancies again. If the owners are really interested in selling, we encourage them to take a good hard look now. Many of the major buyers have come back into Colorado, and for good quality projects, there’s aggressive activity. Projects in smaller towns are still affected by the slowdown, because buyers for their sites are still the people who need to get financing, and need to have at least 35 percent as down payment.