Real Estate Market Snapshot: Self-Storage in the Southeast States 2011

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LaGroue: Many factors are considered when buying, selling or holding a self-storage facility. If you own a facility and it’s a stabilized property with a proven track record for at least 12 months and is in a good location, now would certainly be a good time to consider selling. If a facility is in leaseup or doesn’t have a “proven” track record, now may not be the most appropriate time to sell. There are definitely more potential buyers in the marketplace who are searching for acquisitions, but due to the financing and other aspects, it takes longer to get the deal done. These potential buyers range from the REITs to smaller operators who see the storage industry as a solid asset class even during these uncertain times.

On the flip side, now’s also potentially a good time to buy if you can find the right property that suits your parameters. There appear to be more bank deals coming online that present not only a challenge but also offer a huge upside. For the owners who are still in rent-up, enjoy the self-storage industry or don’t find themselves in a precarious economic situation, then it’s also a good time to hold onto their asset.

Weaver: Most owners we have communicated with are planning to hold, if they can. They’re hoping to recapture some of the lost value they’ve experienced in the past few years. Most buyers are looking for value-added opportunities. So, in most situations, there’s still a gap between the seller and buyer. However, that gap appears to be closing.

What advice would you give storage owners looking to refinance? 

Allen Barnhill: First, the market for financing properties continues to gradually improve and that’s vitally important to sellers, buyers and operators.  Second, it’s a good practice for owners to review their debt and financing on a regular basis and stay informed about the different financing options available. The goal is to ensure your financing is structured and aligned to facilitate meeting your business objectives.

Bill Barnhill: The financing market for self-storage has been improving steadily over recent months. I would advise storage owners to lock in a fixed-rate loan for at least five years, longer if possible, since most economists are predicting higher interest rates and inflation in the future. For stabilized properties valued at several million dollars or more, it would be advisable to obtain a conduit loan, since you can typically get a longer maturity and also avoid full recourse on the loan. Of course, you should plan on owning the property long term to avoid being penalized by paying a defeasance fee if it becomes necessary to pay off the loan prior to maturity. Using a reputable mortgage broker is often advisable when dealing with insurance companies and obtaining a conduit loan.

Godbold: You can expect to see attractive interest rates, but be aware the loan will be based on a trailing 12-month income and market-oriented expenses, including the potential property-tax increases, realistic salary expenses, and a provision for outside management.

Weaver: Interest rates are very favorable, but underwriting criteria is very strict. Many local banks have money to lend but are being selective and requiring larger cash equity, such as 30 percent to 40 percent.

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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