The last few months of 2011 were markedly different than the first six months of the year, especially for the real estate business and self-storage properties. Liquidity in the real estate debt market slowed in the third and fourth quarters, led by the commercial mortgage-backed securities market mid-year. In general, bankers lived up to their “scrooge” reputation by dragging their feet on making new loans.
Cautious optimism is certainly present in today’s market, albeit mostly from facility owners who have seen their rental activity and occupancy uptick over the last 12 to 18 months. Self-storage values have rebounded from the bottom in 2009, but have also fallen off ever so slightly over the last three to six months.
Let’s remember the “real estate market” plays a bigger role in determining your facility’s value than the operation of your property. Now’s the time for self-storage owners and investors to take a look at how the market is behaving as a whole, understand what pressures are present in the market, and position their investments to meet their objectives.
The availability of self-storage properties appears to still be due primarily to owner life events, with few self-storage owners deciding to sell in order to capitalize on the improved market, current U.S. capital-gains tax structure and the loosening of the debt markets.
The Moody’s/REAL Commercial Property Price Index (CPPI) measured a 1.4 percent decrease in September after four consecutive months of price increases, and the index remains near its two-year average price level. The latest update to the CPPI was published in November 2011 and was computed through September 2011, so one can assume a 30- to 60-day lag in data provided by the accompanying chart.
While we continue to see robust transaction volume for larger self-storage properties and portfolios, it’s possible these large transactions may pause in 2012 as pricing has become very competitive, making it difficult for institutional investors to meet their internal yield requirements. This will assist in increasing the transaction volume for quality “one-off” self-storage properties in good first- and second-tier markets, especially with interest rates staying low through the end of 2012, as buyers will be looking for increased yield.