By Ben Vestal
In most markets, self-storage continues to improve as financing has become more readily available to existing operators and those looking to invest in the industry. In this "roundtable discussion," the following real estate experts discuss capitalization rates, rental rates and the availability of financing in their individual markets:
- Bruce Bahrmasel, Landstar Realty Group, Chicago
- Larry Goldman, RE/Max Best Associates, Overland Park, Kan.
- Chris Hitler, Investment Real Estate Specialists, Mequon, Wis.
- Jim Soltis, PreviewProperties.com, Brighton, Mich.
As there has been thin deal flow in many of the first-tier markets, are you seeing cap rates between first- and second-tier markets compressing?
Bahrmasel: The secondary and tertiary markets in Illinois and Indiana have not shown the same cap-rate compression as the class-A, first-tier properties. This presents a great buying opportunity for those properties, as investors can take advantage of historically low interest rates.
Goldman: In Kansas and Missouri, it’s difficult to classify cap-rate trends because most transactions in the past 12 months have been with underperforming facilities that are commanding low cap rates, based on actual trailing 12-month performance. The buyers are paying the low cap rates, as they’re confident in stabilizing the facilities’ performance.
Hitler: In Wisconsin, there has been virtually no transaction activity in the first-tier markets for a couple of years, so it’s difficult to comment on this type of property. Cap rates for second- and third-tier markets are in the 8 percent to 10 percent range. In general, cap rates haven’t changed too much. What’s different now vs. two years ago is deals are happening, and buyers and sellers are coming together on price.
Soltis: In Michigan, there appears to be a difference of about 1.5 points between first- and second- tier cap rates. There has not been a large number of transactions in recent months, so there isn’t enough information to comment on whether this spread is compressing.