Looking back at the first nine months of 2012, there’s no doubt the real estate transaction market has improved significantly, and with it, the pressure to overprice properties has increased. This is due primarily to the two most critical factors that affect a fluid transaction market: the ability to finance an acquisition, and the buyer’s and seller’s perception of fear or greed in the market.
With more than 50,000 self-storage properties around the country, there’s bound to be an owner who’s contemplating parting with his beloved facility on a daily basis. However, we’ve learned there’s a material difference between “thinking” about selling and becoming an actual seller. Eventually, almost everyone will end up being a seller; it’s a matter of when that concerns most owners. Thinking through the following factors will help you determine how close you are to becoming a real seller, which will help maximize your investment’s return.
Retirement, estate planning, partnership problems, liquidity and divorce are just a few things that make owning an investment property difficult. Experience has shown the vast majority of self-storage sales are a result of a personal issue and not what real estate brokers would consider a market-driven issue—a sale that takes advantage of the market conditions or concern for the future market. This proclivity to make the final decision based on personal issues is entirely appropriate, but with a little planning and forward thinking about the current market, a small adjustment in the timing of a sale (one to two years) can be very rewarding.
Another factor affecting the decision to sell is increased competition, or even future competition. We're seeing many local markets that are seriously affected by larger, more sophisticated operators. In addition, the prospect of new competition being built is coming back into the picture after a five-year hiatus.
Capitalization Rates/Ability to Finance
Capitalization (cap) rates are the shorthand way real estate professionals talk about values. In short, the lower the cap rates, the higher the real estate prices are in the current market. Today’s cap rates are near the lowest—the highest prices—that they’ve been in the last 40 years! This change in cap rates is almost exclusively related to the unprecedented lower interest rates the market is experiencing.