One material difference in the market today is the low cap rates being paid are almost exclusively in major cities such as Chicago, Los Angeles, New York and San Francisco, whereas the rest of the country is seeing more historical norms. This is the new reality all potential sellers must understand. Properties in non-major markets will continue to see higher cap rates (lower values), as the market has consistently valued these properties at higher cap rates for the last few years. This is unlikely to change any time soon.
The low interest rates have also created tremendous opportunity for smaller investors because there are many compelling opportunities within smaller markets. With the cap rates 100 to 400 basis points higher in smaller markets, and with interest rates in the 4 percent to 6 percent range, it has created an arbitrage play within smaller markets worth considering.
Are You a Seller?
Determining if and when you’re a “real” seller is the single most important step in the process of your investment. This is someone who has a defined reason to sell and is willing to price the sale at a level that’s within the market of the property. Serious buyers want serious sellers, and when a buyer finds out a seller isn’t realistic about selling because of price, timing or market conditions, serious buyers will seldom get interested again. The result is a non-serious seller offends his best prospects—and they will remember. Over pricing is not harmless.
Experience has shown that motivated sellers who are willing to accept a price that’s reasonable in the marketplace will, in fact, see their property sell in a reasonable amount of time. This doesn’t mean you have to accept a lowball offer, it simply means a deal is made so you get a fair value for your investment, and the buyer gets a fair value for the future potential of the property.
In summary, prices are strong and the uncertainties of the world never less settled, so if you’re at or near one of those “personal crossroads,” it’s time to get serious about selling. These high prices will not last forever, maybe not even much longer. If you’re thinking about selling in the near term, you should hurry while qualified buyers are scrambling to take advantage of the lowest interest rates in history.
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 firstname.lastname@example.org .