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One-on-One With Ben Vestal: Self-Storage Real Estate Expert Talks Taxes, Acquisitions and REITs


The self-storage real estate market kicked into high gear in 2012, with dozens of single-property acquisitions and a handful of transactions involving large self-storage portfolios. Investors made the most of historically low interest rates and a cache of market-ready facilities available at competitive prices.

Inside Self-Storage (ISS) recently spoke with Ben Vestal, president and partner of the Argus Self Storage Sales Network, to discuss the industry real estate market. A nationally recognized expert in the field, Vestal talks here about the capital gains tax and how it will affect the industry, whether the acquisition trend will continue, and today’s capitalization rates.

What will be the impact of the capital gains tax for self-storage operators in 2013?

There’s no doubt the increase in capital gains tax will affect the after-tax proceeds self-storage owners will achieve when selling their property. However, with capital gains tax rates scheduled to rise from 15 percent to 23.8 percent (this includes 3.8 percent associated with the Affordable Care Act), it’s worth noting that a 23.8 percent capital gains tax rate is still below the historical average over the last 100 years. This one issue may have more to do with the amount of money a self-storage investor puts in his pocket, but low interest rates and a robust investment climate will soften the blow.

Ben Vestal Argus Self Storage Sales Network***For more information, read Ben's article, "Capital Gains Tax in 2013: How the New Laws Effect Self-Storage Property Owners."

What kind of interest and capitalization (cap) rate trends are you seeing in the self-storage real estate market today?  

We’ve seen a tremendous compression in cap rates over the last 12 months in the major markets and select secondary markets. This will level out over the next 12 months, with cap rates stabilizing close to 2012 levels. This will lead to a slight compression in most secondary markets, as investors will continue to chase yield.

By year’s end, we’ll see the beginning of expansion in interest rates, which will ultimately lead to higher cap rates across the board.  Investors should consider the old real estate saying, “The only thing worse than being a year too early is being a day too late.”

There were many acquisitions in 2012. Do you expect that trend to continue this year? What other development trends can we expect in the coming months?

The transaction market for the first half of 2013 will seem relativity slow compared to the very robust first half of 2012, as self-storage owners evaluate the new landscape of higher taxes and stabilizing cap rates.  However, owners who continue to capitalize on the low cap rates and even lower interest rates we enjoy nearly historically high prices, which, in the long run, will make the increase in capital gains taxes seem relatively insignificant over the long haul. By year’s end, we'll see a very strong push in self-storage sales as investors and buyers clamor to get deals done, as everyone will start to see a modest rise in interest rates and cap rates.  

This year will also see the return of self-storage development! We'll see major institutions and smaller investors breaking ground on a number of new developments in 2013.  This is largely due to the visibly improved fundamentals in some markets and the lack of quality institutional projects on the market.     

How are the buying habits of the real estate investment trusts (REITs) affecting the self-storage real estate market overall?

The buying habits of the REITs have led most self-storage investors to have unrealistic expectations with regard to the value of their property. Only a small percentage of self-storage properties fall into the REIT category. However, facility owners read in the magazines, press releases or other industry publications that REITS are paying 6 percent to 7 percent cap rates and automatically think their property is worth a 6 percent cap. 

It’s important to remember a cap rate is deal-specific, and there are a lot of factors that play into what an appropriate cap rate is for a property.  For example, is the facility 65 percent full or 90 percent full? Does the property have land for expansion, and is it located in a major downtown metro area or a small tertiary market? Today more than ever we are seeing a bifurcation in the self-storage property market with “institutional”-quality properties and non-institutional properties trading for drastically different values.    

For more information about the Argus Self Storage Sales Network, call 800.55.STORE;

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