Self-Storage Real Estate in the Northeast: Experts Discuss Cap Rates, Loans and Regions Ripe for Investment

By Ben Vestal Comments
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Mendola: The markets for self-storage are very much in equilibrium in the northern New England markets. Consequently, it’s difficult to obtain financing for new construction for projects of any size. With the widening of Interstate 93 in the southern counties of New Hampshire, there’s growth anticipated. However, two new projects have already begun construction in the market area. This new supply will move absorption rates to new levels if the increase in population does not materialize. The markets in the other states in northern New England have the similar demographic makeup, where supply and demand is in equilibrium. The population trends in these markets are fairly stable.

Shields: I’ve found Northeast Pennsylvania to be a constant source of self-storage activity. It has experienced a steady growth of residential and retail development. With its proximity to North Jersey and New York City, it’s a commuter community while enjoying a more moderate cost of living. Conversely, it serves as a second residence in a resort/vacation area for the same New Jersey/New York market. With this and a few other factors, self-storage will continue to have a demand in this market.

What is the status of financing for experienced self-storage buyers?

Blake: There’s money to be had these days provided you’re buying a cash-flowing facility. Lenders are being just as conservative as buyers, so getting financing for quality, stabilized facilities is relatively easy. For distressed or high-vacancy properties, however, it’s much more difficult. Banks are still not lending on pro forma numbers.

Cinelli: Financing can vary depending on the deal size. On many of the larger deals, we’re seeing cash buyers who have their own financing in place. The buyers who require financing contingencies will need to provide strong background knowledge in the business or have a professional third-party management company handling the daily operations. We have buyers taking advantage of Small Business Administration (SBA) loans, and they’re showing success with a little patience on the time to get it done.

Mendola: The financing environment in New England is very favorable. The community banks as well as the institutional lenders are all available to lend on properties that have experienced operators as sponsors of a project. The SBA is also providing capital for these projects.

Shields: The status of financing for self-storage has been strong with banks becoming healthier and the need to get their money on the street. Investors are finding more debt options available to them. I hear conduit loans are becoming more available with rates around 4.5 percent with 10- to 25-year terms. SBA has been finding its way into the self-storage market. All in all, if you find a facility to purchase and the conditions are right, you should be able to finance it.

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 bvestal@argus-realestate.com .

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