Self-Storage Real Estate in the Southeast: Experts Discuss Operating Performance and the Affect of Capital Gains Taxes

By Ben Vestal Comments
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I think you’ll eventually see some of the larger outfits begin to take notice of some of these smaller markets due to the fact that everyone wants to acquire the properties available at “Main and Main” in the major metropolitan markets. The Southeast has fared fairly well in this current economic climate, and the prospects for some areas, such as Mobile, Ala., will continue to make these areas favorable in the future. Mobile, however, is currently saturated with supply.

That being said, your homework must be done on any market, regardless of size. We’ve all seen mistakes that have been made in the past, as far as developing in a questionable market simply because there was land available. In some cases, those particular properties were built and they continue to struggle to rent up simply because the developer did not do a market study.

Godbold: Continued population growth is anticipated in most of the significant markets in the Carolinas. Charlotte and Raleigh take the lead, but Wilmington and Asheville, N.C., as well as Myrtle Beach, Charleston and Columbia, S.C., are growing. Job growth feeds the economic engines in Charlotte and Raleigh in particular. Charlotte is a major financial and transportation hub, while Raleigh is a major research and education center. That is what makes them magnets for jobs.

Have the recent changes to the capital gains tax rate changed the outlook of self-storage owners on buying/selling/holding their properties?

Barnhill: The outlook for buyers has not changed significantly due to changes in tax laws. On the other hand, some sellers may reconsider selling due to higher capital gains tax rates of 20 percent instead of 15 percent, and the possibility of incurring the 3.8 percent health-care tax, all depending on how the sale impacts their adjusted gross income. Some sellers may elect to do a 1031 Exchange to defer the capital gain.

Godbold: The expectation is that operators would tend to want to hold their properties longer, but I believe the typical storage operator has always been in it for the long haul. Sellers of self-storage properties, in my experience, would not be characterized as being particularly opportunistic. Therefore, a decision to sell tends to be driven more by life changes or changes in business strategy than by tax structure, so I don’t anticipate any significant change in the decision process.

Weaver: Since the first of this year, the main impact is the net dollars to a seller. If they cannot reach their after-tax target and are not under pressure to sell, then they’re holding for future improvement that would provide a higher price.

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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