When Selling Your Self-Storage Facility, Timing Is Critical to Maximize Investment Return

By Ben Vestal Comments
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Real estate prices have been gradually increasing over the last several years, and self-storage has continued to be the shining star of “niche” real estate sectors. In these very optimistic times, many facility owners are giving some thought to selling their property rather than waiting out the market. Trying to squeeze out every last penny comes with the risk of going on the always bumpy ride of the next real estate cycle.

Typically, in a real estate transaction, one party’s gain is another’s loss. But today we're in a very unique situation, where buyers and sellers can both win. The current economic climate allows each party to achieve his goals without hurting the other's position.

There is a material difference between thinking about selling and becoming an actual seller. Eventually, almost all owners will become sellers. It’s a matter of when that concerns most of them. Thinking through the following factors will help you determine how close you are to becoming a real seller, which will help maximize your investment return. Now is a time to be smart, not emotional.

Financing

It's been well-documented that the current low interest rates have something to do with the pleasant situation most self-storage owners enjoy today. While this probably doesn't come as a surprise, the magnitude of the current finance market is worth more than a cursory nod. The low interest rates, along with some financial engineering (interest-only, high-leverage, Libor floater rates, etc.), have created a tremendous opportunity for investors to achieve very compelling cash-on-cash returns, all while paying very aggressive prices.

The availability and aggressive nature of the current financing market may have to do with the supply and demand for commercial real estate loans. According to Trepp LLC, a provider of information, analytics and technology to the global commercial real estate and finance markets, commercial mortgage-backed security (CMBS) debt due in 2014 is relativity low compared to 2015, 2016 and 2017.

CMBS Debt Due

2014

$66.9 billion

2015

$100.9 billion

2016

$109.4 billion

2017

$137.4 billion

Because of the relatively small amount of CMBS debt coming due over the last two years and this year, it has been challenging for financial institutions to grow their production. This has led many to make loans that are outside their traditional investment criteria; for example, they've made smaller loans or loans in secondary markets, and offered better terms to bowers to grow their production.

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