In smaller, more rural markets, however, the dynamic is different, with prices and capitalization rates lagging well behind the larger markets. Depending on the owner's individual circumstances, he could be encouraged to sell now given the high prices, refinance given the low interest-rate environment, or expand now that banks are lending again (albeit more cautiously) on development projects.
Gorden: Buyers today are underwriting to actual performance with a confident expectation of reasonable revenue growth. It's reported that household wealth has recovered from the recession, largely due to a run up in the stock market, and the housing market and household formation is on the upswing in most markets. Rent growth has been strong in the multi-family arena, and one would expect some translation to self-storage. To sell, refinance or expend the portfolio is a personal decision for each investor, but the opportunities for each are great, if only for the near term.
Do you believe development will have a major impact on your local market in 2014? If so, how may self-storage projects and square footage are currently in the planning stages?
Boldish: At this time, I don't have definitive numbers on new construction starts in Oregon, but in the past six months, I’ve been contacted by several investors seeking land in tier-one markets to build new facilities. They're also seeking existing properties that lend themselves to expansion or conversion. This is a definite change from the previous three years.
de Jong: Development is making a major comeback, which started earlier in 2013. Although there's heavy demand to develop, the San Francisco and Silicon Valley markets are seeing outrageous valuations on land prices and huge barriers placed by local planning departments. Self-storage is not the first choice local agencies typically would have for a site, so caveat emptor (let the buyer beware!) that if zoning doesn’t allow for self-storage as a use, you may be facing an uphill battle!
Site selection is going to be the biggest constraint to local development, with conversions likely gaining in popularity. As this time, I’m aware of four new self-storage developments in the Bay Area, with at least several more likely to pop up throughout the year.
Lucas: There are very few places left in the Denver market that really could use another self-storage facility. However, we recently completed a study to take a look at what is currently on the drawing boards and were amazed to learn there are 13 facilities totaling well over 1 million square feet in the development pipeline across the Front Range. This is not good news and shows we may be heading into another cycle of overbuilding in the near future.
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; visit www.argus-selfstorage.com.