Self-storage real estate investment trust (REIT) Public Storage Inc. has agreed to a $5.75 million settlement with Charlotte, N.C., city officials as compensation for the condemnation of one of its facilities. The city condemned the property to make room for an extension of the city’s light-rail service. The settlement was reached after Public Storage attorneys threatened to take the city to court after receiving appraisals they considered to be below market value.
The condemnation order forced self-storage tenants to move out of the 650-unit facility, costing Public Storage significant income, according to a press release issued by Cranfill, Sumner & Hartzog LLP (CSH), the law firm hired by the REIT to handle the eminent-domain case.
The city initially appraised the property at less than $4.1 million, but CSH attorneys Stephanie Autry and George Autry hired commercial real estate firm Cushman & Wakefield to provide a second appraisal. Richard Marchitelli, executive managing director of Cushman & Wakefield’s Valuation and Advisory group, appraised the property at $6.3 million, using a capitalization (cap) rate of 6.25 percent. The city’s appraisal used a cap rate of 9.5 percent, according to the release.
"Capitalization rate, or cap rate, establishes the rate of return an investor will receive based on the amount of income generated by the property in relation to the purchase price of the property,” Stephanie Autry said. “In simple terms, the lower the cap rate, the more valuable the investment."
To justify the lower cap rate used by Marchitelli, CSH sought the opinion of self-storage management and consulting firm The Heron Group Inc. “The firm's experts noted that the investment in self-storage facilities, particularly Public Storage's facilities, was a very safe investment, justifying a lower cap rate.” Autry said.
After submitting its findings to Charlotte officials, the city increased its appraisal by $800,000, which was still well below the appraisal from Cushman & Wakefield. Faced with taking the case to court, the city then agreed to an adjusted compensation of $5.75 million, according to CSH officials. The settlement was approved by the Charlotte City Council and the Federal Transportation Administration.
CSH has law offices in Charlotte, Raleigh and Wilmington, N.C. In addition to land condemnation and eminent-domain law, the firm's practice areas include medical malpractice and personal-injury law, intellectual-property law, employment law, family law, and products-liability law.
Based in Glendale, Calif., Public Storage has interests in 2,202 self-storage facilities in 38 states, with approximately 141 million net rentable square feet. Operating under the Shurgard brand name, the company also has 188 facilities in seven European countries, with approximately 10 million net rentable square feet.