In my many years of working in commercial real estate, I thought Id seen it all. Then along came something new. Im not talking about the current turmoil in the capital marketsthat situation has yet to play itself out. Im talking about the last 12 months in self-storage history, a year in which all of the following have come to fruition:
- An independently owned company has risen from zero facilities to being the nations largest self-storage operator in just three short years.
- A New York City-based real estate investment firm has entered the industry through acquisitions, using third-party property management.
- International financial-services companies are entering the industry through joint-venture acquisitions and development joint ventures.
- One of the first self-storage operators grew to be the third largest operator in the United States and the largest in Europe, only to be acquired by the No. 1 U.S. operator in a hostile takeover.
- The highest recorded self-storage sale on a price-per-square foot basis exceeded $300 per net-rentable square foot (in the New York City market).
Lets face it: The trend toward consolidation continues in our industry. While Shurgard was the only top-10 operator absorbed this past year, three other large operatorsPegasus Group, Private Mini Storage and Nolan Brotherssold all or most of their facilities.
Another trend in the real estate sector is the growth of third-party management companies specializing in self-storage. Were seeing management companies among the ranks of the industrys largest operators.
The realm of self-storage finance is also changing. In the latter half of 2007, we saw buyers financing the acquisition of self-storage assets in lease-up for values very close to third-year stabilization values of the past. With the current turmoil in the capital markets, loan-underwriting standards have tightened, and buyers/borrowers are required to have sufficient cash flow to cover operating deficits as well as debt service in lease-up situations. This trend is really reverting loan standards back to a more normal borrowing climate. Along with the tightening of loan standards, the capitalization rate for most properties has risen.
Finally, were seeing mixed-use properties cropping up more frequently. For many years, the lenders in our industry disproved of retail, office or industrial tenants and their income attached to the self-storage business. Today, its generally accepted to have up to 10 percent of income generated by other uses. These projects are popping up in local municipalities that dont necessarily want to see self-storage at the front of the project or perceived as the prominent use in a development plan.
I dont have a crystal ball, but I believe weve only begun to imagine the innovations lying in wait for the industry, ones that will draw new users to self-storage continuously. Stay tuned!
Nicholas J. Malagisi first entered the self-storage industry in 1980 as a real estate representative for Public Storage Inc. He is now the national director of self-storage for Sperry Van Ness International Inc., a commercial real estate investment brokerage firm with more than 600 advisors in 35 states. For more information, visit www.svn.com.