Self storage has weathered the downturn in the economy surprisingly well and has gotten much attention from investors in the process. In fact, in the second half of 2011, self storage real estate is expected to see an increase in investor activity as banks sell off distressed assets throughout the Sun Belt, particularly in California and Florida, according to a new report from Marcus & Millichap.
Commercial property is holding strong and the number of investment sales transactions is trending upward in self storage, which occupies a tiny niche within the $14 billion industrial sales market. The first six months of 2011 saw 247 sold transactions, up from 200 in the same period last year, according to preliminary CoStar sales data.
"Self storage has taken its lumps just like every other product type, but overall the sector has held up very, very well over the last three or four years," Eric Snyder, principal with Costa Mesa, CA-based TalonVest Capital Inc., tells CoStar.
TalonVest recently closed $20 million in fixed-rate non-recourse permanent loans in separate transactions for two California-based self-storage operators.
"In a good economy, there’s demand for self storage, and in a bad economy, there’s demand for self storage. Most properties that were stabilized going into the downturn haven’t taken significant hits on NOI (net-operating income)."
Urban locations, especially near high-density retail centers, are most coveted by investors since most self storage facilities get half of their business from drive-by traffic. As with other property categories, Class A assets in top markets will garner the most attention from buyers, with initial yields in the mid-7% to low-8% range depending on their location and age, according to Marcus & Millichap's mid-year outlook.
"We’re seeing prime-of-the-prime properties in those locations trade at 6 ½ caps," said Snyder, who along with TalonVest principal Jim Davies, previously headed real estate investment bank Buchanan Street Partners' storage capital business.
Marcus & Millichap forecasts that the class B and C properties will accelerate, with new buyers finding Small Business Administration (SBA) financing for performing properties selling at less than $5 million. Well-capitalized publicly traded and private REITs and institutions, along with private-equity investors, smaller owner-operators and lenders, are also moving back into the arena to provide debt and equity.
Marcus & Millichap Research Services is a division of Marcus & Millichap Real Estate Investment Services, a commercial real estate investment services firm. As a service to its clients, Marcus & Millichap provides research reports through the Research Services page of MarcusMillichap.com. Additional information on a particular self-storage market can be had by contacting a local office and speaking with one of the company’s investment specialists.
Sources Used:
“Marcus & Millichap Report Predicts Increased Self-Storage Investment Activity.” Inside Self-Storage. July 21, 2011.
Drummer, Randyl. “REO Sales Fueling Buyer Interest in Self Storage Properties.” CoStar Group. July 20, 2011.