Self Storage Articles for Owners
It is very clear that the fiscal cliff bill was one of the largest economic and political issues to face the country in more than a decade. It is also concerning that the bill was drafted over a long weekend by sleep-deprived politicians and then agreed to by what seems to be two very adversarial political parties. In short, this solution may only be a Band-Aid for the current issues facing the country as it leaves many big issues unresolved.
The holidays are upon us and optimism is certainly present in today's real estate market. The includes self storage which continues its Cinderella storage, evolving from the "homely step-sister" to the best performing commercial real estate. Let's take a look at what got us to this point.
This time of year, we find ourselves reflecting on the things that we are grateful for and the people that mean the most to us. Here at Argus, we are most thankful for the men and women who work hard every day to serve the needs of their self storage clients. The Argus Self Storage Sales Network is made up of over 75 self storage professionals (Argus Broker Affiliates) around the country who are helping their clients navigate the buying and selling process. We feel it is time for Argus to recognize and congratulate the Argus Affiliates and their respective teams around the country.
If you are in the market as a buyer or seller of a self-storage facility, it is important to understand that the structure of the purchase is as important as the purchase price. As with any negotiation, the buying and selling parties must identify what factors they will weigh during the decision making process.
2012 is a year that has been marked by the political "rock and roll" of the election season, and if you are like me, it is difficult to predict what the rest of the year or next year will bring. However, no matter what side of the aisle you sit on, if you consider the debt levels the US economy is embarking on with no debt reduction plan in place, it is obvious we are moving quickly into uncharted waters.
Everyone has an opinion. This statement has always been true, but in today's ultra-connected, social media-oriented world, opinions are much easier to share (and harder to erase). Why is this important to self storage operators? The image that you project online is one of the primary reasons that people will choose to rent from your facility.
In last month's Market Monitor, I described the major factors that owners should consider when evaluating whether or not they are a real seller (Personal Issues, Increased Competition, Capital Gains Tax, and Cap Rates/Ability to Finance). In this same light, I think it is important to review the formula or equation that one uses to arrive at Net Operating Income (NOI) because it is as variable and important as the Cap Rate when calculating value.
Looking back at the first 6 months of 2012, there is no doubt that the real estate transaction market has improved significantly, and along with it, the pressure to overprice properties has increased. This is due primarily to the two most critical factors that affect a fluid transaction market; the ability to finance an acquisition and the buyer's and seller's perception of fear or greed in the market.
It's time for some good news! As the economy slowly improves, we have observed an increase in rental rates and occupancy of self storage properties around the country.
Typically, a real estate transaction can be described as "one party's gain is another party's loss." There is, however, a very unusual situation that exists where both buyer and seller can win in a transaction. Today, the current economic climate makes this traditional confrontation more accommodating so that both buyer and seller can achieve their goals in a sales transaction without hurting the other party's position.
While we strongly believe that the performance of self storage as an investment in the long run is quite positive, we have reason to believe that the game has changed.
As we close out February, we are starting to receive positive year-end data from 2011. While the last few years have been difficult for most of the commercial real estate market, self storage proved to be very resilient. All four of the self storage REITS reported same-store gains in Net Operating Income (NOI) from Q3 2010 to Q3 2011 (PSA +9.8%, EXR +7.3%, CUBE +7.9%, SSS +7.9%). The question is, did you enjoy the same increase in your NOI?
As the New Year begins, we are seeing the transaction market show signs of equilibrium which have not happened in the last few years. It appears that buyers have regained confidence; they are being more disciplined with their assumptions...
The last few months of 2011 were markedly different than the first 6 or 7 months of the year, especially for the real estate business and self-storage properties. Liquidity in the real estate debt market slowed in the third and fourth quarters of 2011, led by the CMBS market mid-year, and in general, banks lived up to their "scrooge" reputation by dragging their feet on making new loans.
"I wish buying and selling real estate was easier" is a common sentiment I hear from my clients as they engage in the transaction process to buy or sell a storage facility. Consummating a real estate deal is tough. Besides agreeing on the most salient transaction terms such as price, earnest money, and financing, there are less prominent details that have to be sorted out. One of these items is past due rent - who gets to keep it, the Buyer or the Seller?
In my recent conversations with self-storage owners, I have noticed that the majority are enjoying stabilizing revenues, and in some cases they are also enjoying an increase in revenue over the last 6 to 12 months. Interestingly, most owners don't realize that they have made or lost money because they are in the real estate business and not the self-storage business. While the increase in revenue is creating more cash flow for owners, today the real opportunity lies in the arbitrage that a real estate investor can capitalize on between cap rates and interest rates.
If you read the last issue of the Market Monitor, it is apparent that the fundamentals of the self-storage business are sound. With all four of the major self-storage REITs posting positive growth numbers over the same quarter last year it is clear that the industry is poised to move forward.
The economic and political roller coaster of the last month has been devastating not only to the stock market but also to the overall investment market, including commercial real estate. The fear and greed that motivates investors to take positions either to protect their investments in uncertain times or capitalize on what they perceive as opportunity has been frozen by the overall volatility in the market over the last month.
The availability of commercial real estate capital continues its expansion across all sectors with the CMBS market seemingly running at full steam (although nowhere near the peak in 2007) and life insurance companies already exceeding annual loan volumes year to date compared to recent years. Loan pricing competition is fierce for low leverage (sub-60% loan to value) transactions across all property sectors and higher leverage (75%+ loan to value) loans are generally available for multi-family properties in strong markets, as well as dominant grocery anchored centers and institutional quality multi-tenant bulk warehouse properties. Self-storage and hotels are receiving more attention from conventional lenders, although recent operating history is critical to the underwriting process.
Forecasting economic trends, particularly in real estate, is risky business. However, not paying attention to economic trends such as interest rates, cap rates and overall real estate investor confidence is even riskier. I believe that self storage owners have made or lost more money because they are in the real estate business not the self storage business; even though your self storage business is an extremely reliable income stream.
While the last few years have been very difficult for the self-storage industry, the most positive and productive result of the contracting economy and challenging real estate market was that self-storage operators had to take a very hard look at their operating expenses. This has forced many operators to change their marketing campaigns and go outside their comfort zones to move into the next generation of self-storage marketing.
During the relatively brief history of the self-storage business (35 to 40 years) the perception about the industry has changed dramatically. Wall Street has now embraced the industry and life insurance companies and conduit lenders have come back to the market, enamored once again with lending on self-storage properties with terms similar to core asset classes such as office, retail and industrial. Along with the respect that the self-storage industry has earned over the years comes an increase in competition. Operators are now realizing that sophisticated operations and economies of scale are imperative to survival in the business.
There are many ways to enhance your self-storage facility's Net Operating Income (NOI) including raising prices or lowering expenses by using cheaper service providers. With the recent introduction of reality TV shows like Storage Wars, self-storage operators are rediscovering a tool to improve their NOI by recapturing lost revenue from non-paying tenants.
As we settle in to 2011, it is clear that self-storage values are rebounding along with the values of all other commercial real estate. In 2010, large MSAs like New York, Boston, Los Angeles, Chicago, San Francisco, Houston, and Washington saw the beginning of a rapid recovery in commercial real estate values, much to my surprise. A combination of big portfolio sales and solid returns during the downturn has led both small and large investors back to self-storage as a preferred investment.
Since the onset of the recession in 2008, millions of Americans have had to adjust to lower personal incomes, family members losing jobs, decreased asset valuations and shrinking investment portfolios. Simultaneously, commercial real estate values have plummeted by as much as 40 percent from their 2007 benchmark highs. With such financial difficulties, many people have simply tried to hang on until better days. We think those better days may be coming in 2011 given recent encouraging signs of economic improvement:
Cautious optimism is certainly present in today's real estate market, including self storage. Self storage owners have seen their values start to rebound and buyers today are disciplined and patient as they find opportunities that fit their criteria. The availability of self storage properties appears to be due primarily to life events that some owners are dealing with, as very few owners are making the decision to sell in order to capitalize on the improving market.
If your facility does not have an online marketing strategy, there's a good chance you are already behind. At this point, most storage operators have some sort of web presence. Many storage companies have a website for their facilities, use pay per click advertising, and are listed on a few storage directories.
It has been a long time coming, but we are beginning to see transaction volume increase as the overall value of self storage properties has returned to a respectful level where both buyers and sellers are agreeing on a fair price. As the market continues to improve, the prospect of selling your facility may become a more feasible option and it is important to make sure you are fully prepared.
In the last issue of the Market Monitor I described what I believe to be an improved real estate investment market for self storage properties. You might recall that we are seeing a substantial bifurcation in the market, where large properties and portfolios are demanding a premium to smaller, one-off self storage properties. There are some very good opportunities that have been popping up over the last 6 months but I am here to tell you that these favorable conditions won't last.
Looking back at the first six months of 2010, there is no doubt that real estate transaction volume has improved significantly compared to most of 2009. This is largely due to an adjustment in the two most critical factors that affect confidence; fear and greed. Over the last six months we have seen a much improved attitude toward acquisitions and most self storage professionals are feeling more confident in their ability to perform as the shock of the GREAT RECESSION is starting to wear off.
They are referred to as "Millennials," "Generation Y," and "Echo Boomers" and they make up the second largest generation in US history. These children of the Baby Boomers, born from the mid-1970s to the mid-1990s, are over 70 million strong and will soon replace their parents as the nationís most influential group of consumers; a group that interacts with the world in a very different way than past generations.
Self storage is no longer a sleepy little industry that goes unnoticed. Therefore, it is important that you manage your objectives and understand how to execute them in order to maximize your investment. Below I have outlined three possible situations that you might find yourself in and some things to consider as you start to understand your objectives.
The availability of commercial real estate debt has increased significantly in 2010 compared to 2009 and this trend will continue through the year. Most life companies, having spent the better part of last year focusing on asset management and potential loss reserves, have allocated more funds to commercial mortgage origination due to attractive debt yields. Although a few large life companies are still on the sidelines, most will return to new lending activities by year end and will be a good source of financing.
Over the last two years, we have seen real estate transactions become increasingly complex and difficult to complete due to the cautious nature of buyers and, more importantly, the exceptionally cautious nature of the lending institutions. In that light, I thought that it would be helpful to explain what a real estate broker does and why we get paid to help our clients buy and sell self storage facilities.
Spring is here and what better time to review the operations of your facility, make that capital improvement you have been putting off or overhaul the marketing plan that has been in place for the last few years? I have recently been reviewing monthly management reports and rolling 12 month operating statements and it has occurred to me that several large operators and other self storage professionals are now clamoring for management business due to the tightening economy.
With the flow of both equity and debt having dramatically decreased in recent years and self storage continuing to perform respectfully, watching your pennies will truly make you dollars in today's market!
Over the last 12 months, the blues have certainly been present in the real estate market, and this includes self storage. Many self storage owners have seen occupancies and revenues decline, and in some cases, the value of their facility has declined by as much as 30% to 40%. This has largely been caused by the overwhelming breakdown of the credit markets and investor confidence
The holidays are upon us and as we get ready to close the books on another year, self storage owners and operators should all take a deep breath. The self storage industry has been the shining star in commercial real estate and we are starting to see signs of improvement in the overall economy.
It has no doubt been a terrible year for commercial real estate, but as a wise man once said "there must be a pony in here somewhere." Sure enough, there is a pony in there and it is self storage properties. While self storage has not been entirely immune from the effects of the recession, the colossal devastation that has visited other types of real estate has been less damaging for self storage properties. This isn’t because of luck; it is because of natural, positive differences in the way that self storage works as a business.
As we get ready to close the book on another year, self storage owners may want to consider some of the tax advantages that can be realized using cost segregation and the recent changes to the regulations allowing net operating losses to be carried for up to five years. Under the new regulations, if you have paid taxes over the last few years and are now in a situation of operating at a net loss you can apply this year’s losses back five years. You may also want to consider using cost segregation to increase net operating loss and gain the tax advantage
In the past, the marketing strategy for the self-storage industry has consisted of a sign, a listing in the Yellow Pages and a friendly, yet often lonely, manager behind the desk. This strategy worked just fine for a long time. In fact, there is an entire industry to prove that it worked just fine until bam! It all changed!
Though it seems like the state of the economy is improving slowly, the same thing cannot be said about the state of commercial real estate (CRE). In this article, Mike McCune discusses the issues surrounding CRE but sheds some positive light on where self-storage owners stand amid the gloom.
Given the obvious gravity of today's real estate circumstances, I thought it might be useful to revisit a theme in a previous Market Monitor we explored in early 2008. At that time, I introduced two very helpful tools; one to estimate the current value of your property and the other to help evaluate the competitiveness of your property.
After reviewing the 2008 and first quarter 2009 reports for the self storage REITs as well as a survey of many of our clients, the basic self storage business of renting units is, in my estimation, doing pretty well considering the draconian economic climate! Most of the REITs were very close to, or even in some cases, a little ahead of the game as to both revenue and NOI for the first quarter of 2009.
Now more than ever may be the best time to capitalize on this turbulent real estate market! Don't miss Mike McCune's latest article where he explains the steps you can take to be a successful buyer!
Does the current economic crisis have you wondering about your options as a self storage owner? You won't want to miss this article as it explains steps that you can take to evaluate your position and weather the turmoil. Taking thoughtful action now can help put you in a proactive, rather than reactive, position!
As 2009 begins, we try to gain a little perspective on the previous year and the current state of the market. While things may seem dismal, there is some optimism that can be found in the self storage industry. Read the full article to find out!
The economic environment of the last several months has been devastating not only to the stock market but also to the commercial real estate market. In fact, the problem is even more intensified in the real estate world because not only have prices dramatically fallen, but there are virtually no economically viable loans available to owners who want to refinance or for purchasers of properties.
Like many of you, I have been watching the stock market closely in recent weeks as uncertainty surrounds the new financial "bailout" legislation. I’m still not sure if it is a good idea or a bad idea, but I am concerned about the stock market and that loans are as tough to find as ice cubes in the dessert. After thirty seven years in the real estate business I thought I had seen everything that a market could throw at us, but this time they have thrown everything at once!
Many of you have seen the latest reports on increasing inflation in today's economy. Inflation is the scourge of savers, diminishing the value of nest eggs and retirement accounts. Among other things, inflation is the result of a "cheap money" policy (very low interest rates) through the political inducement of major investment banks to keep those rates low so their extreme leverage will be inexpensive and they can magnify their profits. Whatever the causes of inflation, the results are devastating for most Americans, as it is difficult to find a way to protect oneself against inflation's ravages.
Cap rates are up, prices are down, interest rates are just a little higher, competition is down and best of all, Cash on Cash returns - the Holy Grail of investing, are up!
The doldrums are certainly present in today's real estate markets, including self storage. The winds are quiet. Sellers are hoping to get yesterday's prices and most of the very aggressive buyers of a year ago are long gone.
Do you want to assess the current health of you self storage facility? Looking for and evaluating certain symptoms now will help you take the actions needed to prevent problems down the road.
It is now abundantly clear that the so-called sub-prime mortgage debacle may be just the tip of the iceberg of the problems in the modern finance markets. Easy to obtain, cheap credit is the great lubricant that makes the engines of commerce really hum. Unfortunately the "easy to obtain" and "cheap" characteristics are the part of the formula that ultimately cause the credit system to break down.
The first month of 2008 has been beset by significant financial and political "rock and roll." If you are like me, much of it doesn't seem to fit into a neat package that helps to clarify what the rest of the year will bring. However, if you will indulge me, I will give you two thoughts on the self storage real estate market that will hopefully provide some perspective for you to consider.
Ray Wilson of Integra Realty Resources-Metro, the nation's largest national valuation and consulting firm, contributed his insight to this issue of the Market Monitor. Check out his article on the Impact of Class Distinction, Operating Performance and the Capital Markets.
Argus is a confederation of well over seventy five people engaged in helping self storage owners sell and buy self storage properties across America, from Missoula, Montana to Miami Florida. It is time to recognize the achievements of our Broker Affiliates and their respective staffs.
For the last several months we have been talking about the uncertainty in the real estate markets. In this high-stakes game of musical chairs, NOW is the time to find a chair before the music stops, bringing to an end high real estate prices and easy financing.
Here is some insight and perspective on what has happened with the major Self Storage REITs over the past several months.
Steve Clifford, Assistant Vice President and Steve Bye, Executive Vice President/Senior Managing Director of Northmarq Capital provide in this article a summary of recent changes in the commercial real estate lending market
Ben Vestal, Executive Vice President of Argus, discusses how you can increase the value of your asset by controlling your facility's operating expenses.
The term arbitrage means that an investor can take advantage of some pricing or other discrepancies in the marketplace. For example, if a stock were selling on the London Exchange for $50 and on the New York Exchange for $55 it would become clear that you should buy in London and sell at the same time in New York. Do it once and you are entitled to call yourself an Arbitrageur (even though it sounds French, don't let it go to your head). Now that you are a certified Arbitrageur, how can we make arbitrage work for us in the self storage markets?
It is clear that many experienced and inexperienced buyers use brokers when selling their properties, but we feel that it is important for you to know how an Argus broker can help you in buying or selling a property.
Learn about the benefits of listing your facility on the industry's leading self storage real estate website, SelfStorage.com
Find out what a sales tax on your facility does for you and your business
Over the years, the perceptions about self storage have changed. In this article, Mike McCune discusses why self storage may just be the best real estate investment around!
Overbuilding is a critical issue facing the self storage industry. We hope this article will help you recognize the potential consequences of overbuilding in your market and the steps you can take to protect your business.
With almost 40,000 self storage facilities around the country, there is bound to be an owner who is contemplating parting with their beloved facility each and every day. However, we have found that there is a material difference in "thinking about selling" and becoming an actual seller. Read on to find out if you're a seller!
Is a tax deferred exchange a smart move? After you read Mike McCune's analysis and comments regarding 1031 exchanges, you may have second thoughts about the value of 1031 exchanges.
Never before have prices been higher for self storage properties - either in absolute dollars or in relation to the income they produce. This is almost exclusively the result of the lowest interest rates in 45 years.
In this article, Mike McCune discusses the value and nature of RCFA's (Rational and Critical Feasibility Analysis)
There are many states in the nation where sales tax is being charged on self storage. In this article Mike McCune revisits the topic of sales tax and renews his 'call to arms' by the National Self Storage Associations to fight this issue.
While You Were Napping...You may not have noticed the best three years in the self storage industry!
You may not have noticed the best three years in the self storage business! You didn't have to raise any rents, lower any expenses or even increase your occupancy - and you made a lot of money over the last three years or so. Read more!
The era of low interest rates is at an end. Find out what this means for self storage
This article discussing how you can utilize the internet to boost your business!!!
We are always pleased to pass along good ideas for helping owners keep more of their hard-earned money by taking advantage of the new tax laws. We first visited with Mark de Stefanis a couple of years ago and thought we should take another look to see what is happening in this area of tax savings. Mark has consented to write this fine, clear overview and example. Read More!
In this article, Chris Sonne, MAI offers up more information on understanding the relationship between cap rates and interest rates.
In this article, Mike McCune discusses what can happen to a market in which the unlimited demand for self storage facilities comes to an end
What does overbuilding do to your market? Read on!
Do 1031 exchanges make selling real estate property more attractive?
This is an article dedicated to interest rates..
Your competition just raised your taxes and reduced your facility's value. Read more about property taxes and valuation
This is an article about the impact of sales tax on self storage rentals
Read more about the inner workings of getting a real estate deal completed
This article discusses how you can develop a smart and effective financing strategy
This article discusses a few ways to defer or moderate your taxes
A note to buyers and sellers. Is it a good time to buy or sell?