by Ben Vestal
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. Clearly, these positive economics do not resolve all of the differences that may occur in a real estate transaction, but, given reasonable expectations and measure of goodwill, the current economic climate will allow buyers and sellers to more quickly find "common ground" where they can both meet their objectives.
Most everyone would guess that today's low interest rates would have something to do with our pleasant situation. While this probably does not come as a surprise, I believe that because of the rarity of the low interest rates, the magnitude of their impact is worth more than a cursory nod. The Fed has taken several steps over the last few years to keep interest rates low and encourage investment. This has no doubt helped the recovery of the economy and real estate values. With interest rates continuing to remain near historical lows, I believe it is worth examining what effect a modest increase (50bp to 150bp) in interest rates might have on the Cash on Ca sh r e turn that a real estate investor would receive.
It is also apparent that the hangover from the great recession is starting to subside. In general, the recession had a minimal impact on the revenues and operations of the self storage industry compared to other real estate investments. This fact has given potential buyers and lenders the confidence and ability to move forward with acquisitions at a more aggressive pace than anyone would have guessed. This trend is also reflected in the increasing occupancies and revenues of most self storage operations along with the continued low foreclosure percentage of self storage properties. Reducing the general uncertainty in the market helps both buyers and sellers achieve their respective goals in a transaction. An increase in realistic confidence benefits both the sellers and the buyers, without a cost to either party.
Although the stock market has been up as of late, investors have been given a wild ride over the last few years. It has proven that the ups and downs of the stock market might not be for the faint of heart, especially if you are considering spending some of your money in the near future, say 1-5 years. Thus investors, large and small, are very intrigued with the real cash flow and stability of self storage investments. I believe that one of great advantages of a self storage investment is that an investor can "see" and "feel" it and easily understand the underlying business. Self storage is a lot more intuitive than a hedge fund or a commercial debt obligation, in other words, you don't need your accountant or attorney to explain the deal to you.
All Good Things Must Come to an End:
It is my unfortunate duty to report that these unique times will come to an end. Interest rates will go up, buyers and sellers will be back to arguing over dollars, banks will once again become very difficult and the ever fragile investor confidence will once again be shaken. I wish I could predict exactly when this will happen, but I can't. However, it has been my experience that you can't call the top of the market because by the time you make the call, the market has passed you by. In the future both buyers and sellers will be asking themselves "why didn't I do something in 2012?" Remember, the real estate game is all about "Carpe Diem!"
Ben Vestal, Presdient of the Argus Self Storage Sales Network, can be reached at 800-557-8673 or firstname.lastname@example.org.