Market Monitor

Real estate brokers are often thought of as marketers, salesman, promoters, etc. However, the quality of a real estate broker is often revealed in the details as they assist their clients during due diligence. Many brokers may forget that the minutiae associated with a complex real estate transaction may be quite unfamiliar to their clients (buyer & sellers) when they decide to buy or sell self-storage properties. With this in mind, I thought I would take you through some of the behind-the scenes aspects of a real estate transaction and focus on the structure and due diligence requirements. Obviously, the devil is in the details when buying and selling a self-storage property, and keen attention to the process can separate the winners form the losers.

How to handle unsolicited offers for your self-storage property.

In the dynamic realm of self-storage and commercial real estate, property owners often receive unsolicited offers, not from the end buyers, but from individuals known as “bird dogs”. These bird dogs identify potential investment opportunities and present them to investors or real estate professionals for a fee or commission without an exclusive agreement with the buyer or seller. Similar to hunting dogs that locate birds for hunters, their role involves spotting promising properties—often undervalued or underperforming—and bringing them to the attention of interested buyers. Understanding who bird dogs are, their tactics, and how to handle unsolicited offers is crucial for protecting your investments and maximizing their value.

Today’s real estate markets, including self-storage, are slower than in years past. Much of what you hear today is all about interest rates and what the Fed is going to do next. Sellers are hoping to get yesterday’s prices and most of the buyers today tend to be very experienced self-storage owners/operators who are being much more disciplined with their underwriting. Thus, the market for buying and selling self-storage is slower and more difficult these days. How long will it last? History tells us that real estate cycles are almost always longer than we expect, and the normal cycles are usually about three to seven years. But is the current market, and coinciding interest rate environment, really that bad?

In today’s investment market, the main concerns on everyone’s mind are the upcoming election, a possible uptick in inflation, and whether the Fed will cut interest rates this year. It comes as no surprise that inflation has been rising for the last 12-24 months with only moderate indications that the Fed raising interest rates has helped control it. While no one knows what the future will bring, it is wise for real estate investors to understand how real estate will be affected and how to best position your investments to hedge during an inflationary time.

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 the past few years are long gone. The remaining buyers tend to be very experienced self-storage owners and they are being very cautious. Thus, the market for buying and selling self-storage is slower and a lot more difficult these days. When sailors hit the doldrums, they all knew it was just a matter of time before the winds picked up again, but they also worried which way the wind would blow them when it started. Interestingly, that is also the case with the self-storage investment market today. The major questions are: when will the wind blow, in which direction will it blow, and how strong will it be when it comes? History tells us that real estate cycles are almost always longer than we expect, and the normal cycles are usually about three years depending on the location. However, brutal experience reminds me that they can last much longer.

It has been well-documented that self-storage REITs have pushed street rates down in recent months, and we are now seeing evidence that the so called “race to the bottom” is clearly affecting self-storage valuations and performance. Today unit pricing and Existing Customer Rate Increase (ECRI) programs have more to do with the success or failure of a project than ever before. In some markets we are finding that REIT-operated properties have street rates as much as 50% lower than non-REIT operated properties. This has allowed REITs to steal occupancy from the smaller operators that are slow to respond. However, when you dig into the unit pricing strategy of the REITs, it is much more complex than just lowering street rents.

It certainly appears to us that there may be some real opportunities for experienced self-storage owners to pick up some nicely priced, quality built, well-occupied properties, earn a handsome cash on cash return, and yet have significant upside potential when the market improves. However, it is not a time for amateurs! You really need to understand the self-storage business to be sure that the underlying business value is there.

The turbulence in the capital markets and general economic uncertainty over the last year had many self-storage operators adjusting their tactics to maintain occupancy and revenue.  This month, Ben Vestal shares some strategies that the industry’s most sophisticated operators have employed during these difficult times and ways that smaller operators can keep pace with the ever-changing operational landscape.

The new year has brought a feeling of cautious optimism to the self-storage investment market. What remains to be seen is how the uncertain debt markets and a return to more historical performance levels will impact self-storage valuations in the coming year. Click below to read more about the outlook for 2024!

We have finally reached the end of the roller coaster ride that was 2023.  This month, Ben Vestal shares what we learned this year and how the self-storage investment market is shaping up for 2024. We wish you all the best this holiday season!

This time of year, we find ourselves reflecting on the things we are most grateful for and the people that mean the most to us. Argus Self-Storage Advisors is made up of more than 500+ self-storage professionals across our management and investment sales platforms who have been helping our friends, colleagues and clients navigate the self-storage management and investment market for the last 29 years.  

The uncertainty of the real estate markets has many self-storage investors wondering when the music is going to stop, bringing an end to the high prices and available financing that we have enjoyed in recent years. This month, Ben Vestal examines the causes of this recent market turmoil and offers advice to self-storage owners and investors on which “chair” might be the best option for you to protect and maximize your value.