These days, it is easy to spot the signs that summer is coming to an end. School supplies are on sale and kids everywhere are trading beach towels and skateboards for backpacks. However, I am not nearly as confident that the run-up in real estate values is over yet. We have seen a 100 basis point uptick in interest rates over the last 6 months and shockingly, cap rates seem to still be coming in. Please forgive my optimism, but I think that real estate fundamentals are strong, especially self-storage fundamentals, and the increase in value that self-storage owners have enjoyed seems to be strengthening.
As a result of Federal capital gain tax rates that are 58% higher compared to last year, 1031 exchange activity is up significantly. According to a recent July 2013 article in the Wall Street Journal, High Impact Tax Breaks, 1031 exchange activity has increased by as much as 50%. Many self storage property owners are experiencing price appreciation. The increase in self storage property prices, coupled with higher tax rates, has resulted in property owners facing a big tax bill.
During Argus’ 19-year history in the self-storage business, the perception about the industry has changed dramatically along with the profile of self-storage investors. Gone are the days when almost ALL self-storage investors were entrepreneurial, mom and pop investors who looked to benefit from their ability to effectively manage these assets. Today’s investors take a more institutional investment approach.
As the only national brokerage firm that specializes in self-storage properties, Argus is presented with unique market data as it relates to the self-storage investment market around the country. Because of our recent market observations we are compelled to share with you our insight which will allow you to “do what must be done” to reach your investment goals.
Spring is upon us and so are new opportunities in the self-storage real estate business. Over the years we have experienced the peaks and valleys of the real estate cycle and it is apparent today that we are certainly on the way up, if not at the top. This has allowed many owners, investors and self-storage professionals to enjoy the benefits of the rising real estate values. However, it has occurred to me that many owners and investors simply don’t understand what value a broker brings to a transaction when they are buying or selling a self-storage property.
While self-storage owners are enjoying a surge in occupancies, revenues and most importantly, property values, the U.S. economy continues to work through some messy politics while still registering modest growth. In the face of tax increases and the sequester budget cuts, the U.S. GDP is still on pace to grow around 2% in the first quarter of 2013. Self-storage continues to benefit from the mobility of the U.S. population with more than 36 million people relocating in 2012, an increase of 2.5% from the record low of 35.1 million in 2011, according to the U.S. Census Bureau.
Because we are in the business of helping our clients buy and sell self storage properties all around the country, it is often difficult to answer the fundamental question that seems to come up at the end of almost every conversation: What are cap rates today?
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.
- VII-2023: The Rich get Richer!
- VI-2023: Preparing for Change in Uncertain Times
- V-2023: The State of the Self-Storage Investment Market