Market Monitor

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…