Rethinking Asset Valuation
One of the most common questions I get as a broker is “where are cap rates today?” This seemingly simple question is more subjective than many people realize, due to considerations including project age, size, market size, property condition, construction type, and trade area demographics. These characteristics are used to classify a storage facility as a Class A, B or C asset. After talking with several industry experts about cap rates for each asset class at the ISS trade show earlier this month, it became apparent to me that the secondary and tertiary market tea leaves I’m reading are quite different than the ones in the major MSAs. I thought back to deals in my market in Oklahoma, which trade for cap rates in the low 6’s to 9’s, a 50 to 100 bps spread from the large, major-market projects and thought there might another reason for this disparity, rather than just market size. I realized I haven’t seen a list of self-storage asset class attributes that included a metric for revenue. I believe this a critical scaling consideration for asset valuation discussion and whether the asset is classified as A, B or C and whether the buyer profile is institutional or non-institutional.