Self-storage owners have been enjoying an increase in value over the last few months and real estate fundamentals continue to improve. What does this mean for today’s self-storage investors and potential sellers? Click below to read Ben Vestal’s take on the current state of the market and what you can do to take advantage of these unique times!

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. Consequently, whether selling a self storage property or contemplating selling another investment property and exchanging into a self storage facility as a replacement property, more investors are considering 1031 exchanges as a strategy to obtain either full or partial tax deferral…

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. This change in the investor profile has caused the pricing for certain assets to reach historically high levels and many entrepreneurial investors are simply looking elsewhere for compelling opportunities. However, in light of mainstream real estate investors now racing to the self-storage business I believe there are still better opportunities for the entrepreneurial investor today in self-storage than any other real estate asset class…

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. With more than 19 years of self-storage experience and more than 750 successfully completed self-storage transactions, Argus is the dominant self-storage brokerage firm in the country…

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(1).

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? Unfortunately, most people don’t understand the impact this one simple number has on the overall value of a self-storage property and, more importantly, what goes into arriving at an appropriate cap rate for a property.

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. This includes self storage which continues its Cinderella story, evolving from the “homely stepsister” to the best performing commercial real estate asset class. 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.

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. The opinions shared on review sites, social media and even your own online Yellow Pages listing can tell a story about your business…and you want it to be a positive one! Here are some quick ways that you can keep tabs on your facility’s online reputation and manage the image that your customers and potential customers will see…

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. Many of the smaller self storage operators have drastically different operating expense structures than the larger national operators and therefore there is a larger gap in what some buyers and sellers consider an appropriate net operating income when valuing a property.

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. It is important to note that there are still some parts of the country that are struggling more than others, and even the improving economy will not solve an ill-conceived project as the market is more competitive today than ever before. Below I have outlined the basics of raising rents and the possible benefits it has to your bottom line. In today’s age of revenue management systems and sophisticated operators, it is more important today than ever to have a plan in place when raising rents!

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…

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. We have reviewed the Q4 same store operating numbers of the four major REITs and have outlined them in the charts below. As you can see, the revenues for all four REITs were up between 3.4% and 5.8%, and more importantly, all four of the REITs showed substantial gains in their NOIs, anywhere from 4.1% to 9.3%. In the “new and improved” self storage real estate market, 90% or more of your value is STILL in the NOI, cash is still king and the ability to attract and capture tenants in cyberspace is now the industry norm…

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 and they are willing to move forward with acquisitions that are pushing the envelope of historical underwriting parameters. This is largely due to the increased sophistication of many operators and the overall perception of lower risk in the self storage market today. As seen in the chart below, self storage REIT returns outperformed all other REIT property types last year. The chart is just a snapshot of how the overall industry performed over the last 12 months, but it has added fuel to buyers’ confidence which will continue through 2012…

The last few months of 2011 were markedly different than the first 6 or 7 months of the year, especially for the real estate business and self-storage properties. Liquidity in the real estate debt market slowed in the third and fourth quarters of 2011, led by the CMBS market mid-year, and in general, banks lived up to their “scrooge” reputation by dragging their feet on making new loans.

“I wish buying and selling real estate was easier” is a common sentiment I hear from my clients as they engage in the transaction process to buy or sell a storage facility. Consummating a real estate deal is tough. Besides agreeing on the most salient transaction terms such as price, earnest money, and financing, there are less prominent details that have to be sorted out. One of these items is past due rent – who gets to keep it, the Buyer or the Seller?

In my recent conversations with self-storage owners, I have noticed that the majority are enjoying stabilizing revenues, and in some cases they are also enjoying an increase in revenue over the last 6 to 12 months. Interestingly, most owners don’t realize that they have made or lost money because they are in the real estate business and not the self storage business. While the increase in revenue is creating more cash flow for owners, today the real opportunity lies in the arbitrage that a real estate investor can capitalize on between cap rates and interest rates. Arbitrage is usually thought of as a high finance concept but there are some viable opportunities that might be available in the world of self storage. The term arbitrage means that an investor can take advantage of some pricing or other discrepancies in the marketplace…

If you read the last issue of the Market Monitor, it is apparent that the fundamentals of the self-storage business are sound. With all four of the major self-storage REITs posting positive growth numbers over the same quarter last year it is clear that the industry is poised to move forward. Based on our conversations with self-storage owners, there are three main topics that are on their minds as we close out 2011: Operations – how and what is driving revenues; Investor Activity – who is buying and how are they valuing properties; and Capital Markets – what kinds of loans are available. These three topics are influencing the opportunities in today’s market whether you are a buyer or seller…

The economic and political roller coaster of the last month has been devastating not only to the stock market but also to the overall investment market, including commercial real estate. The fear and greed that motivates investors to take positions either to protect their investments in uncertain times or capitalize on what they perceive as opportunity has been frozen by the overall volatility in the market over the last month.

The availability of commercial real estate capital continues its expansion across all sectors with the CMBS market seemingly running at full steam (although nowhere near the peak in 2007) and life insurance companies already exceeding annual loan volumes year to date compared to recent years. Loan pricing competition is fierce for low leverage (sub-60% loan to value) transactions across all property sectors and higher leverage (75%+ loan to value) loans are generally available for multi-family properties in strong markets, as well as dominant grocery anchored centers and institutional quality multi-tenant bulk warehouse properties. Self-storage and hotels are receiving more attention from conventional lenders, although recent operating history is critical to the underwriting process…

Forecasting economic trends, particularly in real estate, is risky business. However, not paying attention to economic trends such as interest rates, cap rates and overall real estate investor confidence is even riskier. I believe that self storage owners have made or lost more money because they are in the real estate business not the self storage business; even though your self storage business is an extremely reliable income stream. The value of your self storage property is greatly affected by the economic trends that impact the real estate business, more so than the operation of your self storage business. No matter what I tell you or what another real estate broker tells you, it is the real estate market that creates the value for your property – not the listing process!

While the last few years have been very difficult for the self-storage industry, the most positive and productive result of the contracting economy and challenging real estate market was that self-storage operators had to take a very hard look at their operating expenses. This has forced many operators to change their marketing campaigns and go outside their comfort zones to move into the next generation of self-storage marketing.

During the relatively brief history of the self-storage business (35 to 40 years) the perception about the industry has changed dramatically. Wall Street has now embraced the industry and life insurance companies and conduit lenders have come back to the market, enamored once again with lending on self storage properties with terms similar to core asset classes such as office, retail and industrial. Along with the respect that the self-storage industry has earned over the years comes an increase in competition.

There are many ways to enhance your self-storage facility’s Net Operating Income (NOI) including raising prices or lowering expenses by using cheaper service providers. With the recent introduction of reality TV shows like Storage Wars, self-storage operators are rediscovering a tool to improve their NOI by recapturing lost revenue from nonpaying tenants. Historically, the most important outcome of the lien sale was to have the unit emptied so it could be rented to a new customer and most operators recognized that the auctions were not likely to generate much cash…

As we settle in to 2011, it is clear that self-storage values are rebounding along with the values of all other commercial real estate. In 2010, large MSAs like New York, Boston, Los Angeles, Chicago, San Francisco, Houston, and Washington saw the beginning of a rapid recovery in commercial real estate values, much to my surprise. A combination of big portfolio sales and solid returns during the downturn has led both small and large investors back to self-storage as a preferred investment. We have already seen upticks in investor interest in the second tier markets such as Denver, Kansas City, Colorado Springs and Charlotte as the REITs and private equity reach for higher-hanging fruit, and we anticipate this to continue through 2011…

Since the onset of the recession in 2008, millions of Americans have had to adjust to lower personal incomes, job losses, decreased asset valuations and shrinking investment portfolios. Simultaneously, commercial real estate values have plummeted by as much as 40% from their 2007 benchmark highs. With such financial difficulties, many people have simply tried to hang on until better days…