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. I will go one step further and suggest that cap rates may not be the best tool in valuing self-storage properties because in today’s yield hungry investment market, I find that investors are more concerned with the cash-on-cash returns that they will receive when buying an investment property than with the actual cap rate. Obviously, if you are an astute real estate investor you understand that a cap rate is one component to arriving at the cash-on-cash return. Today a more appropriate question a buyer or seller may consider asking is: What are the terms of the debt one can obtain on this property? The current aggressive debt market has caused cap rates for self-storage properties to compress to historically low levels. However, I have recently found myself asking the question, is the property making the investor money or is the debt making the investor money?
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