Inside Self-Storage

JAN 2019

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Market Reflection Do cap rates really reflect the market? The answer is unequivocally yes! If cap rates didn't reflect the marketplace accurately, we wouldn't use them in so many ways. The graph to the right gives you an idea of how self-storage cap rates have varied over the last 18 years. This takes into consideration all properties nationwide; but bear in mind that a property in a small city or town won't command the same low cap rate as one in San Francisco or midtown Manhattan. As you can see, the market has seen a constant decline in cap rates, from an average of 10 percent in 2000 to 5.6 percent in 2018. This is largely due to the steady performance of self-storage assets and an improvement in available industry data. The data indicates the overall risk associated with owning self-storage is much less than once thought, not to mention we've had a great run of low interest rates for the past decade, which has fueled the increase in value for almost all income-producing real estate. The most intriguing metric is the spread between cap rates and interest rates, indicated by the red line. The narrowing of the spreads indicates the market is once again realizing that self-storage income streams are very durable. Hopefully, this review has clarified the basics of how cap rates they work and their effect on valuation. Remember, to arrive at an appropriate valuation using a cap rate, you must be impartial when making the required adjustments to revenue and expenses. You must also review recent sale comparisons in your market and understand the current debt markets to ensure you're not misleading yourself on the value of your property. If you're thinking about obtaining professional advice when evaluating a self-storage facility, it's important to consult with a real estate professional who specializes in the asset class. Understanding and setting property value is the single most important step in the investment process. Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to buyers and sellers via an extensive marketing platform for self-storage properties. Property listings and informational resources can be found at www.argus-selfstorage.com. For more information, call 800.55.STORE; e-mail bvestal@argus-realestate.com. January 2019 I ISS 33

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