Wednesday, December 3, 2014

Self-Storage: The New Investment Darling

“Maybe we should rent a mini warehouse.” My wife makes this statement every fall as we put away our lawn furniture. My response years ago should have been “No, let’s buy some!”

A recent Globe Street column by Brian J. Rogal of M J Partners, a Chicago-based firm, reports that the largest self-storage REIT now has an implied cap rate of 4.0%. Competitor REIT cap rates are ranging from 4.5% to 5.7%.

Courtesy of A+ Self Storage 
We have been looking at our regional market and according to LA Duesterbeck & Assoc, an MAI appraiser, our cap rates for self-storage properties have been selling in the 9% range. At the same time, we are seeing new construction at Newville along I-90 and Highway 51 along with a recent impressive development on Janesville’s east side along Highway 14.

What’s driving the market? According to Rogal, it’s occupancy. “Once again, public storage had the highest occupancy rate at 94.7%, the same as last quarter. The other three experienced slight declines or increases, but all stayed over 90%. But a few years ago, Boorstein says, the big REITs considered
85% the top occupancy rate, but customers kept coming in “and they are now above 90%; we’ve never seen that before.”

All signs point to a strong market for mini-warehouse sales and development. We may not sport the low cap rates of national REITs, but it seems likely that cap rates should be falling and values increasing. If you own mini-warehouses, it could be a great time to sell or develop.

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