Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/102789
securities loans were in delinquent status — the lowest delinquency rate among all major commercial real estate asset classes, according to Trepp data. With cap rates hovering around 7 percent nationwide, self-storage is in line with other core real estate asset classes, according to the PwC Real Estate Investor Survey, 2Q 2012. However, the growing institutional buyer focus on properties in the top 25 MSAs has led to overall cap rate compression in these markets. Te cost of capital for institutional buyers ranges from 100 to 300 basis points less than the cap rate yield, thus providing a positive return on equity for a leveraged transaction. Te availability of capital through CMBS, banks, and life insurance companies provides good debt options with very aggressive terms. Armed with enormous amounts of equity, large buyers generally concentrate on properties in excess of 45,000 sf as well as portfolio transactions. Tese larger facilities and portfolios have also enjoyed strong upticks in rental rates around the country, particularly in the top markets. In 2012, there were 29 self-storage portfolio transactions, creating opportunities for big investors to purchase large amounts of core self-storage assets. Cap rates for the larger deals in major MSAs range between 6 percent and 7.5 percent. Average Annual Returns by Property Sector, 2002–2011 Based on NAREIT data Office Industrial Retail Apartment Self-Storage 0 5 10 15 10-year average return 20 Source: Cushman & Wakefield Self-Storage Industry Group & Self-Storage Data Services Cap rates for smaller properties and properties in secondary markets range between 8 percent and 10 percent. Tere are numerous fnancing options available for smaller properties, including banks, CMBS, and life companies that are willing to lend in the $1 million to $5 million range. Current interest ROOM FOR IMPROVEMENT Although the self-storage industry has shown strong performance during the past several years, the industry continues to face challenges. Changing demographics, including the migration of the aging U.S. population to Sun Belt states, has resulted in overbuilt markets in other areas of the country that have more supply than demand. Technology has also created challenges for the storage industry, and the advent of such media outlets as Facebook, Twitter, and LinkedIn have affected the way storage operators interact with their customers and manage their public perception. For example, social media is becoming an effective marketing tool for many operators, but it also adds a new element of management as operators must train their staff to respond to negative feedback on social media outlets. Lastly, the technologies available today, such as Web-based software programs, are posing new challenges for operators as they must now ensure the security of confidential tenant and property information. rates for these loans are in the 3.5 percent to 5 percent range, giving small buyers the opportunity to realize an arbitrage of a 300to 500-basis point spread between interest rates and cap rates. Tis has created very compelling cash-on-cash return for buyers today. These persisting low interest rates Who Owns Self-Storage? REITs 8% Midsize Operators 9% Mom & Pop Operators 83% Source: 2012 Self-Storage Almanac 24 January | February | 2013 Commercial Investment Real Estate