Increasingly more investors are now concentrating on the self-storage market sector. According to Cushman & Wakefield, self-storage investment sales increased in 2012 to reach $2.1 billion-the largest volume since 2007 and well over the $1.5 billion in sales the market has averaged in the last 5 years.
As many REITs and private investment firms try to take advantage of this popular investment type, finding products can be difficult.Â But why?Â
There are approximatelyÂ 51,000 self-storage facilities in the US, but the difficulty for investors is that over 80% of them (40,000+) belong to â€˜mom & popâ€™ owner/investors. As a result, it is not easy to accumulate a sizable portfolio of the asset type as few sales involve multiple properties.Â
However, for those investment firms that can uncover properties to invest in, the return of investment is very good. But why is this little market instantly quite popular with investors? There are many reasons:Â
1) Â As competition warms up to buy multi-family properties, for instance, the prices are pushed up on the rest of the properties and pushing down cap rates, in several regions, back to 2007 levels.Â This makes the profit margin for a lot of investors too low and they're searching for other alternative investments.Â
2) Â The average total return nationally for large portfolio of self-storage facilities has been between 15% and 20%, making them one of the most profitable investment properties. This is due to lower vacancies and the fact that â€˜lesseesâ€™ donâ€™t have leases per se, so raising rates quickly in tight markets is much easier to do than in the MF sector by comparison.
3) Â There has been a record low number of new construction starts for self-storage over that last five years, which has also helped the fundamentals of existing properties.
4) Â So like the apartment buildings, occupancy rates have been growing to a national average of around 85% and rental rates have climbed over 6% nationally. Cap rates are still relatively high, making self-storage a very viable investment.
5) Â Further, the average stay for a residential customer is over two years and even longer for commercial customers. There is a diversified income due to the large number of units per facility, low volatility, no tenant improvements required to attract new â€˜tenantsâ€™ and eviction costs are minimal. So, whatâ€™s not to like?
But because of these reasons, good stabilized properties are demanding higher prices and lower cap rates, with the best self-storage properties now achieving cap rates under 7%, which is down considerably over the last few years by over 1%.
Fortunately our firm can finance purchases of self-storage facilities with the use of the SBA 504 & 7A loan program.Â The investors should be owner-operators under this program and the combined loan to valueÂ can be as high as 90%. However, most transactions fall into the 80% CLTV or lower due to cash flow and debt service requirements.Â Stabilized self-storage is an easier loan type for us to do under SBA 504 program, as new construction often takes well over a year to get stabilized and therefore generally requires a buyer with an existing portfolio of self-storage facilities that will debt service the new acquisition.Â For more information on SBA financingÂ please visit http://www.easysbaloans.com