Self-storage claims coveted space among investors

February 20, 2013 09:00AM

Self-storage spaces have become among the most sought-after properties in commercial real estate, with fast-falling capitalization rates, the Wall Street Journal reported.

In December, Acadia Realty Trust, a major real estate investment trust, or REIT, sold 14 self-storage properties across the Greater New York Area to Storage Post and investment firm Heitman LLC in a $300 million deal that caught investors’ attention because of the 5.5 percent cap rate on the deal. Cap rates tell investors what the building yields on an annual basis, and a falling cap rate means a rise in value. 

Ten months ago, cap rates on self-storage properties were seven percent, and even hovered around nine percent during the 2009 downturn, according to data from Green Street Advisors reviewed by the Journal.

A few other transactions of self-storage facilities that yielded cap rates comparable to those on premium office towers and upscale apartment buildings have put self-storage firmly in the limelight.

“I was surprised by the valuation that was apparently paid for it. We’ve entered unchartered territory for self-storage valuations,” Terrell Gates, chief executive of Virtus Real Estate Capital, an Austin, Texas-based private-equity real-estate investor, told the Journal, but added that the valuation struck him as inflated.

But Bruce Roch, chief executive of Storage Post, told the Journal that the company has plenty of room to raise rents in the future. “We’re not at market level [rents]. We’re getting them there now,” he said.

Marc Boorstein, a principal at MJ Partners Real Estate Services, told the Journal that self-storage operators can take advantage of relatively little competition due to a shortage of supply. There are roughly 200 self-storage facilities currently being built or renovated across the United States, compared with 2,600 facilities that were developed during the market’s peak between 2003 and 2007, he said. [WSJ]  –Hiten Samtani