Institutional Self Storage

I am currently looking at capitalizing a portfolio of newly-constructed self storage properties in the Southeast US with a major institutional sponsor. This is the first self storage deal my firm has seriously looked at, and while we trust the expertise of the sponsor, we want to be able to stress the numbers as we would any other deal.

CoStar has SS data but it's pretty bad. Yardi has SS rental rate info that's actually quite accurate, which has been helpful, but that's about it. Any insight on where to look for cap rate data, rent growth data, and expense data? What's market for management? Sponsor is modeling 6%, which seems high compared to other asset classes, but again, I don't know what's considered market for self storage.

These are A assets located in Atlanta, Charlotte, and Tampa.

 
Most Helpful

I'll offer a few notes...

You are correct that Yardi is the best source for data in the SS space. However...you have to make calls to SS in the local market to properly conduct your due diligence. Rates can vary from quarter to quarter and month to month. In addition...new sites are popping up everywhere and those under construction often will not show up on Yardi. Therefore...it's imperative to call the local jurisdictions to inquire about new sites under review or in the development process.

Specifically, the three markets you mention were three of the "hottest" places for new SS starts a year ago. But apparently every developer obtained that memo since those markets are on the verge of being overbuilt with new stock showing up seemingly every month.

Most of the REITs are offering third party SS management services. This is a new-ish development in the space and should help drive management fees down. The management fees certainly vary between traditional one-story SS assets and the newer urban-style vertical assets, which are more driven by technology.

Final thought...if the assets aren't fully stabilized yet...take a close look at taxes (which might not have been fully appraised yet by the local jurisdiction), ancillary revenue sources, and expense line item for utilities. The income from ancillary sources can be strong with a good operations and management plan. However...it's often either understated or overstated. Keep in mind in NC properties are appraised by local jurisdictions just once every seven years (I'm mostly certain this is true). Also...if you don't have a full year of historical data for a SS asset...take a real close look at the annual utility allowance. This can make a big impact on the operating expense budget.

Oh...one more thing...if an asset isn't stabilized yet...throw out the developer's pro-forma and do your own.

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