|
KEEP ME INFORMED |
|
|
 |
|
O'CONNOR REAL ESTATE EVENTS |
|
- Office Forecast Luncheon
September 22, 11:30 a.m. - 1:00 p.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
- Apartment Forecast Luncheon
October 20, 11:30 a.m. - 1:00 p.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
- Industrial Forecast Breakfast
November 17, 7:30 a.m. - 9:00 a.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
» RSVP for an event |
|
|
|
|
|
Stay the Course: A Look at the Self Storage IndustryJune 2007
Stay the Course: A Look at the Self Storage Industry
by Aaron A. Swerdlin
Like the rest of the investment real estate market, the self storage sector is feeling the short-term effects of the challenges in the capital markets. To augment the focus, the publicly traded self storage sector of the REIT industry posted first quarter numbers below most analysts' estimates so the subsequent firestorm of scrutiny drew even more negative focus to an industry with underlying fundamentals grounded in a very firm foundation.
Read any article about the overall REIT market and one of the top 3 performing sectors in recent history has been the self storage sector. In fact, for most of the last 8-quarters, it's been number one or number two. The negative focus on Q1-2007 should be muted by the fact that the same store sales comparison was being made against record quarters; not only within the sector but within the overall REIT industry. The hypothesis that self storage is largely insulated from a recession was tested and passed by any standard. True, the growth in Q1-2007 was not in the range as Q1-2006 however, the growth still was positive. Despite a slowing economy and a correction in the housing market, the industry maintained positive revenue growth and appears to be heading to an even more solid Q2-2007.
Fundamentally, self storage is a real estate investment. However, the key component to driving value is in the operating business. It's this nuance that makes it unlike almost any other type of investment real estate. This nuance also is what makes the industry so hard to define within a region of the country or even within a city. The market area around any given facility extends no more than three to four miles so what goes on within the industry in a market or within a company is largely irrelevant to another market or another company. In fact, in any given market less than five miles can separate a strong sub-market to an overbuilt sub-market, etc. This is what makes the self storage industry so hard to define on a national basis, as very few trends take hold industry-wide.
Many look to the publicly traded companies as barometers of the industry. But they represent less than 15% of the market nationwide and most have pockets of geographic focus that disproportionately weights their portfolio away from a meaningful national average. The observations that Storage Investment Advisors have made thus far in 2007 is that, while growth is not at the double-digit pace of 2006, most properties appear to be on track for revenue growth close to 6%, if not more. And an even more important signal that the industry remains a viable, institutional investment is that transaction volume is on pace to be one of the best years ever and return expectations by buyers are at all time lows.
The current challenges within the capital markets are short-term. Most of the problem is a general nervousness that the lack of oversight has lead to lending standards that are not strict enough to prevent large volumes of failures. The fact is that the rating agencies have been the only substantive oversight the collateralized debt and mortgage backed securities industry has had and most feel that that alone is not enough oversight to properly rate and manage investor risk and establish guidelines that dictate loan terms that match the risk. This concern is magnified with what has gone on within the sub-prime lending market; another capital market that went largely unregulated.
Despite the commotion within the capital markets, what fundamentally remains important to the self storage industry is managing the pace of new supply at a reasonably absorbable rate, continuing the educate the public about the product thus converting non-users to users and managing rental rates at a pace that provides for reasonable revenue growth while not pricing the product so high that tenants are motivated to explore alternatives. Self storage is a service industry and the number one focus must remain upon the customer. The average facility turns over every sixteen months. There are plenty of opportunities to generate transaction fees, raise street rates, drive ancillary sales, etc. If the industry remains focused on the customer, the performance of the industry will always stay ahead of the pack.
About the Author
Aaron A. Swerdlin is Managing Partner at Storage Investment Advisors, LLP. Founded in 2006, Storage Investment Advisors manages self-storage property dispositions, acquisitions and capital market executions/financing on behalf of institutional and private capital clients. SIA team members have bought, sold, brokered and financed more than $1.2 billion worth of self-storage real estate, collectively making SIA the industry's leading real estate services firm based on transaction volume. Headquartered in Houston, SIA also has an office in Los Angeles. For more information, please call 713.838.8000 or email info@siallp.com.
|
|
