Texas self-storage broker Bill Bellomy racked up a record year in 2013 with the sale of 18 self-storage facilities. That’s proof, he said, of just how robust the storage acquisition market is.

Bellomy, 29, is president of Bellomy & Co., an Austin, TX-based brokerage firm that sells and refinances self-storage properties primarily in Texas and the Southeast. Since 2007, Bellomy has been involved in $250 million worth of transactions.

One of his Bellomy’s largest deals in 2013 was the $9 million sale of Michener Self Storage, one of the biggest independently owned self-storage facilities in Austin. San Diego-based Lockaway Self Storage bought the 964-unit facility in December, with Bellomy representing both the buyer and seller. Lockaway operates 35 self-storage facilities in California and Texas.

Bellomy said there’s strong acquisition demand by REITs and institutional buyers in Texas markets like Austin, Dallas-Fort Worth, Houston and San Antonio because of the strong fundamentals, including increasing rental rates and decreasing vacancies. There’s also demand in large cities with population growth or barriers to entry, including Atlanta; Washington, D.C.; the boroughs of New York City; Los Angeles; San Diego; and San Francisco.

Pricing has exceeded pre-recession levels, he said.

“In fact, cap rates on the sale side and occupancy and rents on the operational side have exceeded pre-recession levels and top-of-the-market levels from 2006,” Bellomy said.

Bellomy spoke with The SpareFoot Storage Beat about what he’s seeing in the self-storage real estate market this year.

How is 2014 starting out for you?

Our first-quarter 2014 numbers will be up exactly 30 percent over the first quarter of 2013. This is very indicative of the self-storage market as a whole.

You also just sold the 262-unit Advantage Store-N-Lock in Mabank, TX.

It’s just outside of Dallas. Two private investors bought that deal in 2008 and had a business plan where they were going to hold on and reposition the asset over five years. It turned out that the market was timed perfectly with their business plan. They approached us in the last year, and we took it to market. That was one of the quickest transactions we’ve had.

Why is the market so hot?

It’s coalescence of a lot of different things. We’re still in a very-low-interest-rate environment, so the cost of capital for somebody buying a storage facility is very, very cheap. The fundamentals of our industry are very strong. Street rates are growing and occupancy is growing, and most of that is the result of having little new construction over the last five years.

Mabank storage facility
Bellomy & Co. recently brokered the sale of this facility in Mabank, TX.

You’re seeing a shift to consolidation. It’s getting harder and harder for one-off, two-off, three-off owners to compete with larger operators. The thing they’re finding the hardest to compete with is technology — online marketing and advertising. That’s very costly and also very important. A one-, two- or three-unit operator can’t really allocate the necessary marketing and advertising needed to compete with larger operators, which can allocate that cost over 20, 30 or 40 facilities.

What types of properties are in most demand?

Class A properties. The biggest thing we’re seeing from the large institutional operators is they want properties in a top 50 or top 25 MSA, so they’re really looking at the macroeconomic trends of the market. They really want high barriers to entry. They don’t want a facility where a local developer can go right down the street and build 60,000 square feet because the dirt is cheap and the entitlement is relatively easy.

Where’s the acquisition market headed into 2014?

I think it’s going to be more of the same. I think cap rates are going to stay low. There’s a consensus among investors that interest rates are going to rise eventually. So as interest rates rise, it’s only natural for cap rates to rise.

There’s still going to be a lot of pent-up demand from buyers, and you’re still going to see some of these small operators sell out and take part in this consolidation. 2014 will be a lot more of the same — great pricing for sellers, cheap cost of capital for buyers and more consolidation.

What about new development?

That’s going to be the big theme for 2014. We’re already seeing it quite a bit. There was very little new construction for the last five years, which created a lot of pent-up demand. You combine that with the eagerness of banks to lend in our asset class, and we’re seeing a lot of new construction.

Any stumbling blocks to getting deals done?

Every deal, every storage facility we sell is unique, so there’s not one stumbling block. One thing I can say is financing is no longer a problem. In 2008 and 2009 and even 2010, you might have a motivated seller and a realistic buyer and everybody is willing to agree on price and term, but you couldn’t get the asset financed. Financing is definitely not a stumbling block today.

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