Industry observers expect some smaller fish to be swimming — and staying alive — in the self-storage acquisition pool in 2015.
Aaron Swerdlin, executive managing director of the Self Storage Group at commercial real estate brokerage NGKF Capital Markets, said investors who’ve been shut out of high-dollar deals in recent years will get a better shot at acquisitions in 2015. In the past couple of years, the substantial prices that the publicly traded REITs have been willing to pay for self-storage portfolios have squeezed out some eager investors.
This year, he said, “it’s just a much more equal playing field.”
Older properties in play
Swerdlin said he expects more Class B facilities to trade hands this year than last year, particularly outside the 12 largest metro areas. Among the metro areas that aren’t in the top 12 but that do fall within the top 50 are Seattle, WA; Denver, CO; Portland, OR; San Antonio, TX; Orlando, FL; Las Vegas, NV; Austin, TX; and Raleigh, NC.
“Seasoned operators see opportunity in acquiring older, well-located properties run by less sophisticated owners,” Connie Neville, managing director of the self-storage group at commercial real estate brokerage Sperry Van Ness, wrote in a company newsletter.
“Investors are looking for acquisitions where they can raise rates, increase physical occupancies, and capitalize on their well-honed revenue management systems and their superior Internet marketing positions,” Neville added.
One investor looking for acquisitions is Austin-based Virtus Real Estate Capital. However, Virtus CEO Terrell Gates, told the Wall Street Journal that it’s becoming more difficult for his firm to invest in self-storage at a decent price.
“The prices investors are paying for self-storage are not tenable long-term,” Gates said.
Money chasing deals
Swerdlin envisions portfolio deals in the $75 million range eclipsing those in the $200 million range this year. According to a recent report from commercial real estate brokerage Cushman & Wakefield, transaction volume this year is projected to surpass $3 billion. That would be the highest dollar amount since the firm started tracking that data in 2007.
“After several record years of portfolio acquisitions, it will be interesting to see if the robust pace continues,” Cushman & Wakefield says. “Our practice has observed that portfolios of lesser quality are receiving more attention than in past years, suggesting capital investors are searching for product.”
Among self-storage investors, Swerdlin said, the REITs certainly won’t be sitting on the sidelines in 2015, but they’ll be concentrating on acquisitions in the top 25 markets.
“I think the REITs will continue to be as active as they’ve been — for the right deals,” he said.
Billions of dollars in capital from REITs and other sources is available to spend on acquisitions, he said, yet billions of dollars worth of property isn’t necessarily available. Swerdlin said several portfolios that might fetch $200 million to $300 million apiece could be up for grabs, except that those owners aren’t motivated to sell. In some cases, that’s because the owners want to keep the properties longer to achieve a higher return on their investment, or they want to continue managing and developing facilities.
“Competition for deals is strong for the limited amount of inventory,” Neville wrote.