R. Christian Sonne has been tapped to lead CBRE Group’s newly created self-storage valuation division.
Sonne joins CBRE after leading self-storage valuation services at Cushman & Wakefield for more than nine years. During that time Sonne became known for his data-packed reports covering the self-storage industry.
Sonne said CBRE reached out with an offer, shorty after the recent acquisition of Cushman & Wakefield.
“We had some preliminary discussions and they made a very strong offer,” Sonne said.
As Sonne transitions to the new firm, it seemed like a perfect time to ask a few questions about where he sees trends in the industry heading.
Below is an edited transcript:
Storage Beat: With all the talk that the industry is heading into a new development cycle, how does construction activity stack up with how things looked during the last time the self-storage industry entered a building boom?
Chris Sonne: There are some people who say that new development is 2.5 percent of existing supply, that’s 1,200 facilities. I don’t see anything like that. I think we will see a pattern of 300 to 500 starts this year, another 600 next year and maybe 900 in 2017, and then see a back off pattern.
Sonne said he expects new self-storage construction to gradually ramp up over about three years.
Storage Beat: It sounds like there is a disparity between perception and reality. Where do you think that comes from?
Chris Sonne: There is a big difference in a project getting permitted and being under construction. If you look at the stuff that is planned, they count that as a new start and it way overestimates.
Storage Beat: So, what percent of projects that are planned actually make it the finish line?
Chris Sonne: The ratio of projects in the planning stages compared to actually getting started is about 30 percent. Seventy percent of the planning stuff is either delayed or doesn’t get started. It changes per quarter, but I’d say roughly 30 to 50 percent of proposals become new starts.
Storage Beat: What is stopping those facilities from moving forward?
Chris Sonne: The entitlements can be challenging to get. Municipalities have said self-storage doesn’t provide a lot of jobs or retail sales so it is less appealing.
Storage Beat: What about financing?
Chris Sonne: Financing is still challenging. It is not like the last boom cycle where you could go out and get a loan for construction on new self-storage. People have to have skin in the game.
Sonne said around 3 out of 10 self-storage projects actually make it to construction.
Storage Beat: What does it take to get financing for a new self-storage project?
Chris Sonne: It takes a fairly significant investment. The land has to be collateralized for a loan. Land is a third of your total reproduction costs. You are not going to get a loan for 100 percent of the cost; you can get 70 percent to 80 percent. We are talking about another 30 percent down, which is a sizeable cash equity investment. You are also not realizing a return for probably at least two or three years.
Storage Beat: Finally it seems that anecdotally there has been less acquisition activity this year than the previous year. Is that actually the case?
Chris Sonne: A lot of the stuff that was going to be sold, has been sold. Most brokers report to me that they are frustrated with the lack of product for sale. Most of the volume is in the smaller stuff under $3 million. Most of the buyers that are institutional look at the top 50 MSAs and it is just crowded with buyers. There are not as many willing sellers.
