I am starting to have fun again as I work on getting my next self-storage project.
Nothing has really changed that much in the market…but I am beginning to notice a shift.
I am still writing LOIs that would equate to 7+ CAPS on my numbers (not Seller’s or Seller’s agent), but I am noticing something.
My offers are taken more seriously now.
According to Cushman/Wakefield, who still has mostly 5 or 6 CAP listed properties, their sales in the first half of 2023 were down 57%.
I talked to a contact at Public Storage, and according to him, they’re off the shelf stance is that stabilized self-storage projects they look at are down 30% in value from a year or year and a half ago.
Their offers reflect that if they even give one now (they have been very busy with their recent Simply Self Storage massive acquisition).
So why am I having fun again?
Keep in mind that I am not looking at a Marcus or Cushman listing at a 5.45% CAP rate project or anything.
I am still using the basics I have taught and used for years. Look for smaller mom-and-pop type projects I can expand, empty buildings I can convert, and now large land outside a market for boat and RV storage.
I am having fun because I am beginning to make progress with sellers now.
With fewer people buying and property being on the market longer, it is easier to show up as a serious buyer even though my offers are not quite what they hoped for.
Have you noticed a number of properties that had “calls for offer by July whatever” (which I rarely, if ever, respond to) are still on the market here in September as I write this?
In other words, the offers didn’t meet the Seller’s expectations.
Some of the Sellers are getting more realistic now.
The Fundamentals
As a small investor, now is the time to really stick close to the basic fundamentals of the self-storage acquisition discipline.
No pie-in-the-sky proformas.
Don’t assume you will have massive price increases just because a project’s rental rates are below market.
I am writing in no price increases in most (not all) projects for the next 24 months.
In some cases, I am even assuming in the next year, I may have a drop in income.
If there is a construction component, I am using higher interest than I am when the loan starts amortizing, and I am not assuming I can beat the average high cost of construction in my proformas (although I still feel I can).
I am conservative on my lease-up numbers, too. When a feasibility report comes in that says 1,500 -1,850 square feet per month net absorption, guess what number I put in my proforma?
Not the average. I use 1,500.
I come up with an offering price that works for us, and some Sellers get it.
It’s been a while, and I love it.
I have sold two small self-storage brands I have been involved with, and both were started during and towards the end of the last big recession we had.
I firmly believe more wealth is created when the economy slows than in the boom times.
At least for small investors who create real equity and not people who get rich on fees.
So be careful, use the fundamentals we all know, and go out and have some fun today growing your self-storage business.
