A Statement On Ukraine from Kevin Maggiacomo, SVN President and CEO

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Finding the Perfect Apartment Building

Investing in Apartments Includes Some Benefits

Apartments are the hottest class of commercial real estate and are likely to continue being hot for a while. Independent of the unique demographic and economic drivers for their success in the current post-Great Recession economy, there are a few basic truths that make them attractive:

  • Housing costs usually move up and apartment rents can be adjusted on a regular basis.
  • Vacant units are easy to re-rent with little or no cost. In fact, tenant security deposits usually pay for cleaning and repairs.
  • Excellent financing with 80 percent leverage is readily available.
  • Relatively easy appreciation through making cosmetic upgrades to increase rents.

…But Apartments Also Include Some Downsides

For many investors, though, apartments have three key problems compared with other classes of commercial real estate. They have tenants that break things, complain and fail to pay rent. Apartments have kitchens that tend to start destructive fires. Finally, they have bathrooms that leak and cause damage to surrounding units. At the same time, many cities heavily regulate apartments and, in many cases, favor tenants over landlords. These problems make apartments challenging and time-consuming to own.

Imagine, for a moment, an apartment building without tenants, kitchens or bathrooms and with little or no government oversight. All that you would have are rooms with furniture, clothing and other items in them. If you have ever owned an apartment building, you know that a building like this one would be a dream to own!

The Solution: Self Storage Facilities

In fact, the perfect apartment building is a self-storage facility. Mini-storage facilities offer a similar ownership experience to apartments but without any of the drawbacks. Because they frequently serve apartment tenants, their performance tracks the apartment industry, as well. Furthermore, modern management systems make them much easier to own than many people realize.

Read more of Solomon Poretsky’s blog posts here.

[bctt tweet=”In fact, the perfect apartment building is a self-storage facility.”]

2Q Self Storage Market Update by Nick Malagisi, SIOR

Self storage fared better than every other commercial real estate sector during this past recession. However, the sector was not recession-proof, rather it was recession-resistant. After two years of losses (nine consecutive quarters), the four publicly traded REITS turned the corner and now have reported eight consecutive positive quarters. Occupancies are up; concessions are down; and rental rates are finally climbing back to pre-recession levels. REITS, in general, have outperformed the S & P and Dow Jones Industrial Average (DJIA) for all of 2011 and 2012.

The self storage industry has finally begun to consolidate as the number of new construction starts diminished each of the last five years from their peak in 2006. The industry doubled in size from one billion to two billion square feet from 1995 to 2006. The top twenty operators in the USA control less than 20% of the total market. That will change as the REITS, flush with investment cash, acquire and increase their market share in select markets. Similarly, other new sources of institutional monies have been watching the sector and have concluded that self storage returns are as dependable, or even more secure, than the other traditional commercial real estate asset classes. These new funds/buyers are very competitive with the REITS and have forced Cap Rates down to the 5.5-6.5% range for stabilized, class “A”-good quality facilities located in the top 10 markets. Cap rates in secondary and tertiary markets remain in the 7-10% range depending on the age of the facility, location of the property and its demographics.

In terms of financing, self storage continues to enjoy the lowest default rate of any other sector in the CMBS market.  While banks and life insurance companies are more conservative in their underwriting than they were pre-recession, interest rates for refinancing are in the 4.50% to 5.75% range, with an expected 30-35% equity contribution.

Banks and Special Servicers are beginning to foreclose on borrowers that can’t make their mortgage payments or  meet new debt/equity requirements. We should see more lender sales of under-performing assets and notes later on in 2013. Or, the lenders may decide to package their bad loans and sell them via auctions to get them off their books and leave the buyers of the notes to proceed to foreclosure and/or re-sell the notes to the original borrower or the open market. At the end of 2009, the Sperry Van Ness National Self Storage Team participated in a bulk sale when Key Bank was selling a construction loan portfolio with a face value of $32M.

As we look ahead to the remaining half of 2013, we should see industry performance continue to improve; increased consolidation from the larger operators; and financing from the CMBS market become an option for smaller deals; all factors which will narrow the spread between the amount buyers are willing to pay and the amount sellers are willing to accept.

 

Prepared by:

Nick Malagisi
Nick Malagisi, Self Storage Council ChairContributed by:

Nick Malagisi

Chair of  the Self Storage Product Council

 

 

 

*All Sperry Van Ness® offices are independently owned and operated.

 

5 for Friday with Sperry Van Ness Advisor Chris Davis

This week, our 5 for Friday focuses on Chris Davis, advisor with Sperry Van Ness/Investec Services in Jacksonville, Fla. and Sperry Van Ness/Miller Commercial Real Estate in Salisbury, Md.

Chris Davis, advisor at Sperry Van Ness/Investec Services and Sperry Van Ness/Miller Commercial Real Estate
Chris Davis, Sperry Van Ness/Investec Services and Sperry Van Ness/Miller Commercial Real Estate

1. What is your geographic market and product specialty?

My market area is the mid-Atlantic in Maryland and Delaware. I am also licensed in Florida and do business in the Jacksonville market. I specialize in self-storage and hospitality.

2. What’s your latest best practice tip that you can share?

Make sure you have a strong presence in your market and strive to keep it. Utilize all your contacts, and you will be surprised how fast your database will grow.

3. What’s been the biggest changeover on how you run your business in the past decade?

Technology has really changed this business – so embrace it. I am trying to keep up with it and learn how to use it effectively. It will make you more efficient and productive.

4. What business book do you like to recommend to your colleagues?

“Brokers Who Dominate” by Rod Santomassimo. It’s a great book for all brokers to read.

5. What’s a fun fact that not everyone knows about you?

Even though my body lets me know I have gotten much older, I still try to play soccer with the kids I coach. In the early 80’s I received a full soccer scholarship to play for the nationally-ranked division one Philadelphia Textile (now Philadelphia University and division two). Our program dominated during that time and a lot of great players played there. I still stay in touch with them even though we all have moved on.

 

*All Sperry Van Ness® offices are independently owned and operated.

 

Self storage: Q4 2012 Report and Outlook for 2013 by Nick Malagisi

Nick Malagisi
Nick Malagisi, Self Storage Council Chair

As chair of the Sperry Van Ness® Self Storage Product Council, I am pleased to provide this quarterly report on the self storage industry. This report is intended for owners, operators, vendors who service the self storage industry, investors in this particular product sector and the over 800 Sperry Van Ness advisors serving clients in 175 markets across the country.

As most of you already know, this investment product sector is a niche industry with the real estate value dependent on the operating business component. The stronger the management, the better results one should see to the bottom line. In that regard, our industry is very similar to the hospitality industry.  However, the self storage industry has not yet found a way to “flag” the facilities and create brand awareness. Its time will come.

This past year has seen a continued and  healthy improvement in the sector, led by the four public REIT’s that have had seven consecutive quarters of increased occupancies and revenue after nine consecutive quarters of losses beginning in 4Q 2008.  Public Storage remains the industry leader in  number of facilities across the country including its European division bought from the absorption of Shurgard operations some six years ago. Public Storage is also the leader in stock price at a high value this year at $130 price per share or three times the value of the next competitor, Extra Space. Public Storage stock was included in the S&P 500 and Dow Jones Industrial Average a few years ago, replacing such household names as Sears & Roebuck.  The 3Q earnings reports have just been announced and all four of the self storage REIT’s continue to perform well.

New development of the product has been at a virtual standstill these past four years, which has helped supply catch up with demand in most markets as the industry doubled in size from one billion to two billion square feet from 1995 through 2006.  The dearth of new construction has created an opportunity for the larger operators to gain market share by having the capital to purchase existing facilities, especially in the top tier markets.

Cap Rates in the top tier markets are in the 6.5-7.5% range while the rest of the country is seeing 7.5-9.0% Cap Rates. The coming year should be very interesting as those facilities that were financed with 10 year debt in 2003 will be coming to the market for either refinance or sale.  It remains to be seen how many of those properties have retained their value and will qualify for refinancing without a recapitalization.

The Sperry Van Ness organization has self storage specialists located across the country who can become a valued resource for you.  If you are interested in the investment opportunities in this area, reach out to the SVN advisor in your market and watch for opportunities to buy and sell as they become available.

Nick Magilisi,  Self Storage Council Chair, Sperry Van Ness/Commercial Realty

 

*All Sperry Van Ness® offices are independently owned and operated.