A Strong Class, Self-Storage Still a Solid Investment in 2018
BOSTON–In early 2017, self-storage facilities received a lot of acclaim as a hot commodity for long-term real estate investors, and self-storage REITs sought to take advantage of its recession-resistant qualities.
While some commercial real estate experts wondered if the self-storage hot streak would fizzle out, a $125 million sale of 14 Planet Self-Storage facilities in Massachusetts, Connecticut, New Jersey, and Pennsylvania (completed at the end of last year) by a group primarily owned by Arthur and Michael Simons to Prime Storage Group, is indicative of continued strong yields in the self-storage asset class for 2018.
“Self-storage facilities are currently an incredibly strong investment,” said Arthur Simons. “Given the exceptional cash flow, we had no intention of selling any facilities from our portfolio,” he added.
However, Prime Storage Group made the Simons’ an offer they couldn’t refuse. “The more we refused to sell, the higher the bid grew,” said Simons.
“Eventually, they offered to either take over our CMBS loans or pay the high prepayment penalties associated with some of the units, and that sealed the deal,” extolled Simons.
The sale of the 14 facilities included four highly sought after downtown Boston facilities: Traveler Street, Old Colony Avenue, and two on Southampton Street; the other Massachusetts facility was in Somerville.
“Investors have historically focused on multifamily residential as stable annuities resulting in high cap rates,” explained Martin Pomeroy, a commercial real estate partner at the Boston-based law firm Bernkopf Goodman, LLP – and the lead attorney for the team that orchestrated the portfolio sale to Prime.
“However, there are also solid reasons why self-storage cap rates are almost as high as multifamily,” adds Pomeroy, who cited highly-predictable cash flows, low maintenance, and low vacancies in today’s environment – particularly for urban locations, such as the ones in Boston.
Moreover, self-storage has become a CRE investment that rides the economic tides well. When the economy is strong people tend to
Martin Pomeroy buy more, and when it takes a downturn they may need a place to store their purchases.
Affirming Bernkopf Goodman had represented dozens of self-storage companies over the years, Pomeroy attests that the industry can certainly be cyclical, however, “We don’t see the current trend slowing down anytime soon.”
He also made note that he and his team have similar self-storage transaction assignments in the pipeline for the remainder of 2018.
The Self Storage Association estimates there are about 49,000 primary self-storage facilities nation-wide, totaling 2.6 billion square feet of storage space and generating approximately $32 billion in revenue annually. The association estimates the national average for units per facility is about 540 units, and that facilities nationwide are about 90 percent occupied. The percent of U.S. households accounting for that occupancy is estimated to be about 9.3 percent.
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