2018 State of the Market

STATE OF THE MARKET
A real time update on where we are
in the self storage market today
Jay Crotty
SkyView Advisors
5100 W Kennedy Blvd. Ste. 270
Tampa, FL 33609

Jay Crotty – SkyView Advisors
• “For the first time since 2010, the world economy is outperforming most
predictions” – Goldman Sachs Research
• The World Bank forecasts global economic growth to edge up to 3.1% in
2018
○ Advanced economies: projected to grow to 2.2% in 2018
○ Emerging market and developing economies: projected to grow at 4.5%
in 2018
• Delicate balancing act between central banks removing post crisis
accommodation and economic growth / inflation
• Economists have recently over estimated inflation forecasts - why?
○ Growth finally catching up (08 downturn was so severe)
○ One reason could be the deflationary forces of technology (Ex: cost of
Uber vs cost of taxi or kiosk vs on-site manager)
GLOBAL ECONOMY

• Unemployment rate is 4.1% (as of Feb 26) - lowest in 11 years
• US Economy added 2.1 million jobs in 2017
• Current inflation rate is 1.9% compared to avg of 2.1% in 2017 (as of Feb 26)
• 10 year treasury is 2.86% compared to 2.36% at the same time last year (as of
Feb 26)
• Optimism among CEOs of large U.S. companies has reached a record high, a
Business Roundtable survey showed Tuesday (highest since survey began in
2002)
• National Federation of Independent Business poll showed small businesses
are the most optimistic in more than three decades
U.S. ECONOMY

ECONOMIC EXPANSIONS

• According to the Chamber of Commerce 898 residents per day are
moving into Florida
• Population is expected to grow from 21 million now to 26 million by
2030.
• Florida’s GDP is expected to reach $1 trillion in 2018
• Florida’s economy is ranked as the 5th largest in the US
• If Florida were a country, it would rank 16th
• Florida median income was $50,860 in 2016 which is $6,757 lower
than the national average of $57,617
FLORIDA ECONOMY

• Unemployment rate is below the national avg: 3.7% (as of Dec 2017)
• Florida is forecast to add 180,000 jobs in 2018 compared to the 213,500
jobs that were added in 2017
• Ranked as the 19th state for job growth in the US
• Company expansions and relocations:
○ Cohesion - IT consulting firm relocated national headquarters to Tampa
○ GE's Energy Management Center of Excellence relocated to Clearwater
○ Amgen - biotechnology company opening office in Tampa
○ Genpact - business services company opening an office in Jacksonville
○ Apotex - Canadian pharmacy company expanding into South Florida
FLORIDA EMPLOYMENT

• Collapse in consumer demand caused by excessive household debt
○ Prior peak was $12.8 trillion in 2008
○ Currently at $12.95 trillion
• Inflation exceeding forecasts, causing interest rates to increase faster than
expected
• Geo-political
• Global trade / populist and protectionist movements
• Florida & coastal U.S. - climate change risk (hurricanes and flooding)
• Housing affordability challenges/crisis (1st time home buyers)
POTENTIAL RISKS IN THE ECONOMY

● First significant change in U.S. tax code since 1986
● Full effects not yet understood
● Effects are positive for business, specifically commercial
real estate
NEW TAX LAW HIGHLIGHTS

• Walmart is raising min wage from $9 to $11/hr and expanding
maternity and parental leave benefits and bonus opportunities
• Apple is bringing $300 billion back to the US from overseas and
adding 20K new jobs to the US economy
• Starbucks to give raises, stock, and expanded benefits to employees
• Disney will give 125,000 employees $1,000 bonuses
• JPMorgan Chase is boosting hourly pay as part of a five-year $20
billion investment plan
IMPACT ON BUSINESSES/ECONOMY

• The flood of private capital into real estate is likely to
continue and get even more aggressive in the years
ahead.
• New deductions for pass-through entities will yield
significant savings for commercial real estate investments
IMPACT ON COMMERCIAL REAL ESTATE

• Changes to capex deduction will make value-add
strategies even more appealing and present opportunities
for investors.
• Doubling the current dollar limitation from $500,000
to $1 million.
• Changes to carried interest will increase favorability of
private real estate funds compared to hedge funds
• Real estate funds tend to hold onto assets for a few
years so the new 3 year rule has less of an impact
IMPACT ON COMMERCIAL REAL ESTATE

• Construction spending reached an all-time high in 2017 at
$3.98 billion - 108% increase over 2016
• REITs 2017 revenue growth ranged from 1.7% to 5.7%
• NOI was 0.3% to 7.5%
• Historical average revenue growth has been close to 4%
DATA POINTS

U.S. MSAs AVERAGE RENTS PER SQ FT
Source: Yardi

FL AVERAGE RENTS PER SQ FT
Source: Yardi

NEW CONSTRUCTION
Source: STR

2016
$6.3 Billion
2017
$4.1 Billion
U.S. SELF STORAGE
TRANSACTION VOLUME
Source: CoStar & RCA

FLORIDA SELF STORAGE TRANSACTIONS
Source: Yardi
Sales from 2015 - present

SELF STORAGE vs OTHER ASSET CLASSES
2017 Transaction Volumes
Source: Real Capital Analytics

● Continues to be a strong appetite for stabilized deals with historical performance
● Some groups are out of certain “flagged” markets: e.g. Denver, San Antonio, parts of
DFW
● Owners beginning to feel impact of supply in certain markets & cutting rates to boost
occupancy and increase marketing dollars.
● Buyers less willing to bite off on pro forma, risk averse vs risk assumption
(uncertainty over new supply & ability to push rates)
● Top end of buyer pool continues to soften - offers vary widely: 25-35% between top
and bottom
● Capital markets remain healthy despite decreasing operating fundamentals
BUYER & SELLER SENTIMENT

CAP RATES

Seller profile: Private, hands-on local operator.
Buyer profile: Crossover buyer - primarily multi family. Has 4,000+ apartment units and 50+ express
car wash properties in their portfolio and now targeting self storage as a 3rd vertical.
Property Profile: Primarily commercial size units vs traditional storage
The Story:
● Number of bids: 6
● Working with this type of buyer was fantastic. In our experience, buyers who come out of the
more mature/competitive asset classes have a different level of urgency and are very easy to
work with.
● Closing process was quick with only 2 weeks between accepted LOI and executed contract and
2.5 months from contract to closing.
ALBUQUERQUE,, NM MSA
Over 50,000 SF | $2.3 M

Seller profile: Private developer
Buyer profile: Private 1031 exchange
Property Profile: Class A multi-story asset built in 2016 in lease-up: around 55% occupancy. Third party managed by a
REIT
The Story:
● Sellers received direct offer from the REIT/management company
● Sellers were concerned about the potential conflict of interest of selling to their management company.
● Sellers also wanted to maximize the value of their investment and believed that going to market was the only
way to ensure this.
● Many buyers were concerned about new supply/oversupply in the area.
● All major San Antonio owners looked at the deal and valued it several million dollars below final sale price.
● Once the property was on the market and went through the Call for Offers process, the REIT/management
company increased their offer by $1.3M.
● Ultimately, regional & national private buyers led the pack on pricing.
SAN ANTONIO, TX MSA
Over 90,000 SF

NAPLES, FL MSA
Over 40,000 SF | $3.85 M
Seller profile: Private seller
Buyer profile: Private buyer re-entering self storage market
Property Profile: Earlier generation storage, fully stabilized
The Story:
● Deal is located in a growth market that received a ton of interest from qualified
regional and national buyers
● Amount of interest shows that there is still a high demand for non-institutional
stabilized product
● Buyer was incredibly aggressive and not only outbid the other groups on price but
also on terms: 10 days due diligence / 30 days to close / one week between LOI and
executed contract

Dallas/Fort Worth, TX MSA
Over 110,000 SF | $6.1 M
Seller profile: Private local operator preparing for retirement
Buyer profile: Private national operator
Property Profile: Single story, non-climate built in 1985.
The Story:
● Classic value-add story: current occupancy & rates well below average for the submarket.
● 227 down units - CapEx required to have units in rent ready condition.
● Very strong interest came from private equity backed groups and private operators.
● During Call for Offers process, the eventual buyer was aggressively trying to differentiate their
offer from the other offers.
● The buyer ultimately won the bidding process by putting up a $300,000 non-refundable deposit
day 1 with no contingencies.

Naples, FL MSA
Over 81,000 SF | $5.36 M
Seller profile: Private, high-net worth investment group
Buyer profile: Minority owner/management company
Property Profile: Built in 1975 and extensively renovated in 2014. Consists of climate and non-climate
units as well as space for RV and Boat storage.
The Story:
● The majority owner received a direct offer of $4.7 million from the minority owner, who was
also the management company.
● The majority owners had a fiduciary obligation to their investors to maximize the sale price so
they went to market with the asset.
● During the bidding process, the minority partner was ultimately awarded the deal after
increasing their original offer by $637,000.
● Majority owner and their investors netted over $500,000 more than the original offer.

● Impact of new supply on operating fundamentals & interest rates/cap rates
● Lack of reliable 3rd party data sources compared to other mature asset classes (new
construction, market rents, avg lease duration, standardized underwriting criteria,
etc.)
● Increased sophistication and technology of operating platforms (revenue
management, kiosk, online traffic, online rentals, etc.)
● Growth of 3rd party management platforms
● Continued “Institutionalization” / Maturation of the asset class
○ More focus on value add deals & tertiary markets
○ Increased sophistication/professionalization of intermediaries
○ Less principal to principal transactions (fiduciary obligation of institutional
investors & aggressive private capital depends on deal flow)
TRENDS/MAJOR THEMES

EMOTIONS OF A REAL ESTATE CYCLE

2018 State of the Market

Recommended

Recommended

More Related Content

What's hot

What's hot (14)

Similar to 2018 State of the Market

Similar to 2018 State of the Market (20)

Recently uploaded

Recently uploaded (20)

2018 State of the Market