Self Storage Conversions
Industry forecasts all point to continued demand for self storage development. New building activity has been especially robust the last five years. We might look back at 2018 as the top of the new building cycle. The April Yardi Matrix National Storage Report states they are following more than 2,000 new storage facilities now in the pipeline. There are a few factors that might limit new ground up development moving forward. Construction and land costs are rising and some lenders are tightening their lending criteria.
Some of the best investment opportunities in self storage may be from converting existing vacant buildings. Value Added or Adaptive Re-Use projects offer a number of advantages including: lower costs than building a new facility, increased speed of bring self storage units to the marketplace and better locations with right demographic base. Another important factor is Sustainability. Communities may see more value in a self storage project that makes efficient use of existing buildings, than the environmental impact of new construction.
From surplus retail space to bowling alleys, we saw many recent examples of investors/owners using creative approaches to expand self storage inventory. One company pursuing this strategy is Fairway America LLC, a private real estate equity firm. They recently launched a self storage acquisition fund that focuses on conversion of vacant retail space into Class A Self storage properties. “The market is prime for adaptive re-use of vacant big-box retail property into a variety of uses, and we think self-storage makes the most sense. There is often an undersupply of self-storage in areas that have historically not allowed this type of use," said CEO Matthew Burk. The company has found that the self storage conversion projects have lower risks, reduced construction costs and improve their ability to bring the project online quickly.
Adaptive re-use of retail space was one of the largest development trends in 2018. A prime example of this trend was the conversion of Kmart and Sears stores by U-Haul International. After Sears filed for bankruptcy in October, Amerco, the real estate arm of UHaul International paid $62 million for 13 stores. A driving factor for this acquisition was U-Haul Corporate Sustainability Initiatives. U-Haul supports communities by investing in infill developments that lower their carbon footprint and reduce energy resources that would be used by building new properties.
One such project is the conversion of a former Kmart store in Columbus. GA. “This location is perfect for U-Haul because it’s in the center of the city and just a few miles from Columbus State University,” said Rogar Bishop, U-Haul Company of Southern Georgia president. Adaptive reuse of the former retail property will deliver about 700 self-storage units. “Reusing old buildings has been a U-Haul staple for decades,” Bishop noted.
Did we mention bowling alleys? PWM Properties purchased the 15,000 square foot Sonora Family Bowling alley in Sonora, CA. The bowling alley that had been empty for almost a decade sold for $375,000. The existing zoning did not allow for self storage properties. Other types of development had been considered, but cost of adding parking was cost prohibitive for other uses. In April, the Sonora Planning Commission approved plans for 100 self storage units. The developers plan to create a new use for the property with minimal destruction of the existing structure and preserving the unique architectural style of the existing building was key to winning approval.
What should be your first steps to consider a self-storage conversion project? It is important to understand the demand for self storage in the market, and determine if an acquisition of an existing property might be a better investment. Additionally you must understand what the actual costs to convert the existing building will be and what investment capital will be required. It is a big decision with many factors to consider. Southeastern Business Intermediaries is here to help you. We can guide you through all stages of the project from feasibility analysis, obtaining capital and completion of construction.
Benefits of Off Market transactions
The number of off market commercial real estate transactions has increased dramatically in recent years. According to RE Wealth Advisors- 23% of all commercial real estate transactions in the US were transacted ‘off market’. Off market transactions offer many advantages for buyers and sellers of commercial real estate.
What is an off market real estate transaction? Commercial properties offered off market are not publicly listed for sale- they are presented privately to a selected group of investors/buyers. Some describe this as a laser targeted approach rather than a spray and pray shotgun effort.
Many owners prefer the private nature of an off market approach to prevent any disruption that could impact tenants, employees or vendors from learning about a pending sale. An off market listing helps owners protect the reason they are selling their assets from public view. These reasons could be the financial condition of the owners or problems with the facility. Facilities with selling obstacles benefit from the off market approach because brokers can target buyers who are not fazed by certain selling challenges.
Another major advantage for the owner is pricing protection if the property does not sell immediately. With a public listing, properties on the market for a period of time are perceived to be over valued or may have potential problems. In this situation Investors would have all the leverage and demand substantial reductions in price. The off market approach preserves the ability to not need to decrease the asking price in future transactions.
Institutional buyers, REITS, and large investors will obviously look at any property that fits their investment requirements, but they are likely to be more interested in off-market deals. There are a number of reasons for this preference. With their size, recourses and ability to close quickly, these investors expect that prime investment opportunities would be privately presented to them. In a public listing they feel that they are competing with smaller buyers that are driving the price upwards.
One investor with a preference for off market opportunities is Griffin Capital. They state on their website, “…and compensate brokers that bring us high quality acquisition opportunities (preference given to "off-market" solicitations." Another example is DealPoint Merrill. They describe their approach on their website, “Our growth and income co-investment objectives generally prefer the purchase of “off market” projects where we can.”
On market properties are publicly listed for sale -usually by a large brokerage firm and promoted on public online listing services. Our off market approach would start with a review of your property and recent financial performance and your goals to be achieved through the sale. With our knowledge of the self storage market and our extensive buyer network we can establish a selling price that maximizes your investment and will result in a closing. Our motivation is not to “get a listing”, but to get your property sold quickly at the right price.