, (PressExposure) January 28, 2008 -- Beacon Realty Capital and Storage Investment Advisors (SIA), which formed an alliance in 2006 to provide self-storage owners and investors with specialized real estate property and financing services, announced their combined self-storage property transaction volumes for 2007 totaled $311,754,300.
Beacon provided $166,754,300 in self-storage financing in 2007 while SIAâs team members closed $145,000,000 in property dispositions. In addition, SIA currently has 37 properties under contract at various stages of the transaction process totaling more than $345 million and an additional $77 million in properties coming to market by mid-February.
âOur collective results show that despite credit market volatility and a challenging operating environment affecting the entire self-storage real estate industry, we have been able to effectively support our clients and close transactions,â say Neal Gussis, a principal with Beacon, and Aaron Swerdlin, SIAâs managing director. âThrough the alliance, our firms have been able to offer services to each otherâs clients so they can capitalize on our respective real estate expertise.
2008 Market Observations: Cautious Optimism
Gussis and Swerdlin, who are frequently quoted in industry publications and speak at industry trade shows, offered 2008 real estate investment and financing guidance to self-storage property owners and investors. Reflecting a cautious optimism for the market, their key observations are:
1. Self-storage operating performance remains strong and should continue to do so in 2008.
2. Capital market struggles will continue to affect transaction velocity in 2008, with single property transactions and transactions priced less than $15 million affected the most.
3. Large, institutional transactions will still have strong velocity and volume because the buyers in this market segment are better capitalized and much less dependent upon the collateralized debt obligation (CDO) and commercial mortgage-backed security (CMBS) debt markets. Further, overall market conditions have forced a flight to quality that has added buoyancy to larger portfolio transactions.
4. There is no shortage of equity capital for the self-storage market, as well as ample capital from the debt side. However, many borrowers in early 2008 still want to use Spring 2007 as the benchmark â relative to that point in time, todayâs loan terms are not competitive. Nevertheless, when compared to more stable time periods, what is available in todayâs debt market is competitive. The reality is that the days of 85 - 90% acquisition debt are past and self-storage property owners and investors should expect more conventional terms in the 70 - 80% range.
5. Sellers struggle with the reality that overall property sales prices nationwide have decreased 8%, while their net operating income (NOI) has increased 3 - 5%. Because operations have been relatively steady, we don't expect sellers in 2008 to meet the market halfway relative to the softening of values. We've seen a number of owners who were sellers in 2007 revert back to focusing as mid- to long-term operators.
6. Further softening in the economy and declining interest rates will keep cap rates from increasing substantially in 2008. Even with higher equity requirements, the returns available in real estate are 60 - 100% higher than what is available in lower-risk investments, such as bonds and certificates of deposit. With these higher return levels, self-storage real estate investors will continue to be willing to assume this added risk.
7. The retreat in swaps and compression in Treasury bill rates are now resulting in CMBS quotes below 6.5%.
8. Underwriting standards for debt will stay on the conservative side in 2008 compared to terms offered for similar transactions in 2007.
Headquartered in Chicago, Beacon Realty Capital is a commercial real estate financial services company that arranges debt and equity financing for new and existing projects, advises on the acquisition and disposition of real estate assets, and provides commercial loan servicing for correspondents.
Founded in 2006, Storage Investment Advisors manages self-storage property dispositions, acquisitions and capital market executions/financing on behalf of institutional and private capital clients.
SIA team members have bought, sold, brokered and financed more than $1.3 billion worth of selfstorage real estate, collectively making SIA the industryâs leading real estate services firm based on transaction volume. Headquartered in Houston, SIA also has an office in Los Angeles. The Beacon-SIA partnership was the self-storage industryâs first alliance to support every aspect of a property ownerâs real estate brokerage and financing needs. Their alliance offers such services as:
â¢ Capital sources for property financing or refinancing needs
â¢ Databases of self-storage buyers and capital sources
â¢ Advice on obtaining achievable levels of debt and favorable forms of capital financing for selfstorage assets
â¢ Access to industry data and market-specific research that can support financing or refinancing requirements