Category: Self Storage

CRE Investors Are Showing a Growing Appetite for Higher-Yielding Alternative Assets

Sectors such as self-storage and student housing appear more attractive as yields for core real estate drop.

It wasn’t that long ago that alternative properties didn’t get much respect, but as yields compress in core property sectors, alternatives have caught the eye of investors, and 2019 should continue that trend.

“For many years, non-traditional real estate was not fully appreciated,” says Tyler Blue, vice president of the advisory and consulting arm of research firm Green Street Advisors. But alternative sectors have outperformed expectations in recent years, and investors have noticed.

“Once the broader real estate investment community caught on, more capital flowed in, particularly as the more traditional real estate sectors became fully valued. So, the more progressive investors benefited and the institutions have followed their lead,” Blue says.

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Self-Storage Investors Still Pay Top Dollar for Acquisitions, In Spite of Declining Yields

Investors are talking a good game as they negotiate to buy self-storage properties—but on average, they are still paying high prices and accepting low investment yields.

“I have seen some re-trading… maybe 1.5 percent of the purchase price,” says R. Christian Sonne, director of specialty practices for the national self-storage valuation group at real estate services firm CBRE. “Property assessment reports are being reviewed a lot more closely than a few years ago.

But deals are still getting done at nearly record low cap rates, with multiple potential buyers bidding for most properties, says Sonne.

Self-storage properties remain extremely desirable to investors. Investors are paying high prices despite rising interest rates and reports of overbuilding. Their enthusiasm to buy may be because the percentage of occupied space in the sector is at an all-time-high. Self-storage also earned a reputation for being resistant to recessions during the last economic downturn, giving even more comfort to potential investors.

“There is a great deal of capital pursuing deals and, in some cases, we’re seeing aggressive pricing—especially in high-density urban markets,” says Wayne Johnson, chief investment officer with SmartStop Asset Management, a diversified real estate company focusing on self-storage, student housing and seniors housing.

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