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.
Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.
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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