Peel back the layers on any top 50 metropolitan statistical area (MSA), and you cannot help but notice a strong dose of development underway and new supply coming online. Most of the newer facilities scheduled to open have been under development for the past 12 - 24 months. This creates a bit of a hangover effect as new product is set to open in an entirely different market landscape than when they first went to the drawing board.
Historically, developers underwrite a three-year lease up period to reach stabilization. More recently, that time frame has been condensed due to exceptional market fundamentals. As more facilities open around the corner from one another, it will create considerable competition between these new facilities and already existing, stabilized facilities. One of the most important indicators when monitoring the strength and location success of a new facility is the lease-up trend. Is the site meeting forecasted projections? How quickly is it burning off discounts and closing the variance on economic occupancy?
This model is especially important as merchant builders have traditionally sold to a REIT or institutional player for a quick profit. As concerns over interest rates and supply take stage in the market, we are seeing a shift in buyer appetite and the quality and depth of offers. This places emphasis on lease-up trends and multi-year projections. The deviation between the two will undoubtedly impact the final sale price.
With several lease-up facilities on market, SkyView Advisors is well positioned to navigate sellers through a dynamic transaction with many unknown variables.