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NKF Thought Leadership Series: Dissecting Demand and Capital

Posted: 1/24/2018 Link: NGKF.com
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The last 10 years have represented a coming of age for the self storage industry, as the industry advanced in every way: Access to debt and equity capital grew, technology advanced, the asset class gained legitimacy among investors, consumers made greater use of self storage facilities and the industry transitioned to end-use core locations, just to name a few. Although much of the industry has taken advantage of these benefits, there remain voids in advancements, none more obvious than deficiencies in data. Whereas other asset classes, such as office, retail and multihousing, have multiple data sources that track occupancy trends—rental rates, lease duration and so on—the most reliable data for self storage remains one’s own dataset. Moreover, unlike all other types of investment real estate, self storage properties derive their maximum value entirely from how the self storage business is operated. By comparison, the end user of an office, retail and, to a lesser extent, multi-housing property is operating the business, and the operation of that business is managed by someone other than the owner of the real estate. With tenants responsible for driving customer traffic, pricing products and balancing supply/demand econometrics, the real estate investor’s role is confined to engineering the purchase of the land on the best possible terms, developing the structure, setting lease terms, securing the highest quality credit tenants and aligning capital that maximizes the financial engineering. Balancing these objectives is extremely difficult for all properties, but it is even more difficult while also operating a self storage business, as there is no historical bulk data available to aid in the setting of rental rates, understanding market supply equilibrium or tracking local market rate of use.

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