Buying/Valuing Brand New Self Storage

[Christopher Brown]

I've got some proceeds from a 1031 sale that I'm considering investing in a new self storage project that just opened to renters last month; I don't know yet what the current occupancy looks like but I assume it's pretty close to zero, and I don't yet know how long I should expect it to take to stabilize. I haven't gotten any due diligence materials from the seller yet, so not a lot of details. I'm interested in a knowing a bit more how to value these properties before they've stabilized. The broker has it valued with a CAP in the high teens on projected NOI of ~$250k. 20,000 sf with approvals to build an identical 20,000sf on the 8 acre property. It's in a tertiary market with 2 other storage places within a mile (both of which seem to be close to full occupancy).

What are the rough cap rates for valuing stabilized self-storage? And how does the industry discount that valuation pre-stabilization? And how does it value the future development/NOI potential?

Appreciate any advice...

[George Fitz]

I purchased a stabilized (85% occupied) self-storage property last Spring in a rural market that had a cap around 9.5%. That's generally a very high cap rate right now with interest rates the way they are, but because it is in a rural market there is more risk, thus the higher cap. I can't speak to what a cap rate would be on a property still in lease up. Lots of things to think about for you, but if you haven't already, you should start with figuring out the current self-storage saturation in your market. How many square feet of storage currently exist and how may people live within a 3-5 mile radius? Find out the amount of storage per person and compare that to averages around the country, which you can get from SSA and ISS. This should give you an idea if you can get the property leased up and a general idea of how long that will take. Good luck!