Hello again to our clients, partners, colleagues and industry friends! It’s been a while since I wrote my last letter to you. As busy as my life has been since starting the Bledsoe Self Storage Group almost 2 years ago, I still want to be intentional about sharing with you.
I had many great conversations while at the SSA Spring Expo in D.C. Many of which revolved around the ongoing price gap between buyers and sellers in this current market. This dialogue has been played out many different ways, so let’s dive right in as I share my thoughts on this.
Setting Proper Expectations
Investors are inquiring on a daily basis about property values! They want to know if sellers have adjusted their pricing expectations, to better align with the current interest rates. The answer to this question truly lies with those advising them and the level of experience they have.
Our experience over the last 90 days has been something along these lines. Direct buyers are having a hard time getting owners on the phone. If they’re lucky enough to speak to the owner, they typically throw out unrealistic numbers in order to obtain their financials. The result of this commonly used exercise is an offer 25% below what was previously mentioned – or worse, no offer at all.
Due to how acquisitions are being done more often these days, we enter the property valuation process with owners having a very wide range of valuation expectations. Self Storage owners aren’t sure if the market is at a 5% cap rate, 8% cap rate or somewhere in between. Because of this confusion, our brokerage team is requiring significant time to explain our valuation price. This entails the various factors that go into determining this number, providing market analysis, operations analysis and what they can expect from the sales process to help self storage owners understand the market now.
Market Velocity
Despite the market challenges, we’re seeing tremendous activity from self storage owners requesting we help solve the, “What is My Property Worth” mystery. In the first quarter of 2024, we’ve valued more than $400MM of self storage, and we expect this volume to remain steady throughout the year.
Valuation activity has increased 300% from Q1 of 2023, versus Q1 of 2024. What’s the difference from a year ago versus today? The expectation is that the Federal Reserve will reduce rates 2 or 3 times this year, or 50 to 75 bps. It’s our belief that this rate reduction will start closing the gap between buyers and sellers. However, we won’t see values as high as previously, in 2020 to 2022.
Regardless, our goal remains constant! Focus on providing accurate property valuations, make creative selling strategies, and provide proper guidance once the sale is complete, for future investment opportunities. However, there still remains a 10% to 20% price difference, in most cases, between what the property owner wants versus what the market is willing to pay.
What to Expect for the Remainder of 2024
Listing activity has been very high through Q1, and we expect that to continue in the next two quarters. There is a chance we could see listing activity slow down towards the end of the year, as the country prepares for elections this November. We’re also noticing some property owners requesting to hold on listing their facility till after elections are over.
Even still, our team is expecting significant listing and closing growth over the course of 2024 versus 2023. We also intend to see the buyer and seller pricing gap close, and in 2025 the real estate cycle will hopefully move in a promising direction for both buyers and sellers. Patience and motivation may be the two factors that win the day on both sides!
