Cap Rate Survey: Analyzing Storage Property Deals

June 17, 2024

We get questions all the time from investors and sellers alike on where cap rates are. So, we thought we would compile a short cap rate survey for you on some of the previous properties we have underwritten.

We took a look at 16 of the Storage deals we underwrote for Broker Opinion of Values (BOVs) in the last year to list and take to market and sell. We only ended up taking 2 of the 16 to market to sell and they did end up selling. Unfortunately, the pricing expectations between what the potential Seller wanted and what we believed the market would pay were too far apart to take the others to market. Total value for these 16 deals based on our pricing is $44,325,000.00.

When looking at the graph below, you will see “In Place” and “Adjusted” Cap Rates. “In Place” is using the property’s Trailing Revenue and Operating Expenses. “Adjusted” is using the properties Trailing Revenue with Adjusted Operating Expenses. We adjust expenses for potential increases in Insurance, Property Taxes, Management Fees, Payroll etc. when a new owner takes over. It is a rare occasion that we may need to adjust the expenses down as perhaps the property incurred large repairs over the course of the previous year due to some deferred maintenance the owner was taking care of.

The Cap Rates in the graph below are determined by dividing Net Operating Income (NOI) by the Purchase Price. For example, we would take the “Adjusted” NOI and divide by CRD’s suggested pricing and then do the same for the Owner pricing. We then averaged the Cap Rates for each Class (A,B,C and D) and category and place in the graph below.

In summary, what this graph points out are most Seller expectations for pricing are not able to be supported by current market conditions particularly the cost of capital. On average CRD’s pricing opinion was 23% below what the Seller wanted for their property.

There are still a lot of buyer’s looking for deals. Unfortunately, in our experience, Seller’s do not need to sell and will hold on for now.



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