Dream Storage Newsletter - September 2023

Monthly Newsletter

In recent weeks, our Managing Partners, Rachel and Chris, had the opportunity to participate in a national self-storage conference. This event brought together a diverse array of industry professionals, including buyers, sellers, brokers, lenders, and vendors, to engage in meaningful discussions about the current investment landscape. It also provided a platform for exchanging insights regarding the anticipated developments in the self-storage sector over the next 12-18 months.

In this edition of our newsletter, we are delighted to share a concise overview of the valuable insights gathered during the conference. As always, we have included a selection of articles that delve into both the self-storage market and the broader macroeconomic factors that impact our industry.

Conference and Market Insights

Industry experts widely agree that navigating the debt markets poses a considerable challenge across various stages of a deal, from determining the offer price to securing financing and finalizing the transaction. Traditional lenders, such as regional banks and credit unions, which were once favored by many buyers, have significantly raised their loan requirements (particularly in terms of reserves and deposits) often rendering themselves less competitive. As a result, less traditional debt providers, previously disregarded by self-storage operators due to their conservative lending criteria, have emerged as significant players in the self-storage debt market. One noteworthy example is insurance companies, which have steadily increased their involvement as debt providers in self-storage acquisitions due to their ability to offer predictable terms and surety of closing.

At Dream Storage, our primary focus revolves around ensuring the certainty of closing and underwriting deals using realistic debt assumptions. Furthermore, given the volatility observed in the lending market, we prioritize securing loans with longer terms and investing in properties capable of delivering strong returns throughout the entire loan lifecycle. Simultaneously, we actively explore future refinance opportunities that can further enhance those returns.

With the recent announcement by the Federal Reserve to pause rate hikes, there are two distinct perspectives among market participants. The first perspective posits that numerous sellers may perceive this pause as an indication that we are nearing the peak of rate hikes. Consequently, those who are not compelled to sell immediately may choose to wait for a year or two, hoping for a decline in interest rates that could lead to higher sales prices.

Conversely, the second perspective suggests that many sellers might view this pause in rate hikes as an opportune moment to list their properties. They aim to transact before the next inevitable rate hike, which would likely reduce their potential sales price and shrink the pool of potential buyers.

Numerous brokers within the capital markets sector have reported a significant increase in requests of “Broker Opinion of Value” or “BOV” assessments. Consequently, both brokers and buyers maintain a positive outlook, anticipating a surge in market activity over the next 12 to 18 months as numerous sellers continue to express their eagerness to sell their storage facilities.

Dream Storage’s Outlook

Despite facing market headwinds, we continue to underwrite numerous on-market and off-market acquisition opportunities. Our commitment involves consistently presenting innovative terms to sellers to enhance the appeal of our offers while simultaneously maximizing potential returns for investors. We maintain ongoing communication with our broker and lender network to ensure our prominence in potential transactions while staying closely attuned to market dynamics.

We hope to present you with our next investment opportunity in the near future.

Warm regards,

The Dream Team