Valuation • Section 9
place emphasis on local cap rates, regional and national inves- tors would also strongly consider national cap rate trends from investor surveys due to the potential to invest in other regions that are offering competitive rates of return. Chart 9.2 on the opposite page provides a historical illustration of capitalization rate statistics, as surveyed by PriceWaterhouse Coopers (PwC), that Colliers considered to be relevant.
According to the Q2 2014 PwC Real Estate Investor Survey,
overall capitalization rates and yields have continued to com- press over the past two years. Overall, capitalization rates for the national self-storage market remained relatively low from Q4 2009 but has declined each quarter since 2010. According to PwC, the national average capitalization rate as of Q2 2014 report was 6.12 percent, which was down 13 basis
Typical Expence Conclusions Expense Item Typical Ranges Real Estate Taxes N/A Description & Analysis
Every state has its own method for calculating property taxes. There are several states that reassess facilities based on sales price. Since the definition of “Market Value” assumes a sale, appraisers are forced to use an amount calculating the value of the property multiplied by the tax rate. Each local jurisdiction must be reviewed and understood. An incomplete understanding can often cause headaches for refinances and construction loans.
Insurance $0.10 - $0.20/SF
Special consideration should be given to flood, earthquake, hurricane, or other natural disaster areas. Typical range for this category is $0.10 to $0.20/SF. It is common for lower rates to be achieved through blanket policies. According to insurance providers, over the last couple of years insurance premiums have remained flat (same as expiring premiums). Significant changes are not anticipated for 2014.
Utilities $0.15 - $0.40/SF
Both location and climate play a role in this category. Densely populated areas typically see higher energy costs. The number of climate controlled units at a facility should also be considered. Typical range for this category is $0.15 to $0.40/SF. Are solar panels the next trend in reducing electricity costs?
Building Repairs & Maintenance
$0.15 - $0.30/SF
This category includes cleaning out the units, replacing doors, landscaping and any maintenance associated with the facility. Areas that require a snow removal expense and/or elevator servicing typically command higher expenses. Long term expenditures are also affected by climate; however, these expenses are typically covered in the reserves category. Typical range for this category is $0.15 to $0.30/SF. Age and physical characteristics play a part in budgeting for this category. It sure is nice to have competent on-site staff that can fix a thing or two.
Off-Site Management On-Site Management 5% - 6% of EGI
This is typically done on a percentage basis of the Effective Gross Income (EGI). Therefore, areas with higher rents result in higher management costs. However, when a property is stabilized and generating strong rental rates, it is common to see downward pressure on the overall percentage. Typical costs range from 5% to 6% of the EGI.
$0.75 - $1.25/SF
This category is greatly impacted by location and average living expenses. Unless zoning restricts, it is common for resident managers to live on-site. Expenses are often higher for facilities not offering living accommodations for managers. Typical range for this category is $0.75 to $1.25/SF. Depending on the size of the facility, this category also includes a part time assistant. Great on-site staff = money well spent!
Advertising General & Administrative Reserves $0.20 - $0.40/SF
The amount of competing facilities and the property’s access and exposure are primary considerations for this category. Typical expenses range from $0.20 to $0.40/SF. This category has consistently declined over the last couple of years as facilities have taken advantage of technology.
$0.25 - $0.75/SF $0.10 - $0.20/SF
This is your “catch all” category. This expense includes accounting, legal fees, other professional fees, and general administrative costs. Typical expenses for this category range from $0.25 to as high as $0.75/SF. This category can often include expenses associated with U-Haul rentals and credit card fees.
This category takes into consideration capital improvements over a typical holding period; it does not include items of on-going maintenance that are included in the Repairs and Maintenance category discussed above. Typical range for this category is $0.10 to $0.20/SF.
2015 Self-Storage Almanac 97
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