Self-Storage Valuation • Section 10 An accurate view of the actual expenses at a facility simpli-


fies and enhances the valuation process. This process always includes a comparison and reconciliation of actual expenses to expense comparables. Table 10.4 provides an explanation of the typical categories accepted in the industry, as well as typical ranges.


Capitalization Rates While capitalization rates or cap rates will be discussed in de- tail in Section 11, the self-storage asset class is in the midst of a four-year run of success, with little sign of slowing down. From 2009 to today, self-storage properties have sold for higher prices per square foot year after year. As for capitalization rates, the positive trend is also clearly evident. The following para- graphs will discuss the different ways appraisers select capital- ization rates.


Appraisers are charged with deriving cap rates as part of the


Income Capitalization Approach analysis. Capitalization rates can be determined using several sources and methods. The fol- lowing four techniques are the most common:


• Recent Comparable Sales • Investor Surveys • Market Participant Interviews • Band of Investment Technique


Comparable Sales In analyzing existing sales, it is common to select more current sales outside the market than older sales within the market area. Capitalization rates for self-storage facilities have decreased 50 to 100 basis points over the last 12 months for all classes of property. The range is typically between 5 percent and 7 percent. Buyers will look at current in-place income and expenses, as this is how lenders are underwriting properties. Table 10.5 provides general ranges based our clas- sification system.


Investor Surveys The potential investor pool for a self-storage as- set includes national, regional and local investors. While all of these groups place emphasis on local cap rates, regional and national investors 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 10.2 provides a historical illustration of capitalization rate statistics as surveyed by PriceWa- terhouse Coopers (PwC) that Colliers considered to be relevant.


According to the 4th quarter 2014 Real


Estate Investor Survey, capitalization rates for self-storage on a national basis has declined each


Chart 10.1 – Operating Expenses


Advertising 6%


Administrative 12%


Taxes 21%


Insurance 5%


Payroll 28%


Management 14%


Utilities 8%


Repairs & Maintenance 6%


Source: Colliers International and PwC Real Estate Investor Survey


Table 10.5 – Colliers Property Rating System A


B Characteristics Excellent ***** **** Good C Average ***


Fair


Cap Rate Range 4.50%-5.5% 5.5%-6.5% 6.0%-7.5% 7.5% and Up ** Ranges subjective and based on Colliers internal database and market data


Chart 10.2 – National Capitalization Rate Averages


0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%


2Q 2009 4Q 2009 2Q 2010 CIVAS PwC 4Q 2010


2Q 2011


4Q 2011


2Q 2012 4Q 2012 2Q 2013 4Q 2013 2Q 2014 4Q 2014 2Q 2015 Source: Colliers International and PwC Real Estate Investor Survey 2016 Self-Storage Almanac 115


D **


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