Finance • Section 12


tively dormant construction in years past has created a supply gap, and an opportunity for owners to pursue profitable new development in markets around the country.


T Self-storage


properties have exhibited strong performance metrics and, when combined with the prolonged low interest rate environment, the asset class has caught the attention of the lending community.


The Bureau of Labor Statistics (BLS) reported in November that


271,000 nonfarm jobs were added to the economy in October, out- pacing initial forecasts by a significant measure. October’s num- bers were the strongest to date in 2015, with the first nine months averaging 206,000 new jobs per month. Consequently, unemploy- ment was reported to have dropped to 5.0 percent, marking its lowest level since April 2008.


While these are positive market indicators, it is important to


note that the 2015 average was below the 2014 average of 260,000 jobs per month. Factors such as the timing and magnitude of an impending Federal Reserve interest rate increase, wariness of a stock market correction as well as capital market regulations that may be put in place going forward have kept market participants on their toes. It is also important to consider global economic vola- tility, including such variables as the volatility of energy prices. Fi- nally, potential implications of fluctuating currency values and the very important November, 2016 Presidential election will continue to play a role in the state of the market.


The Federal Open Market Committee (FOMC) is tasked with


reviewing current economic conditions and deciding whether to raise (or lower) the Federal Funds rate. The FOMC claimed in the September 2014 Federal Reserve Statement Re- garding Purchase of Treasury Securities and AMBS that policy firming was likely once unemployment reached 5.5 percent and inflation reached 2 percent. Unemployment reached and surpassed the stated 5.5 percent target, but inflationary indicators re- mained below target levels.


100.0% 95.0%


As of September 2015, inflation remained prac- tically unchanged from 12 months prior, including energy and food. Excluding these two volatile cat- egories, the index’s increase of 1.9 percent was very near the target 2.0 percent level, as reported in the Consumer Price Index Summary released by the BLS.


Many experts had expected the rate increase


to happen in mid-2015, but as of mid-November, rates remained unchanged. According to minutes from the September 17, 2015 FOMC meeting, 13 of 17 voting members felt that 2015 was the appropri- ate time for policy firming, pointing to a December increase.


75.0%


2012 3Q


2012 4Q


2013 1Q


2013 2Q


PUBLIC STORAGE CUBESMART


2013 3Q


2013 4Q


2014 1Q


2014 2Q


EXTRA SPACE STORAGE SOVRAN


2014 3Q


2014 4Q


2015 1Q


2015 2Q


Source: MJ Partners 2016 Self-Storage Almanac 123 90.0% 85.0% 80.0%


he financial landscape in 2015 continued to present self- storage owners with ample debt products to refinance existing loans and acquire new facilities. In addition, rela-


While an interest rate hike is inevitable, barring some dra-


matic occurrence rates should still remain relatively low by his- torical standards. For example, the median June 2016 FOMC Federal Funds rate projection was 1.4 percent—above the cur- rent rate of 0.25 percent but well below effective pre-crisis lev- els. Furthermore, MBA’s Quarterly Databook from September 18, 2015 projected the Federal Funds rate at 1.38 percent in Q4 2016, compared to a 1.5 percent projection for Q4 2015 from the Q2 2014 Quarterly Databook.


Capital market volatility and high transaction volume in the


first half of 2015 caused a general increase in spreads in CMBS lending. CMBS volume will not likely slow down in the next few years, as massive balances of CMBS debt originated in 2005- 2007 approach maturity, propping up refinance activity.


U.S. CMBS issuance reached over $94 billion in 2014, and as


of November 2015 issuance was over $88.6 billion. While issu- ance will likely reach $100 billion for the first time since 2007, this is well below the $124 billion projection made earlier in the year.


Another proxy of commercial real estate market health is ob-


served in CMBS and Bank and Thrift delinquency rates, which shrunk 12 consecutive quarters since Q2 2012. Heightened com- petition for new business continues to benefit borrowers, who have been able to secure higher leverage at attractive rates, with more favorable underwriting standards than existed im- mediately following the crisis.


in conjunction with the economy’s recovery. For example, MJ Partners


3rd Quarter 2015” that all four of the largest publicly traded Chart 12.1 – REIT Quarterly Occupancy


Self-storage performance metrics continued to improve reported in its “Self-Storage Market Overview


Occupancy


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