Self-Storage Valuation • Section 15 This modeling underscores the importance of distinguish-
ing between economic and physical vacancy. Due to rent loss or nonpayment, there is usually credit loss on top of physi- cal vacancy. Plus, concessions for new move-ins increases economic occupancy over physical occupancy. However, in recent years, complex revenue enhancement models (or the ability to raise rents on existing tenants) have offset much of the credit and concession loss. Typically, a revenue enhance- ment model will raise rents on an existing tenant from seven percent to nine percent within the first nine months of occu- pancy (as shown in the robust 2018 growth in EGI).
Operating expenses historically at the
subject property should be compared to national data, such as the Self-Storage Expense Guidebook ...
Another test of reasonableness to forecasting collected
income or EGI is the Cost of Occupancy (COO). The COO is the average annual rent of a unit (total rent collected divided by occupied units) compared to average annual household
income. In general, a ratio near two percent suggests rent upside. Alternatively, a ratio above 2.5 percent suggests less upside. In this case, the COO is 1.58 percent, suggesting con- tinued upside in collected rents. As one person noted, some people spend more on coffee than the COO of a self-storage unit. So, who would bother to spend a Saturday moving a unit for a savings of seven percent to nine percent?
Operating expenses historically at the subject property
should be compared to national data, such as the Self-Storage Expense Guidebook (also published by MiniCo) and expense comparables. Data should be analyzed by square foot and as a ratio of EGI. An example is presented in Table 15.4 below.
The data indicates that the subject expenses as a dollar
amount per square foot are high, and as a ratio, are close to the indicated range. It is important to note that in this case, real estate taxes are forecast to increase substantially due to local taxation laws and the definition of market value that as- sumes a sale. Real estate taxes have been rising in the sector, so a careful review of data and local taxation ordinances are warranted. Similarly, insurance, on-site management, and advertising costs have been rising in the sector and should
Units
Rentable SF Expense Year
Real Estate Taxes Property Insurance Utilities
Off-Site Management On-Site Management Advertising
Miscellaneous Ground Lease
Off-Site Management (Percent of EGI)
692
635
749
$1.59 $0.18 $0.34
Repairs & Maintenance $0.43 Administration
$0.57 $0.87 $1.20 $0.33 $0.00
67,099 67,059 75,721 79,105 2019
2019 2019 2019
Effective Gross Income $16.18 $19.89 $15.80 $17.36
$1.38 $1.12 $2.60 $0.29 $0.28 0.33 $0.29 $0.25 0.16 $0.48 $0.39 0.30 $0.63 $0.55 0.47 $1.08 $0.81 1.08 $1.33 $1.15 1.00 $0.34 $0.26 0.23 -$0.05 -$0.02 0.00 0.00
316 520
$18.79
$1.56 0.35 0.28 0.47 0.59 1.08 1.67 0.31 0.00 0.00
33.63% 5.77%
30,410 2017
$11.54
$1.40 0.12 0.44 0.27 0.31 0.00 2.23 0.03 0.00 0.00
Operating Expense Ratio 34.05% 28.93% 30.34% 35.51% 41.66% 5.39% 5.41% 5.14% 6.22% 0.00%
Source: Compiled by NKF 2021 Self-Storage Almanac 135
54,815 2019
$11.37
$1.38 $0.12 $0.44 $0.27 $0.30
$2.20 $0.03
41.66%
$13.43
$1.67 $0.13 $0.43 $0.14 $0.47
$2.91
$13.51
$1.79 $0.13 $0.45 $0.15 $0.60
$2.39
791
318
30,860 Year 1
$14.14
42.83% 40.78%
$1.59 $0.14 $0.45 $0.29 $0.47 $0.71 $2.27 $0.16 $0.01 $0.00
43.01% 5.00%
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