09 Oct 2023
During the recent SSA Fall Conference and Trade Show, we had the opportunity to engage with industry experts, gaining insights into the current self-storage landscape. Tyler Peterson of Peterson Properties Group and James McLean discuss the state of acquisitions. Tyler specializes in secondary markets where cap rates range from 5% to 7%, and he mentions the possibility of seller financing due to favorable interest rates. Sellers are gradually becoming more open to selling their properties, realizing the changing properties market dynamics. Tyler also highlights the upcoming challenges for property owners with fixed-term interest rates expiring in 2024, potentially leading to more properties entering the market.
James: Tyler, it's great to see you again. We spoke last year at the show. Last year we talked about how you guys had to get really creative in terms of acquisitions with lender funded deals. What are you seeing now on the acquisitions front? What are your boots on the ground information telling you? We'd love to hear some of your intel.
Tyler: So I know a lot of people are wondering what's going on with the big class A's buying each other out and eliminating a lot of the supply that people can take advantage of. I wouldn't be your guy for class A, but I pretty much stick to those secondary markets. Secondary, tertiary, Texas and the Southeast. What I'm able to find is cap rates that maybe they are 5, 6, 7 caps, but maybe there's some seller financing available because of the crazy interest rate markets. Some of those class A facilities, they want a 5 cap and an 8% interest rate. This is not possible. Nobody's going to be negatively leveraged 300 bps and think it's a good idea. But we're still able to get tons of deals done by hammering those secondary markets, focusing on value add, and just making sure that you're not buying something that's at its complete total maximum value.
James: Absolutely. A good business is when everybody's able to win. But are you seeing that it's historically been a seller's market, sellers are not easy to budge. Are you seeing people more amicable to selling their facilities and budging on those prices now that self storage is coming off the highs of 2021? What are you seeing?
Tyler: And sellers are, you know, they're, as I said, getting back to reality. And so because of that, we're seeing, you know, motivation to sell. But I think they're also coming to reality because people know it's coming up in 2024. You know, people had five year, there is an election year. Yeah. So hopefully interest rates get better. But, you know, people got five year fixed terms in 2019 and in 2024, those are going to start popping. And so if somebody got a three and a half or four percent interest rate and then a six cap property, maybe that interest rate now is seven percent, eight percent, and they're still at a six percent cap rate. So now they're negatively leveraged and those people are going to have to sell or figure out how to add so much NOI, you know, value add to to to adjust that cap rate that, you know, it's going to be so capital intensive that the easiest option is to just sell. Yeah.
James: Okay. Thank you for that intel and insights and congratulations and best of luck to you and your new ventures at Peterson Property Group.
