APPRAISING CHANGE they are positioned to play a key role in addressing today ’ s ever-increasing shortfall . The dated neighborhoods that were initially the norm , leaving negative connotations aside , are not comparable to the manufactured housing of the last two decades . They are no longer referred to as trailer parks , and these new communities share more with traditional single-family neighborhoods in both layout and home design . They offer amenities such as fitness centers , dog parks , pools , pavilions , pickleball and shuffleboard courts , storage facilities , community centers , gated entrances , and increased management services . Many of these changes are due to the consolidation of ownership , largely from institutional investors or REITs , because larger institutional owners have more resources to improve these assets .
Self-Storage . The self-storage industry is another example of a property type that has undergone considerable change . Like manufactured housing , the influx of institutional capital ( REITs ) — along with the evolution of design , services , and operations — has made this property type more of a business than an assemblage of storage lockers on a tertiary piece of land with limited highest and best use . The self-storage market of today is far removed from the mom-andpop-owned sites with design features like single-story elevation , non-climate-controlled units , unappealing steel buildings with driveup exterior access with limited or no security , and no on-site resident management .
The facilities are now more typically acquired and owned by institutional capital
Green Street Commercial Property Price Indexes
Index Value and professionally managed , with facilities featuring climate-controlled units , interior secure access , elevators , and drive-thru access . They also offer more services that accrue to the intangible assets of the going concern or business — services such as
A sales comparison approach to value that uses cap rates from comparable transactions without adjusting for going concern would be like comparing apples and oranges .
extensive security systems , and online lease and bill pay — plus , on-site management that operates a moving store offering supplies and rental trucks for use . In essence , these properties house a going concern that has all the characteristics and operating costs of a hotel . Institutional capital has transformed this property type so much so that self-storage as
Change in Commercial Property Values
Past Month
Past 12 Months
From Pre-COVID-19
All Property |
147.4 |
0 % |
8 % |
9 % |
Core Sector |
149.9 |
0 % |
9 % |
11 % |
Apartment |
180.1 |
0 % |
7 % |
16 % |
Industrial |
236.7 |
0 % |
18 % |
42 % |
Mall |
88.9 |
0 % |
12 % |
-8% |
Office |
107 |
0 % |
-1% |
-9% |
Strip Retail |
120.7 |
0 % |
15 % |
7 % |
Health Care |
147.9 |
0 % |
4 % |
4 % |
Lodging |
109.8 |
0 % |
8 % |
1 % |
Manufactured Home Park |
320.5 |
0 % |
6 % |
33 % |
Net Lease |
105 |
0 % |
-8% |
6 % |
Self-Storage |
293.1 |
0 % |
28 % |
58 % |
Source : Green Street |
|
|
|
|
a CRE asset category experienced the highest value appreciation in 2021 over the past 12 months from before COVID-19 , jumping 28 percent , according to Green Street .
The evolution of the self-storage facility is leading to bifurcation of the classification of these facilities between institutionally owned , Class A properties , and the remaining 70 percent of inventory owned and managed by mom-and-pop entities . Self-storage facilities are generally categorized into Class A , B , or C properties , which correspond to the facility ’ s age , condition , location , quality , amenities , and level of management . According to the 2020 Self-Storage Almanac , six public companies control 31.2 percent of the nation ’ s self-storage supply , and the 100 Top Operators ( including these six public companies ) represent 47.7 percent of the nation ’ s 2020 self-storage supply .
Class A self-storage facilities attract a particular group of owners who are institutional in nature ( REITs ) and are investing in both the business enterprise and the going concern versus solely the real estate . As a result , transactions of these type of self-storage facilities represent sale of a going concern and not just the real estate . Such transactions are typically based on a price-earnings multiple . The inferred cap rate applies to the going concern business sale and not the real estate . The real estate ( land and building ) are just one of the three types of assets contributing to the value of a going concern , and care needs to be taken not to ascribe personal property , intangible assets , or financial assets to the real estate . A sales comparison approach to value that uses cap rates from comparable transactions without adjusting for going concern would be like comparing apples and oranges .
The emphasis on class type for self-storage properties parallels that associated with flagged hotel properties , franchised restaurants , etc ., in that all are professionally managed businesses operating within a real estate asset that have elements of going concern .
PULLING IT ALL TOGETHER The complexity of going concern and business enterprise is embedded in more CRE property types than just hotels and restaurants .
When determining the market value of commercial properties , care needs to be taken to ensure that the calculated valuation reflects asset components specific to the real estate itself and not the elevated value of the going concern . The following are some recommended adjustments to separate real
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE FALL 2022