Self-storage, a positive point as CMBS arrears increase
A near-zero CMBS loan delinquency rate for self-storage facilities during the pandemic-fueled recession is helping demonstrate the industry’s resilience, according to a new report from data and analytics provider Trepp LLC.
The report, released this month, shows that while CMBS delinquency rates have generally skyrocketed during the pandemic – particularly in the hospitality and retail sectors – the CMBS delinquency rate in the self -stocking stood at 0.14% in September. For comparison, the overall CMBS failure rate hovered around 10.5%.
Self-storage, according to Lonnie Hendry Jr., head of consulting services at Trepp, is “a not very sexy income-generating type of property that is kind of the same in a rising market and the same in a falling market.”
Hendry said self-storage operators are taking advantage of tenants not asking to cancel self-storage contracts amid the pandemic, giving operators a stable tenant base. Therefore, he said, the recession-resistant nature of the industry should remain intact.
“Self-storage is fairly well insulated. It’s not something that will ever become everyone’s first choice [in real estate investing], necessarily, ”he said. “But at the same time, if you’re looking for stable cash flow and a good, solid investment in good markets, you can make a very good living operating a self-storage facility. “
Zoom on CMBS self-storage
A survey earlier this year by commercial real estate service provider Cushman & Wakefield found that just 10% of self-storage professionals cited CMBS as the best source of debt in the next 12 months, compared to 50%. who cited banks and 24% who cited life insurance companies.
According to the Trepp report, the metropolitan areas with the highest totals for CMBS self-storage loan balances are:
- Los Angeles, California – $ 808.4 million
- New York, NY – $ 638.8 million
- San Francisco, CA – $ 418.6 million
- Dallas-Fort Worth, Texas – $ 318 million
- Houston, Texas – $ 265.8 million
Of more than 1,700 CMBS loans for self-storage facilities, only three were in arrears as of September, according to the report. These three loans were spread over three metropolitan areas: Bridgeport-Stamford-Norwalk, CT; Palm Bay-Melbourne-Titusville, Florida; and Houston.
The low delinquency rate in the sector “is partly explained by the fact that the bill for a self-storage center represents a very small part of the monthly expenses of an individual or a company. So, despite a slowdown, the effect of income on self-storage demand is minimal, ”according to the report.
“As Trepp’s data shows, the self-storage industry has been relatively resilient in recent months,” the report continues. “Despite significant distress in the economy in general, the industry continues to operate without major disruption. However, despite increased demand, increased operating expenses and limited rental collection could potentially derail higher revenues. “
Resilience in action
A September report from commercial real estate data provider Yardi Matrix echoes the Trepp report.
“The real estate sector has had a difficult year as COVID-19 continues to weigh on the economy. However, the self-storage sector has demonstrated its ability to overcome economic disruptions. Street fare performance across the country continued to improve in August, with more markets recording positive growth on a year-over-year and monthly basis, ”according to Yardi Matrix.
“While there appears to be a slowdown in new storage development activity,” adds the Yardi Matrix report, “this may be a welcome relief for many in the storage industry, especially in markets that have been strongly affected by a new offer in recent years. . “