A different kind of ‘storage war’
Unlike the cable series, the real estate battle isn’t scripted.
While the A&E cable channel’s reality series “Storage Wars” may have introduced viewers to an often overlooked and somewhat specialized niche in the nation’s real estate industry, it hasn’t represented the “war” the sector has been going through for at least the past year.
However, a recent sale did just that, and an experienced broker in the field called it part of a “frenzy” that has become fairly typical recently.
The Stock-N-Lock Self Storage at 5333 S. Division Ave. in Wyoming was sold in November, along with a vacant adjacent lot. The 62,000-square-foot property was purchased by Birchwood Heights Equity Corp. of British Columbia, Canada.
Stock-N-Lock Properties sold the business, which has 436 rental units, for an undisclosed amount. But what is known about the selling price is that it was “substantially” more than the listing price of $2.4 million.
According to the sale’s broker, Pogoda Companies of Farmington Hills, the price exceeded the listing because the consumer demand for storage units is high, and the local sale turned into an “intense bidding war” for the Wyoming property.
“We were really not surprised by the demand for this property. The market has been building to a frenzy all year long, with buyers bidding up properties and paying prices we have never seen in Michigan,” said Maurice Pogoda, president of Pogoda Companies, which has been in the brokerage, management, investment and real estate consulting business since 1987.
“We’re the largest operator here in the state. We manage 38 self-storage facilities and we’re very in tune with the market,” added Pogoda, who represented both the seller and the buyer in the Wyoming transaction.
Pogoda said characterizing the storage market as being in a frenzy was an appropriate description and a far cry from where the sector was three or four years ago. He noted the market emerged from the Great Recession in good condition, especially compared to other commercial segments, because buying storage businesses isn’t a big-ticket item, and units are there when consumers need them.
Unfortunately, some of those consumers needing storage units were people whose businesses either went under or cut back during the recession. “When they couldn’t make it, we benefitted during that time period … because people needed a place to store their goods,” said Pogoda.
“But in the last year, the market, from a sales standpoint, has just had very, very strong legs. I don’t know how else to describe it.”
Pogoda said the Wyoming property was attractive to buyers because the Stock-N-Lock was almost totally occupied, with nearly 90 percent of the units rented. Also, the seller kept the facility in good shape, so there wasn’t much in the way of deferred maintenance for a new owner.
In addition, Pogoda said the front portion of the property was left vacant to either expand the business or build something else. “There was also a parcel next door available at a relatively reasonable price that (the buyer) was able to pick up.”
Birchwood Heights Equity has plans to expand the Stock-N-Lock and bought the adjacent site from another property owner. Pogoda said the Wyoming facility was the fourth self-storage business Birchwood has purchased in Michigan over the past year.
“He has a relatively low cost of capital. Also he was able to pay a very hefty price to outbid at least three or four other bidders. We had a bunch of people look at it and, ultimately, it turned out there were three or four groups that strongly wanted it and they bid the price up above our asking price,” said Pogoda.
After the business was listed at $2.4 million and before the sale was recorded Dec. 9, Kent County records showed a state equalized value of $949,900 for the Stock-N-Lock, meaning the value of the property alone was a shade under $1.9 million. “We felt we had a good listing price,” he said.
In the bigger picture, Pogoda felt the low cost of borrowing has helped make the self-storage market a hot commodity. He said three or four years ago that wasn’t the case, as those in other commercial real estate categories also remember.
“The spigot, so to speak, has opened up again. It was closed and then they started turning it slowly but surely. But I don’t want to say we’re back to where we were in 2005 or 2006,” he said.
“I think the lenders are more cautious now. They scrutinize the buyer a bit more. They require more equity in the deal. But there are enough financial institutions out there where you’re able to not just have one source but have multiple sources, which drives the cost of the capital down.”
Just like a developer who goes to a lender to finance an office project, having a tenant or two in the wings helps capture the loan. It’s the same in the storage realm: A buyer who picks up a facility that is largely rented has a better chance of securing the financing.
“In self-storage, the occupancy levels around the state are relatively high. Most properties are mid-80s percent occupied and that’s pretty healthy. And this Wyoming property was closer to 90 percent, and the feeling from the new buyer was he felt there was room to grow and he wanted to expand it. And that’s his intention — he is going to expand it,” said Pogoda.
To get a handle on how the self-storage industry relates to the rest of the commercial market, Crain’s Detroit Business ranked Pogoda Management at No. 22 on its list of the region’s largest nonresidential property managers last October.
Pogoda owns or manages 38 storage businesses, including two here. One is Wyoming Self-Storage at 533 36th St. SW. The other is National Storage Centers at 1236 Ball Ave. NE, just north of Leonard Street. The company also owns and manages manufactured housing communities in Michigan.
Pogoda said he sees last year’s activity in the self-storage market continuing this year. “There is no doubt, short of the unexpected that none of us can foresee. With the interest-rate climate being what it is, we anticipate that it is going to last,” he said.
“When interest rates really start to rise, that will, at least in the short term, have a dampening effect. But that’s all relative because right now you’re looking at interest rates — say, for the sake of discussion — of 5 percent on a deal like this. A few years ago, that might have been 7 or 7.5 percent. But if the interest rates are there, at 6.5 or 7 percent, that’s not the worst thing in the world, either.”