Well, most kids are back in school and summer vacations have come and gone. It is time to get back to work and down to business.
First, let’s touch on the economy. Many experts believe we have hit peak inflation and certainly the trend is moderating. The long-term impact on CRE remains to be seen, but the unique attributes of self storage assets (short-term leases, non-concentrated rent roll, etc.) should continue to prove beneficial compared to other sectors. It’s one more reason institutional investors find the self storage business an attractive place to invest.
What does that mean for interest rates?
After beginning the year with a rapid rise in rates and little reprieve, the last two months have finally brought some relief. The benchmark US 10-Year Treasury rate now appears to be trading in a range of 2.75% – 3.50% and, although a wide range, it’s much better than the constant increase experienced in the first half of 2022.
After some market dislocation in the first half of the year, CMBS activity is picking back up. Enjoying the benefit of some lower spreads that are matriculating, transactions are now pricing in the low 5% range for your average self storage CMBS deal.
On the other hand, variable-rate bridge debt has gotten more expensive due to higher rates on the short-term end of the yield curve. As a result, bridge lenders have introduced fixed rate products that eliminate the need to purchase interest rate caps.
The market for self storage debt is fluid and potential borrowers are smart to work with experts in the field to identify the best solution available for each particular situation.
By Drew Sikula
The BSC Group
dsikula@thebscgroup.com
