{"id":5803,"date":"2024-03-18T13:39:30","date_gmt":"2024-03-18T13:39:30","guid":{"rendered":"https:\/\/listselfstorage.com\/us\/industry-insights\/?p=5803"},"modified":"2024-10-09T14:57:00","modified_gmt":"2024-10-09T14:57:00","slug":"value-what-value-by-tom-de-jong-executive-vice-president-de-jong-i-becher-self-storage-team-of-colliers-international","status":"publish","type":"post","link":"https:\/\/listselfstorage.com\/us\/industry-insights\/value-what-value-by-tom-de-jong-executive-vice-president-de-jong-i-becher-self-storage-team-of-colliers-international\/","title":{"rendered":"Value? What Value? – By Tom de Jong (Executive Vice President) de Jong I Becher Self Storage Team of Colliers International"},"content":{"rendered":"


\nSelf-storage buyers always ask about CAP rates. First, a capitalization (\u201cCAP\u201d) rate in principle is quite a simple calculation \u2013 take the Net Operating Income (NOI or EBITDA) and divide it by the asking price and the resulting number is the CAP rate. This represents the return an investor would expect over a one-year period. In some cases, it is the expected first-year income, in other cases it is the most recent (aka trailing 12-month) annual net operating income.<\/span><\/span><\/span><\/p>\n

Capitalization Rate = Net Operating Income \/ Current Market Value (or asking price)<\/b><\/span><\/span><\/span><\/p>\n

Sounds simple. What\u2019s not to love about a CAP rate! The issue in the self-storage industry is that the basis for gross income and total expenses isn\u2019t quite as clear-cut as it may be with a NNN leased investment property where the rent is known, and the expenses are passed through to the tenant(s). In self-storage, there is no certainty in what gross income will be for the next twelve-month period. With the short-term nature of leases and dynamic pricing models, rents can fluctuate quite a bit. Looking at the most recent twelve-month gross income numbers is the easiest way to determine the gross income number, however, in most cases, this leaves money on the table and doesn\u2019t give credit for potential improvements in income (rent increases, addition of tenant protection income, etc.). Buyers today will generally underwrite the CAP rate based on the most recent twelve months\u2019 gross income numbers.<\/span><\/span><\/span><\/p>\n

On the expense side, the math can get fuzzier. If a property is professionally managed by a 3rd<\/sup> party the reports can be relatively clean and require only minimal adjustments. One expense to keep an eye out for is property taxes, in many cases this is paid by the owner, not the manager and will need to be added back and then adjusted based on a post-sale reassessment.<\/span><\/span><\/span><\/p>\n

If a property is owner managed there are any number of adjustments that may be required. These could include:<\/span><\/span><\/span><\/p>\n