Self-storage facilities, those usually drab buildings on city outskirts where people stash their old sofas, heirlooms and other keepsakes, are now the biggest-ticket properties in commercial real estate—at least by one measure closely tracked by investors.
Acadia Realty Trust, a real-estate investment trust, recently sold 14 self-storage properties scattered across the New York metropolitan area for roughly $300 million to Storage Post and real-estate investment firm Heitman LLC. Storage Post is one of the largest closely held self-storage companies.
While the deal wasn’t huge by Wall Street standards, it raised eyebrows among investors because the capitalization rate on the deal was low, about 5.5%. The capitalization, or cap, rate is determined by dividing the annual net income of a property by its price. That essentially tells an investor what the building yields on an annual basis, the same way a bond’s yield is its interest rate. As the amount that an investor is willing to pay for a building rises, the cap rate falls. In other words, falling cap rates means rising values.
Read more about the storage sector’s surge.