Self-Storage Deals: Underwriting Now Based on Reality, Not Hope

Institutional capital is still flowing into self-storage, but the underwriting landscape has fundamentally shifted since 2021. Buyers are no longer relying on hopeful projections; they are underwriting based on today's achieved rents. This change, highlighted by Tom de Jong, Executive Vice President at Colliers and founding principal of the De Jong Self Storage Team, means sellers must recalibrate expectations. De Jong, who has closed transactions in 32 states, notes that properties with strong in-place income in high-barrier markets like Los Angeles, Boston, and New York are attracting the most interest. Conversely, markets like Miami, Austin, Nashville, and Las Vegas, which saw heavy new supply, have seen institutional capital pull back.

A surprising trend is that mom-and-pop-operated facilities are fetching the most aggressive cap rates. Buyers see management upside in these properties, which often lack professional revenue tools, offering a clear path to value-add improvements. In contrast, already-institutionally-managed facilities are treated more as yield plays, with less aggressive pricing due to limited upside. Additionally, institutional buyers often operate multiple funds with different criteria—core funds seek stabilized assets, while value-add funds chase lease-up risks. This means the same buyer might pass on a deal for one fund and pursue it for another.

For sellers, the key takeaway is that current cash flow now outweighs pro forma projections. Properties with real, demonstrated income in markets with high barriers to entry see the most competitive interest. The days of underwriting on hope are over; today's disciplined buyers demand reality. This shift underscores a more mature market where fundamentals matter more than ever. As de Jong emphasizes, understanding these dynamics is crucial for sellers looking to navigate the current environment successfully.