Adventures in Appraising Self-Storage Units

When appraising a self-storage facility, it is all about the features

The adventures truly never stop for the team at Argianas & Associates. We’ve appraised nearly every type of property you can imagine, even the most unusual. Baseball stadium? Check. A Chicago dairy? Yes ma’am. An amusement park? We don’t want to brag but… yes!

These unusual properties fall under the umbrella of special purpose properties. These are limited use properties that have a unique design, layout or other features that limit its use for purposes other than the one for which it was built. Another building that falls under the umbrella of special purpose properties is self-storage facilities. And yes, we’ve appraised them, both single properties as well as entire portfolios of self-storage facilities.

The Self-Storage Strategy

When appraising a self-storage facility, the property’s market demand must be considered. Market demands include items such as area demographics, competing area, and trade differences. Trade differences are features of the self-storage facility, for example, on-site manager living quarters, climate-controlled spaces, individual door alarms, RV-vehicle and boat outdoor storage capabilities, and in-unit lighting and power outlets.

When appraising a self-storage facility, like any other property, there are three valuation techniques to consider – the Cost Approach, the Sales Comparison Approach and the Income Capitalization Approach. The Cost Approach is typically applied to determine the value of building a brand-new structure versus using an existing structure. The Sales Comparison Approach, what buyers are most familiar with, employs the use of comparables also known as “comps” of properties sold in the area. The Income Capitalization Approach is used to determine the present value of a property’s current and projected income in the future.

An Argianas Assignment

Recently, the Argianas team appraised a large, modern self-storage facility that contained nearly 1,000 rental units. It was a multi-building, masonry constructed complex that contained gated security access along with a variety of unit sizes. There was demand for the property from both residential and commercial market sectors. After careful consideration, the Argianas team decided to utilize the Income Capitalization Approach when completing the appraisal. This, of course, was still supported by the Cost and Sales Comparison approaches.


It’s All About the Features

There are unique appraisal features to take into consideration when appraising self-storage facilities. One feature to consider is the estimation of stabilized market rent. To put it simply, rent stabilization ensures that self-storage facility owners will gradually receive a stabilized level of rent from which reliable analysis can be made. Another feature is the restatement of fixed and variable operating expenses. Fixed operating expenses are those expenses that do not change regardless of the business’ revenue. Variable operating expenses increase or decrease depending on a company’s profit. The last unique appraisal feature to take into consideration is an estimate of market value for the processing of pro-forma net operating income. Pro-forma often refers to earnings that exclude certain costs that a business owner feels distorts the picture of its true profitability.

After considering these features, an appraiser needs to compute the property’s value beginning with an analysis of the market. This can be done using direct capitalization for properties that are operating on a stabilized basis. For properties that have not yet achieved optimal operating levels (stabilization), utilization of discounted cash flow analysis (yield analysis) may be the more appropriate valuation tool. Knowing which technique to utilize is where an experienced appraiser is valuable. And of course, the team at Argianas & Associates is proud to be proficient in using either of these valuation techniques.

This appraisal was commissioned by one of the largest commercial lenders in the country for refinancing purposes. The Argianas team provided quality reports in compliance with FDIC, OCC and FIRREA appraisal standards to meet the refinancing needs of the client.

From single properties to entire portfolios, no project is too big or too small for the expert team at Argianas & Associates. If you have any questions about any special purpose valuation, give us a call at 630.390.0113. Or keep informed by joining our mailing list to receive our e-newsletter featuring case studies, industry events and news, as well as informational real estate valuation topics.