Institutional Capital Is Ready To Deploy!

Institutional money has been lining up for self-storage deals for more than a year, with new funds announcing hundreds of millions in committed capital seemingly every few weeks. Yet transaction volume has not kept pace with the headlines. So what are capital allocators actually waiting for before they put that money to work?

Tom de Jong, Executive Vice President at Colliers and founding principal of the De Jong Self Storage Team, talks with chief investment officers and acquisition directors regularly, and he says the holdup comes down to a short supply of assets that meet buyers’ return requirements, not a lack of available capital.

A Shortage Of Sellers Who Are Ready

This gap between available capital and closed deals starts with sellers, many of whom are technically able to sell but choose not to. According to de Jong, a lot of sellers are still holding on to their assets even though their capital is technically ready to be recycled. Many properties built in 2021, 2022, and 2023 do not carry much implied equity at today’s values, since rents and occupancy came in below original projections. Selling now, before the property has had a chance to grow into its valuation, means accepting a smaller return than originally planned.

That creates a standoff. Buyers are ready to act, but a meaningful share of owners would rather wait for a stronger leasing season than sell into today’s pricing.

The Leasing Season Is The Variable Everyone Is Watching

That standoff is now hinging on a single seasonal factor. De Jong says many owners and their capital partners are hoping this spring and summer leasing season will be strong enough to let them push rents and net operating income before they go to market. A good season gives sellers a better story and a better number. A soft season means more owners stay put for another cycle.

He describes the results so far as a mixed bag. Some markets are performing well. Others, particularly those that absorbed a wave of new supply over the past few years, are still struggling to post real rent increases or occupancy gains.

Deployment Moves Fast Once A Deal Is Identified

It is worth noting that the slow pace is not because institutional buyers are dragging their feet on execution. De Jong says once a buyer identifies an asset that fits their fund’s criteria and gets to an accepted letter of intent, they move quickly. Most of the institutional deals his team has closed run 30 to 40 day due diligence periods with 10 to 15 days to close, putting the full process at 45 to 60 days from start to finish.

The bottleneck is not the closing timeline. It is finding assets that match a buyer’s specific acquisition criteria at a price the seller will accept.

Private Equity Is Extending Timelines Rather Than Forcing Sales

For private equity owners specifically, the response to this standoff has been to wait it out rather than sell at a discount. Private equity funds in self-storage typically operate on five- to seven-year horizons, and some of that capital is now past its original expiration date. Rather than forcing a sale into a soft market, de Jong says most general partners are pushing their fund timelines out further, hoping to avoid leaving equity on the table. Many are targeting a sale this fall or next spring instead.

There has also been a rise in requests for partial interest recapitalizations, where a minority investor wants to cash out of a position without forcing a full sale of the asset. De Jong points to one example involving roughly seventy million dollars of self-storage where a ten million dollar minority partner is willing to accept a 20 to 25 percent discount to implied value to recycle their capital into new opportunities.

What This Means For Buyers And Sellers

For capital allocators, the message is that patience is currently the more common strategy among owners, and the properties that do trade are likely to be ones where the ownership group has a specific reason to move, rather than ones forced by market timing alone. For sellers sitting on assets with limited current equity, waiting for a stronger leasing season may be the more rational play, provided the underlying market is not one burdened by excess new supply.

About Tom de Jong: Tom de Jong is Executive Vice President at Colliers and Founding Principal of the De Jong Self Storage Team. With 19 years at Colliers, a $2B+ transaction record across 32 states, and an SIOR designation, he is one of the most recognized specialists in self-storage brokerage and investment advisory in the United States.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.

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