Nebraska Self-Storage Market Overview
Transaction Velocity
Nebraska’s self-storage sector held strong in 2024 and reflected a year-over-year increase from 2023 in transaction velocity. While the total net rentable square footage (NRSF) transacted was down, the average NRSF of facilities that traded marked an increase when accounting for the decline in overall sales count.
Off-Market Decline
There has been a major increase in sales occurring on-market versus off-market in Nebraska, which can likely be attributed to increased requirements from lenders and higher levels of complexity with each transaction. Moreover, sellers continue to seek comparable offers to those that they may have received in a much more favorable borrowing environment, such as 2020 through Q2 2022.
Velocity by NRSF
There has been a consistent decline in the NRSF transacted across T-36. While the transaction volume (by dollar amount) has increased YOY, the total square footage of storage has declined in the same period. This is primarily attributed to sellers’ shift from off-market dispositions to on-market, resulting in higher sale prices per NRSF, and better overall returns for sellers.
Sellers have returned an average of 70.37% more on the sale of their storage facility when they list the property on-market, versus conducting a private, off-market sale.
Economic Context and Borrowing Costs
The U.S. 10-year Treasury, which serves as a baseline for commercial lending costs, climbed to recent highs. However, the market observed a rate cut from the Fed in September 2024. Prior to the cut, the market had seen consistent rate cuts for the last four years, with the 10-year Treasury peaking at 5%. At the time, the 10-year Treasury trended downward accordingly, but as the Fed continued to announce rate cuts through end-of-year, the 10-year Treasury reacted in an unfavorable way by seemingly reversing the Fed’s schedule of rate cuts. This defied the historical reaction behavior of the 10-Year Treasury and has made it increasingly challenging to secure favorable lending.
Transactions by Deal Size
Likely due to higher-than-average interest rates, fewer institutional-sized transactions are being completed on an annual basis, and the most frequent transaction sizes are for trades less than $1 million. The majority of Nebraska self-storage investors for 2024 were private, existing storage operators.
Private-client investors tend to have more flexibility and overall discretion with their investments; meanwhile, those of publicly traded real estate investment trusts stem, in large part, from their existing relationships with local and regional lenders. In turn, private investors can be more competitive with their offers to seek additional market share in exchange for a slightly reduced internal rate of return that can be off-set, many times, with rental rate increases and improved management.
Resistance and Adaptation
Despite rising interest rates, Nebraska self-storage deals are trading at in-place cap rates that are well below the cost of borrowing. Due to stable cash flows and reduced management responsibilities, self-storage is increasingly sought after. The autonomy to adjust rental rates with ease for long-term growth makes the asset class desirable to both investors and lenders.
For lenders to be comfortable with extending loans to investors that may be negative-leveraged, lenders may require accurate sales and rental rate comparables to accompany opportunities, along with a detailed financial analysis (both on current and projected/pro-forma) that thoroughly explains and details any adjustments, add-backs, or assumptions made.
