Self Storage Real Estate: Risk vs. Reward
WHAT THE FUTURE COULD HOLD FOR INVESTORS
by Ted Greene and Scott Lewis
W ayne Gretsky, the famous ice hockey player once said, “I skate to where the puck is going to be, not where it has been.” Investors, have a lot on our minds; where will interest rates go, will our tenants pay, will the economy hold up, etc. While there are many cross currents to consider with any given decision, a significant challenge for investors is making correct assumptions about the impact of changing variables and determining the proper course of action based
on the perceived impact of the sum of those variables. When investing, making decisions based on recent experiences (think 5-10 years), and extrapolating those experiences into the future antici- pating the environment will remain the same, or at least rhyme, is a classic and sometimes catastrophic mistake. Let’s examine several scenari- os that could influence real-estate going forward, and specifically the value of syndicated Self-Storage
assets. You be the judge of their indi- vidual and collective impact. First scenario: interest rates will rise. If there was one aspect of the economy that characterized the 1970s, it was inflation. Persistent for most of the decade, it choked off much of the growth in our nation’s businesses. Paul Volker, then the chairman of the Federal Reserve, had to eventually take decisive action and raise the Fed Funds rate to near 20 percent to “slay the inflationary dragon.” Money tightened, interest
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