—Believes Self-Storage Sector Headed for Soft Landing—
MEMPHIS, Tenn. -- (Business Wire)
Jernigan Capital, Inc. (NYSE:JCAP) today provided commentary on growth
in self-storage supply in the top 50 US MSAs. John A. Good, the
Company’s President and Chief Operating Officer, made the following
observations:
“Based on US Census Bureau data, between 2010 and the end of 2014,
estimates are that between 250 and 285 new self-storage facilities (17.5
million to 20.0 million net rentable square feet) were delivered in the
top 50 US markets, representing approximately 2.1% cumulative growth
over the five-year period (less than one-half of a percent per year).
During that same five-year period, population in these markets grew at
an annual rate of approximately 1.0% rate (approximately 5.1% cumulative
growth over the five-year period). In addition, people impacted by the
Great Recession moved into rental or smaller owned housing, with single
family home ownership declining from approximately 67.4% in 2009 to
approximately 63.7% in 2015. Population growth, movement from
single-family to multi-family housing and a slowdown in new self-storage
deliveries during this period created a backlog of demand that only new
development could fill. These dynamics also provided existing
self-storage owners (particularly the self-storage REITs) with an
unprecedented period of same-store revenue growth during the period from
2014 through mid-2016.”
Good continued: “Leaders in the sector knew that compelling revenue
growth and a discernible shortage of self-storage space would eventually
lead to new development. The only question remaining was who would
develop how much new product, how quickly and where. Would developers
have adequate net worth following the financial crisis or adequate
access to affordable private equity capital? Could developers obtain
cost-effective debt in large enough amounts to entice them into the
game? Would municipal gatekeepers entitle and permit projects in urban
infill locations such that developers could build where their customers
were moving? Or, to the contrary, would capital market and governmental
forces temper overbuilding and allow for an orderly return to
supply/demand balance?”
“Beginning in late 2015, the narrative grew louder that the self-storage
supply/demand pendulum had begun to swing. Commentary on the sector
turned bearish, and predictions of broad-based overbuilding became the
norm among both securities industry professionals and some self-storage
executives. At the time, our management team knew that development
activity was increasing (significantly in some markets). However, we
continued to experience a steady flow of development opportunities in
submarkets that continued to be underserved even in the face of new
supply. Moreover, unlike in past development cycles, we saw a more
sophisticated developer effectively engaging with municipal authorities
and capital providers. We saw these dynamics as a sign that things might
not be as bad as the “experts” were saying, and we continued to invest
in new development.”
Throughout 2017, JCAP’s analytical team and senior management has
devoted substantial time and manpower in reviewing, analyzing and
testing data provided by the various sources of market and supply
information to the self-storage sector. Based on data provided by Yardi®
Matrix and the US Census Bureau, the Company believes that during the
two-year period January 2015 through December 2016 a total of
approximately 29.7 million net rentable square feet of new self-storage
(438 facilities) was delivered in the top 50 MSAs, representing an
aggregate 3.3% increase over total supply in these markets at the end of
2014. Based on the same sources, the Company estimates that in the top
50 MSAs, 2017 deliveries will total approximately 27.0 million net
rentable square feet (337 facilities) and 2018 deliveries will total
between approximately 28.0 and 29.0 million net rentable square feet
(between 350 and 362 facilities), representing increases of
approximately 2.9% and 3.0%, respectively, over total supply as of the
end of the immediately preceding year. By contrast, some industry
professionals have gone on record predicting as many as 900 deliveries
nationwide in 2017 alone. For purposes of estimates, the Company has
assumed that facility size increased from earlier in the cycle to an
average size of approximately 80,000 net rentable square feet.
Good stated: “The data indicates that rumors of the demise of the
self-storage sector due to excessive new supply are wildly exaggerated
on a national level. Our analysis indicates that estimates of new supply
suggested by some within the sector could be as much as 80% overstated.
In addition, we believe the development cycle began in 2015 with pent up
demand from the 2010 to 2014 period, when population growth and people
leaving single-family housing significantly exceeded new self-storage
deliveries. The combination of pent up demand, continued strong
population growth in excess of 1% per year and increased mobility of
families and millennials can be expected to produce orderly absorption
of new supply in general. We have continued to monitor access to
financing and governmental activity throughout the cycle. We believe
banks have not broadly embraced self-storage construction lending due to
stricter banking regulations following the financial crisis, excess
reserve requirements imposed on high volatility commercial real estate
(“HVCRE”) loans under the Third Basel Accord and loan demand from other
real estate sectors that have less leasing risk. Moreover, as evidenced
by municipal initiatives regulating self-storage development in large
cities such as New York, Miami, Atlanta and Seattle, we believe zoning
for self-storage and permitting projects has become a significantly more
challenging endeavor for developers. Accordingly, we believe a
significant percentage of planned projects will never be built.”
“Despite our longer term bullish view on national self-storage
supply/demand dynamics, we continue to believe that some trouble spots
exist and are encouraging our developer partners to either avoid these
markets or proceed with extreme caution, looking only for the “diamonds
in the rough.” Currently, our Danger and Watch Lists include:
Danger List |
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| Watch List |
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Raleigh
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San Jose
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Nashville
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Seattle
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Portland
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Louisville
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Denver
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Milwaukee
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Charleston
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Detroit
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Charlotte
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New York
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Miami
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St. Louis
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Austin
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Boston
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Washington D.C.
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Pittsburgh
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Phoenix
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Bridgeport-Hartford
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Greenville SC
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Dallas
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Jacksonville
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San Antonio
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Houston
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Our Danger List consists of markets that we believe present a higher
risk of longer-term absorption issues and softened rates. Our Watch List
consists of markets we believe bear watching due to a higher risk of
short-term absorption issues and rate pressure resulting from the
cumulative effect of new supply being delivered in a compressed time
period (2016 through 2017), but that we believe have plenty of depth and
population growth to absorb this supply over a relatively normal
stabilization period. Despite these markets being on either of JCAP’s
two lists, we continue to believe that self-storage development is a
submarket specific art within the science of measuring supply in broader
markets, and we have invested in, and continue to find, compelling
projects in certain submarkets in some of the MSAs on our Danger and
Watch Lists.”
Good concluded: “After months of talking to developers, analyzing data,
monitoring activity, underwriting investments and challenging the
conclusions of many commentators, we are projecting that the development
cycle is in a two-year crest, with 2017 and 2018 deliveries projected to
be roughly equal. We believe fewer projects are going into planning than
in the past three years and a significant percentage of planned projects
have a strong likelihood of being abandoned. Moreover, we project that
deliveries will decline significantly in 2019. We believe the market
will absorb the 2016, 2017 and 2018 deliveries in an orderly way, with a
relatively short-term pressure on rates. In short, if the sector
continues the current trajectory of new starts, we are expecting this
development cycle to end with a soft landing in 2019 and 2020. In our
view, this is good news for the entire sector and should generate a
renewed optimism about longer term returns on investments in
self-storage, which returns have on-average led the real estate industry
over the past 23 years. Likewise, Jernigan Capital should continue to
benefit from strong lease-ups of its development investments and good
opportunities to own top quality assets in balanced markets over the
longer term.”
About Yardi® Matrix
Yardi® Matrix, formerly known as Pierce-Eislen, Inc.®, was founded in
March 2000, and acquired in July 2013 by Yardi Systems, Inc., a Santa
Barbara, California software company focused on commercial real estate
industry applications. Yardi® Matrix offers the self-storage industry’s
most comprehensive market intelligence. Yardi® Matrix Self Storage is
used for originating, pre-underwriting and managing assets for
profitable loans and investments. We are active in 133 self-storage
markets across the U.S., providing researched data on more than 27,000
self-storage facilities of at least 25,000 square feet in size,
including over 1,600 projects in some form of new supply.
For more information about Yardi® Matrix, please visit https://www.yardimatrix.com/.
About Jernigan Capital, Inc.
Jernigan Capital, Inc. is a New York Stock Exchange-listed real estate
investment trust (NYSE:JCAP) that provides debt and equity capital to
private developers, owners, and operators of self-storage facilities.
Our mission is to be the preeminent capital partner for self-storage
entrepreneurs nationwide by offering creative solutions through an
experienced team demonstrating the highest levels of integrity,
dedication, excellence and community, while maximizing shareholder
value. The Jernigan Capital team has extensive experience in over 100
U.S. markets—from acquiring and managing self-storage properties to new
self-storage development—providing JCAP with knowledge unmatched by any
lender, broker or advisor to the sector. Jernigan Capital is the only
source of construction and development capital focused solely on the
self-storage sector.
Forward-Looking Statements
This press release includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The
ultimate occurrence of events and results referenced in these
forward-looking statements is subject to known and unknown risks and
uncertainties, many of which are beyond our control. These
forward-looking statements are based upon the Company's present
intentions and expectations, but the events and results referenced in
these statements are not guaranteed to occur. Investors should not place
undue reliance upon forward-looking statements. For a discussion of
these and other risks facing our business, see the information under the
heading “Risk Factors” in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”) and our other filings with
the SEC from time to time, which are accessible on the SEC’s website at www.sec.gov.
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Contacts:
Jernigan Capital, Inc.
Investor Relations: 901-567-9580
Investorrelations@jernigancapital.com
Source: Jernigan Capital, Inc.
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