CHICAGO—The nation's largest self-storage REITs continue to rackup impressive gains in revenue and implied cap rates for theseproperties have sunk to historic lows, according to the latestoverview of the industry just published by MJPartners, a Chicago-based firm.

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Public Storage, for example, by far the largestowner in the US with about 2,234 properties, now has an implied caprate of 4.0%. And Extra Space Storage, which has1,083 sites, has an implied cap rate of 4.5%. The other two bigplayers, CubeSmart and Sovran,have implied cap rates of 5.2% and 5.7%, respectively.

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“We see no headwinds until development starts to pick up,”Marc A. Boorstein, a principal of MJ Partners,tells GlobeSt.com.

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And revenue for the third quarter among the big four increasedfrom 5.5% to 7.7% over the same period last year, and net operatingincome increased from 7.3% to 10.8%. Occupancy levels seem to havetopped out, however. Once again, Public Storage had the highestoccupancy rate at 94.7%, the same as last quarter. The other threeexperienced slight declines or increases, but all stayed over 90%.But a few years ago, Boorstein says, the big REITs considered 85%the top occupancy rate, but customers kept coming in “and they arenow above 90%; we've never seen that before.”

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In the past year, one of the notable features about theself-storage sector was that even with all this revenue, newproduct remained remarkably scarce. According to Boorstein, thedevelopment process remains time-consuming and lenders have notgotten completely comfortable with self-storage because each newproperty starts out with zero occupancy. However, he adds that nowthe principal players, especially Public Storage, are starting tolaunch new development.

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Public Storage, for example, now has $342 million developmentpipeline, according to MJ Partners. And in perhaps an even biggerillustration of its confidence, the REIT has begun acquiringself-storage sites with zero occupancy and trusting its ability toget them leased up, Boorstein says. That confidence seems to stemfrom the improved management techniques put in place by the majorREITs, which have allowed them to increase rental rates and revenuewithout losing customers.

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“You can't argue with the results anymore,” says Boorstein. “Thecap rates are at all-time lows and share prices are at all-timehighs.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.