The class A, class B, and class C grading of assets in self-storage real estate has long been a way of distinguishing between property types; but how, exactly, are those classes defined? Is age, size, amenities, or location of the property the biggest factor in determining property class? And, more importantly, are members of the industry on the same page when evaluating these assets? Chris Sonne, managing director of Cushman & Wakefield’s Self Storage Industry Group, says people speak of first- and second-generation facilities or class type without really providing a definition. Sonne prefers to think of product in terms of market conditions, and undersupplied local trade areas are best.
All Things Considered
Aaron A. Swerdlin, Senior Managing Director for Houston, Texas-based Storage Investment Advisors, LLP agrees that firm definitions of these classifications are difficult to nail down. “That’s the million dollar question, and the basis of many arguments,” he says. He also believes it is a common misconception that a beautifully built project with all the bells and whistles is a class A facility. “I couldn’t disagree more,” he says. “I start with the real estate and work from there. It’s usually fairly easy to rehab a facility and bring the physical plan up a notch or two (from a C to a B or a B to an A). What is nearly impossible, however, is to take a bad location and make it a good one.” Swerdlin goes on to say that the facilities where the underlying real estate is high quality have experienced little value erosion, while facilities in secondary locations or secondary markets have seen 10 to 15 percent value erosion. Nonetheless, real estate isn’t the only factor that differentiates facilities; the age, amenities, and condition of the property factor in as well.