About Our Latest Report
Our newest edition of The SkyView Quarterly Pulse features the latest macroeconomic developments, an unmatched REIT performance analysis, and in-depth commercial real estate transaction data. By combining our exclusive insights with expert analysis of current trends in Self Storage, Healthcare, and Manufactured Housing, our report offers a distinctive perspective to equip commercial real estate owners with the knowledge required to stay ahead of the competition.
Table of Contents
SkyView Advisors Key Timeframes
SkyView Advisors On Market Data – 2022
SkyView Advisors Offer Matrix – 2022
The State-of-the-Market | Macro-Economic Factors
Self Storage | REIT Performance
Self Storage Industry Transaction Analysis
Overview: REIT Operating Fundamentals
REIT Data Summary
Implied Cap Rate History
Acheived Rates
Period Ending Occupancy Rates
Q4 2022 REIT Data by MSA
Healthcare Real Estate | REIT Performance
Overview: REIT Operating Fundamentals
REIT Data Summary
Implied Cap Rate History
Acheived Rates
Period Ending Occupancy Rates
Manufactured Housing | REIT Performance
Overview: REIT Operating Fundamentals
REIT Data Summary
Implied Cap Rate History
Rent Per Site
Period Ending Occupancy Rates
SkyView Advisors' Key Timeframes
Our metrics reflect the average time from offering memorandum release to call for offers deadline, average days in due diligence, average days in the closing period, and mean of the earnest deposit percentage for each deal size. This data creates full transparency on the transaction process timeline.
Below, SkyView’s on-market data is reflects all 12 months of 2022, categorized by deal size.
SkyView On Market Data - 2022 Recap
Deal Size
Average Days from OM Release to CFO
Average Days in
Due Diligence
Average Days in Closing
Period
Average Earnest Deposit
Percentage
Less than $5 million
Average Days from OM Release to CFO
31 Days
Average Days in
Due Diligence
39 Days
Average Days in Closing
Period
41 Days
Average Earnest Deposit
Percentage
1.88%
$5 Million to $10 Million
Average Days from OM Release to CFO
30 Days
Average Days in
Due Diligence
35 Days
Average Days in Closing
Period
21 Days
Average Earnest Deposit
Percentage
1.45%
$10 Million to $25 Million
Average Days from OM Release to CFO
28 Days
Average Days in
Due Diligence
39 Days
Average Days in Closing
Period
23 Days
Average Earnest Deposit
Percentage
1.09%
More than $25 Million
Average Days from OM Release to CFO
34 Days
Average Days in
Due Diligence
48 Days
Average Days in Closing
Period
31 Days
Average Earnest Deposit
Percentage
1.13%
The SkyView Offer Matrix - 2022 Recap
The offer data below is broken out by deal type: stabilized, lease-up, and C/O deals. The average number of offers per closing for each deal type is featured to the right of each asset type.
Of the opportunities across the timeline presented in the data below, it is evident that on average, stabilized deals with value-add opportunities such as implementing a conversion or expansion, or adding in tenant insurance programs and competitive market rents, is lucrative to buyers in the current climate.
However, based on the SkyView Offer Matrix, lease-up deals are also in steady demand, as the average amount of offers throughout 2022 matched the value-add, stabilized opportunities.
*It is notable that through June 2022, the average amount of lease-up offers per closing was 4, and by the close of 2022, that average number rose to 6.
Demand is present for all self-storage deals; however, the buyer pool remains smaller for C/O deals (certificate of occupancy) that have been newly completed.
Deal
Type
Average Number of Offers per Closing
Stabilized
6 Offers
Lease-Up
6 Offers
C/O
4 Offers
The State of the Market - Macro Economic Factors
Economic shifts dractically impacted the market throughout 2022, but as we begin to conclude quarter one of 2023, signs of normalcy are beginning to shed light on the market. The historic rise of inflation and interest rate hikes in quarter two of 2022 shook headlines as the industry’s most significant headwinds. These headwinds directly impacted several critical facets of the industry, including future development, rental rates, and cap rates.
However, inflation slowly began to slow over the back half of 2022, with December demonstrating the most significant decrease to end the year. From an operational standpoint, owner / operators still continue to bolster rents in order to keep up with inflationary pressure that exists. As we’ve seen in the previous year, development costs, along with a high cost of debt, will result in limited new supply and some funding challenges in the near future. While these factors do present obstacles on the acquisition side in the near term, strong demand will continue to create opportunities for owners to capitalize on their assets and further establish a market footprint across Self Storage, Healthcare, and Manufactured Housing.
The visual below demonstrates that in 2022 our economy witnessed the highest rate of inflation in 40 years. However, a healthy average offer count above supplements early signs of market stabilization as inflation trends have decreased steadily over the past several months. The recent inflation decrease is reflected in the very far right of the visual below.
As the graph above indicates, inflation has decreased steadily from approximately nine percent from the middle of 2022, down to just over six percent currently. Conversations surrounding a drastic economic downturn have softened, with many experts predicting that if a recession occurs, it would take place later in the year than expected. The Federal Reserve has stated a goal to lower inflation down to two percent or less, which will require a long-term timeframe given the current challenges.
Construction costs remain high and development metrics are well below pre-pandemic volume. We’ve recently witnessed a slight uptick in new supply under-construction metrics, as a handful of large metros have seen an increase in under-construction supply to start the year.
Positive trends in the market over the last several months will continue to bolster recession-resilient asset classes such as healthcare, self storage, and manufactured housing, as the economy slowly trends towards stabilization.
Self Storage
REIT Operating Fundamentals
Consensus revenue growth and demand has been strong to begin 2023. While the widening bid /ask spread between buyer and seller is still in effect, there is still an appetite for strong investment opportunities among REITs and private equity firms. Below are key takeaways that directly impact the current market and the outlook moving forward into 2023. Overall, each REIT had positive trends to report that align with return to normalcy in the short-term.
With limited new supply and high-quality opportunities on-market, transaction activity is down everywhere, but REIT revenue growth was evident across the board. Extra Space Storage reported 17.4 percent revenue growth, which is the highest in the company’s history. Capitalization rates are higher than in recent years, and given the paucity of transactions, each deal is unique. Transactions that are stabilized will continue to command stronger cap rates.
Move-in rates were on new tenants are down year-over-year while same store achieved rates are up by more than 10 percent for all REITs. Most stores expect existing customer rent increases to boost profits and drive growth in 2023. Additionally, metrics for every REIT remain above pre-pandemic numbers, which is an encouraging sign moving forward.
Moreover, Public Storage noted that move-in volume is up more than 11 percent, even with lower transaction activity in over the last year to supplement that demand. Public Storage average tenure of in-place tenants is approximately 37 months, while NSA provided an average length of stay just north of 40 months. Each REIT indicated that a slowdown in occupancies is to be expected throughout the year due to seasonal turnaround.
As far as targeting opportunities, markets with large populations, lower levels of supply, high household incomes and a strong renter-occupied population continue to be the focus when considering long-term risk-adjusted returns. Public Storage projects a return of approximately eight percent cash-on-cash yields on development opportunities in 2023.
REIT Data Summary - Q4 2022
The visual below summarizes the most recent overall REIT performance metrics. Occupancy trends, revenue increases, expense increases, net operating income gains, and rates achieved year-over-year for quarter 4 of 2022.
The industry is very well positioned above historical numbers, despite outside headwinds. Moreover, the year-over-year NOI is on average 15 percent higher than it was last year, demonstrating the resiliency of the asset class, the need for storage space, and robust, ever-increasing fundamentals of the industry. Achieved rates are at an all-time high and are continuing to rise as demand is still very strong. With high occupancies, the REITs can push rates on their in-place tenants to record levels.
Proprietary Self Storage REIT Implied Cap Rate History
*The implied cap rate data indicates the market value of each REIT.
The implied capitalization rate is a culmination of the company value and total debt of each company divided by its NOI.
Implied self-storage REIT cap rates were steadily hovering around four to five percent from 2018 to 2020. Once the pandemic hit, demand increased and asset performance improved. From Q2 of 2020 until Q4 of 2021, cap rates began to trickle down from the mid four percent range to the mid three percent range. Once interest rates began to rapidly increase in the first half of 2022, cap rates began to climb once again, as visualized below.
All five REIT implied cap rates continued to climb at the conclusion of 2022.
Achieved Rates & Occupancies (Same Store)
Achieved Rates and Achieved Occupancies Among REITs are displayed below. The timelines date back to 2018 and reflect rate trends for each quarter.
REIT rate trends remained consistent from Q1 2018 to Q2 2020. Rates began to climb in Q2 of 2020 due to strong demand, yielding all-time-high rental rates, while occupancies subsequently elevated to their peak as well. Achieved rates have continued to rise since the pandemic surge, with the average achieved rate surpassing $20 at the conclusion of 2022.
Achieved rate movement is demonstrated below.
As shown by the data below, Q4 represents a slowdown season for REITs across the board.
Average occupancy remained consistent around the 90-92 percent range from 2018 to Q1 of 2020. The pandemic impact was evident starting in Q2 of 2020, as the demand for storage reached new highs with occupancies growing to the 94 percent range during the peak of COVID-19. In 2021, occupancies increased even further to all-time highs of 96 percent as displayed below.
In 2022, same store occupancies witnessed similar, steady growth near the 2021 high, before experiencing seasonal slowdown in the back half of the year.
Period ending occupancies trends for each REIT are reflected below.
Q4 2022 REIT Data by MSA
Below is the average same store occupancy and average same store achieved rate by metro area for each REIT.
The average same store occupancy checks in at 92.76 percent, while average same store achieved rates came out to $20.55.
HealthCare Real Estate
REIT Operating Fundamentals
The Healthcare Real Estate sector witnessed positive signs in the market that indicate a steady return to historical norms. Overall, each Healthcare REIT experienced slower transaction activity in the back half of 2022, but still maintained strong same-store occupancies and minimal pushback on increases due to robust demand, specifically with outpatient services. Ventas reported strong leasing performance and same-store occupancy statistics of 92 percent, which is the highest they’ve experienced since 2017. Healthpeak witnessed 5.4 percent same-store growth and 3.6 million square feet of new and renewed leases, the highest ever for the company. Moreover, Welltower reported same store occupancy statistics at 95 percent, further validating the demand and the ability to fill and renew space.
Development and redevelopment are points of emphasis for the Healthcare REITs. Healthcare Realty specifically noted a focus on development and redevelopment, expecting to witness returns of 100 to 200 basis points, while projecting even higher redevelopment returns of 8 to 11 percent. Healthcare Realty also plans to ramp up acquisitions, as secured financing has drastically improved since November. Secured financing drives nearly 2/3 of MOB buying power for Healthcare Realty and is a critical component to acquisitions across the board.
Desirable pricing expectations among all REITs were noted at the 7 percent IRR range. Welltower officials listed a desirable investment at a 7 percent IRR and noted that they are now approaching 8 percent IRRs for acquisitions. The REITs generally expect a 7 to 8 percent return on develop costs as well, with an eye towards increasing development in 2023 as the market steadily softens. Demand will ultimately be the driving force; Healthpeak has noted that their new developments are fully-funded and nearly 80 percent leased.
Overall, there is a historically high demand for medical office space with healthcare employment recently growing by 4 percent year-over-year. Additionally, physician groups are committed to space in this most-pandemic era, now more than ever.
REIT Data Summary
Below is the Q4 data summary for the Healthcare REITS. This includes ending occupancy, in addition to YoY revenue, expense, and NOI increases. NOI / occupied square footage, average lease terms, building sizes, and acquisitions are represented as well.
The average ending occupancy (same store) of all five REITs was a robust 92.5 percent, with three of five REITs experiencing slight increases in occupancie year-over-year.
Implied Cap Rate History
*The implied cap rate data indicates the market value of each REIT.
The implied capitalization rate is a culmination of the company value and total debt of each company divided by its NOI.
Implied Healthcare REIT cap rates steadily declined from 2018 to 2019 before rising significantly at the start of 2020. From quarter two of 2020 until quarter one of 2022, implied cap rates steadily declined before rising in the back half of 2022. Implied cap rates began to level off slightly to end 2022.
Below is the visualization.
Achieved Rates & Occupancies (Same Store)
Achieved Rates and Achieved Occupancies Among REITs are displayed below. The timelines date back to 2018 and reflect rate trends for each quarter.
Since the start of 2018, rates steadily increased for each REIT. Welltower experienced the sharpest fluctuation with a notable decline in rates throughout 2020, before surging in the first half of 2021. Achieved rates remained steady and rose slightly among each REITs to close out 2022.
Period ending occupancies are reflected below. Consistent, strong occupancies are reflected across the board from 2018 to 2022, further cementing the strength of the healthcare real estate sector.
Manufactured Housing
The manufactured housing sector has shown resiliency throughout market shifts, specifically during 2022. Across the board for all three REITs, occupancies remained very healthy as the demand for affordable housing options continues to take center stage despite outside headwinds. Sun Communitiies reported that same property NOI growth was very solid in 2023, noting that low supply and high demand is bolstering the manufactured housing market. They executed 2,000 new expansion and development sites, which was on the high-end of guidance for the REIT in 2022. Sun Communities had a combined occupancy of 97 percent on Manufactured Housing and RV assets. Meanwhile, Equity Lifestyle Properties witnessed a 16 percent increase in sales volume, and a 28 percent increase in home prices in 2022, which certainly contributed to 4,000 new homes being built in the last five years.
Every REIT noted that demand for homes increasing amid market fluctuations. For this reason, high quality assets still command the best terms. Equity Lifestyle Partners referenced nearly $93 million of secured debt maturing in 2023, and the in-place rate on this maturing debt is 4.9 percent. Additionally, acquisitions across the board are down due to uncertainty with valuations and cap rates, and the need to develop vacant sites and fulfill a backlog of homes. UMH properties specifically highlighted 4,000 vacant sites that need to be prioritized, along with 1,000 homes in inventory, before growing through acquisitions.
Expenses for all three REITs increased as the general cost of upkeep per park rose with economic shifts in 2022. UMH Properties noted expenses increasing over ten percent due to general park maintenance costs and payroll increases. Sun Communities experienced a 5.8 percent increase in expenses due to turnover costs as well. However, there will be new opportunities to recoup cash flow through new tenant leases. Extended leases throughout COVID have been a factor in successfully raising rates, but as those extensions expire, each REIT will take the opportunity to raise rates on new tenants.
Although acquisitions were down in 2022 across the board, the cost of development is slowly starting to come down and albeit market challenges, rents still remain strong. Same property income / NOI growth remained healthy throughout the year. UMH properties noted same property NOI increase of 3 percent in 2022, equating to $2.7 million, in addition to positive indicators of increased sales volume mentioned above. With all three REITs performing well with revenue and increasing development as the market softens, the outlook for manufactured housing is bright as the need for affordable living options continues to be a need across the country.
REIT Data Summary - Q4 2022
Below is the Q4 data summary for the Manufactured Housing REITS. This includes ending occupancy, in addition to YoY revenue, expense, and NOI increases. Rent per site and quarter four acquisitions are represented as well.
The average ending occupancy (same-store) of all three REITs was strong at 92.9 percent.
Implied Cap Rate History
*The implied cap rate data indicates the market value of each REIT.
The implied capitalization rate is a culmination of the company value and total debt of each company divided by its NOI.
Implied Manufactured Housing REIT cap rates have fluctuated drastically over the course of 2018 to 2022, with the lowest implied cap rates occurring in the latter half of quarter four each year, following a strong seasonal uptick trend in quarter three.
These trends are visualized below.
Rent Per Site & Ending Occupancies (Same Store)
Manufactured housing rent per site and ending occupancies Among REITs are displayed below. The timelines date back to 2018 and reflect rate trends for each quarter.
As visualized below, there is a steadily increase of rent per site among each REIT since the beginning of 2018. As demand remains strong and supply is relatively limited, same store rent per site is continuing on an upward trajectory.
Below are the same store occupancy statistics dating back to 2018. Occupancies have remained stable over the past four years, demonstrating the resiliency of the asset class.
Sun Communities and Equity Lifestyle Properties have achieved higher occupancies in the mid-to-high 90’s, while UMH Properties resides in the high 80’s, even with a growth spike at the beginning of 2020.
These trends are visualized below.
Closing Remarks
As we continue to build our proprietary dataset and technology stack, our analytics will continue to evolve and lead the way. Our unique transaction analysis directly correlates to market conditions.
This next-level combination of informative statistics is geared to help you formulate a strategic business plan for your asset, regardless of your position. We look forward to leading the way as thought leaders in order to help you achieve your ultimate goals.
Contributions:
Steven Paul
Senior Financial Analyst
Bryce Josepher
Head of Marketing
Scott Schoettlin
Managing Director
Maps Courtesy of Yardi Matrix
