A VIEW FROM THE STREET
Copyright 2014 by Virgo Publishing.
By: Neal Gussis and Minh Tran
Posted on: 05/01/2007



 

It’s hard to find a person without a favorite time of the year. Ski and snow sports buffs can’t wait for winter. Some favor springtime for its sense of renewal. The summer entices us with warm weather, vacations and outdoor activities. Others prefer the fall season with the charm of changing leaves and football games.

Of course, this column focuses on self-storage real estate and financing issues, not the weather. But seasonality is clearly an issue in the self-storage industry and something property owners must consider when evaluating their cash flows and facility values.

Do you know why you should pay close attention to the calendar? You may be surprised how seasonal considerations affect your storage business, as well as selling or refinancing property.

Springtime Blooms for Many Owners

Let’s start with the current season: spring. Many property owners, particularly those in colder weather climates, favor April and May because spring to late summer is the best time of the year for facility lease-up. With their more moderate climates, owners in the country’s southern regions enjoy more consistent occupancy levels year-round, yet even these operators find the spring months offer opportunities to attract new renters.

Why? Regardless of local climate conditions, spring is synonymous with “cleaning.” It’s almost as though there is a shared genetic code throughout the country that compels homeowners to clear through the clutter of their attics and garages in the spring.

Of course, our industry benefits since people can’t bear to part with their belongings and therefore require storage options. Whether the underlying factors are cultural or genetic, capitalize on this consumer cleaning impulse by promoting your facility, boosting occupancy rates and improving cash flow.

Spring also heralds the traditional launch of the propertysales listing season. Because self-storage property transactions typically require four or five months to complete, spring is the time to get started on the process. By the time your property closing arrives in late summer or fall, your rents will also more likely be stable or better than when you listed the property, thus preventing the re-trading of pricing.

Spring is also a great time to consider refinancing your property. Lenders are in stride with new allocations of funds and new annual targets to meet. This year, we see lenders providing a larger array of aggressive refinancing options than ever before.

Hot Summer Rentals

It’s not just the thermostat that rises in the summer months. So do most self-storage facility occupancy rates. 

One thing to capitalize on in the summer months is the return of students to college campuses. While most dormitory rooms haven’t grown much in size over the years, the amount of things students bring to campus has. This trend is particularly driven by the expansion of computer equipment in relatively tight living quarters.

If you own facilities near university campuses, be sure to market to the student population and manage your occupancy to maximize rental income from the summer months. At the same time, don't rent so many units that you leave a large occupancy loss in the fall.

If you decide to sell a property and didn’t get started on the process in the spring, be sure to mark your calendar for late August. Given the four- to five-month completion time frame, this is the latest time of the year to list a property for sale and hope to enjoy year-end closing tax benefits. Late August is cutting it close, so you may want to note your calendar to get the ball rolling no later than the July 4th holiday.

If refinancing is in your plans, summer is a good time to beat the fall rush. Many self-storage owners are busy balancing their businesses with family vacation time. There is usually a lull in activity for lenders in the summer months. You may be able to secure a better deal from a lender or mortgage broker who has the extra time and desire to win your business.

Capitalizing on Fall Transition

If you operate facilities in areas of the country that attract “snow birds” from colder climates, the fall season is an excellent time to promote your facility to capture this business and boost your occupancy levels. It's also the prime season for facility owners located near summer vacation and recreational areas to market heavily to local audiences. As people winterize their summer homes, boats and recreational vehicles, their storage requirements become more acute. Get their attention, make them renters and watch your cash flow increase.

Fall is a favorable time for recently constructed facilities to host grand openings. With the winter months comes a traditional slowdown in rental activity, so capitalize on the fall season to get your leasing underway to minimize the inevitable winter slowdown and better position yourself for the run-up to the spring leasing season.

Fall is also an ideal time to consider refinancing. As lenders examine historical operating performance, the fall provides the best trailing, operating history that empowers lenders to push to maximize your leverage. And best of all, if timed right, your financing will be completed before the turkey comes out of the oven.

Minimize Winter’s Big Chill

During the colder months of November and December, self-storage deal-making really heats up. The primary reason: For tax purposes, buyers and sellers want to close transactions before year’s end. They may want to book the property for the prior year rather than the next, or need to spend a certain amount of money by Dec. 31 to avoid significant tax liabilities. End-of-the-year property and financing closings keep self-storage real estate and mortgage professionals busy as owners hustle to complete transactions and line up their tax benefits.

If you operate in a colder climate and experience a traditional seasonal slowdown, the winter months are a perfect time to evaluate and analyze your properties and operations. Take advantage of this extra time by mapping out your financial and investment strategies for the next 12 months and ask yourself such questions as:

1. Is it time to consider selling or refinancing a property?

2. Should I undertake a property valuation to help me determine whether to put an asset on the market in the spring?

3. How can I improve my cash flow and property value in the spring and summer months?

4. Are my marketing strategy and tactics ready for the upcoming busy season?

And, of course, be sure to visit the many national and regional self-storage tradeshows in February and March. There you'll meet hundreds of companies that provide goods and services to property owners and receive valuable education to improve your daily operations.

Respect Mother Nature

No matter where our facilities are located, we all must address uncontrollable seasonal variables—the potential wrath of Mother Nature. In the late summer and fall, Gulf Coast-area owners keep their fingers crossed while they ride out hurricane season. From the Plains to the Midwest to the Northeast, property owners face dangerous winter weather. The dry summer months threaten self-storage facilities from Southern California to Texas with the potential for wildfires stoked by gusty, hot winds. And springtime flooding is a peril nationwide.

While natural disasters certainly can wreak physical havoc on self-storage facilities, they also impact financial operations as well, from leasing rates to property insurance expenses. So before you decide on your favorite season as a self-storage property owner, be sure to give Mother Nature the respect she deserves. 

Neal Gussis is a principal with Beacon Realty Capital and can be reached at 312.207.8240 or ngussis@beaconrealtycapital.com. Minh Tran is a senior partner at Storage Investment Advisors (SIA) and can be reached at 713.376.3107 or minh.tran@siallp.com