Coast-To-Coast Storage

Coast-To-Coast Storage

The staff of Inside Self-Storage recently had theopportunity to speak with RK Kliebenstein, president and founder of Boca Raton,Fla.-based Coast-To-Coast Storage, to discuss what is on the horizon forself-storage operators and developers. For more information, call 877.622.5508; www.askrk.com.

What is Coast-To-Coast Storage all about?

Coast-To-Coast Storage is the first generation of a company that will becomea "one-stop shop" for real-estate developers and owner-operators. Wehave selected products and services that assist existing operators and those whoare just getting started in the business. Our focus is to improve profitabilityfor existing stores and increase the likelihood for success in self-storagestart-up operations. Our first service was feasibility studies, and then wequickly added management and marketing consulting, website design and, mostrecently, financing. In the next few months, we will extend our products andservices to include evaluating storage sites for cellular and communicationtowers, billboards and other profit centers for operators.

What is the most challenging concern facing self-storage operatorstoday?

In aword: competition. Every operator's goal should be to conquer the competition byexceeding customer expectations and delivering the highest quality product atthe right price, with the highest level of service and ultimately customersatisfaction. Note that this mission statement does not require the"newest" product--it addresses the product as quality issue.Furthermore, the mission statement clearly does not advocate the lowestprice; it is driven by the "right" price.

Why not just lower prices and be done with it?

Surely, that is the easy way out, but it is clearly the most detrimental ofall options. To destroy the value of your facility to compete with others isself-defeating and usually unnecessary. Most operators believe they have a goodproduct. It may not be the newest, the largest or the best located, but theseare the steppingstones to acquiring new customers, not reasons to commit"rental-rate suicide."

Those are pretty harsh words. What is the real message?

Even the U.S. tax code recognizes that over time, a business must replace oldand tired fixtures and buildings--it is called depreciation. They allow theowner to shelter part of their income from taxation in the hopes that the moneyis being set aside to improve the property as it ages and keep current with themarket. Operators should use this opportunity to improve their product, notdestroy their income and value. Remember, for every dollar of decreased profits(lowered prices), the value of the facility decreases $10. A small math examplemakes this very clear:

Number of spaces rented: 300
Average rent (10x10): $80
Rent decrease: 10 percent
Loss in value: $288,800 (or 17 percent)

The function of higher loss in percentage value than in rent decrease is theexpense load. The only expected decrease in expenses would be a reduction inmanagement fee and, possibly, but unlikely, real estate taxes. Since value iscalculated on net operating income, rent decreases flow directly out of thebottom line. Most improvements are capital expenditures, and they do notaffect the bottom line. Therefore, no loss value in anticipated, and most likelyan increase in value will occur by curing deferred maintenance or increasing thereplacement cost of the facility. An added bonus: If you depreciate theimprovements, the following year you may actually increase the after-taxearnings.

So, what is the logical choice? Improve the property, not decrease the rents.Owners should use maximize their own resources to evaluate the market, determinewhat improvements need to be made, train and motivate their staffs, and deploy asystematic strategy to overcome the competition before they consider loweringprices. Chances are, owners are already making use of the tools they have, andif the job is not getting done, it may be time for professional help.

Why is financing such an important part of self-storage ownership?

finance business, they left many self-storage operators without a source forrefinance. These firms were highly visible to the industry, sponsoringconference events and purchasing large advertising space in magazines. Now,borrowers need alternate access to capital from lenders who understandself-storage loans and how to underwrite them.

Are there different kinds of refinance loans?

Basically, there are two types of refinance loans: conduit, or loans thatwill be securitized, and commercial bank loans. Regardless of which loan typeyou choose, the most important factors in getting the best loan are 1) gettingthe loan that is best for you, and 2) getting the highest loan amount at thebest rate. We have lenders/investors who will meet both of these needs.

Why would a borrower want a "conduit" loan?

These loans have extremely high prepayment penalties, and even preclude someborrowers from paying off the loan for a number of years. The paperwork isintensive, but really not much more than commercial bank loans. The majorbenefits of a conduit loan are that the loan typically has limited recourse(personal guarantee) from the borrower and the loans are usually assumable.

Why not just get a local bank loan?

Local banks with which you have a relationship can be "worth theirweight in gold." Often, these banks do not understand self-storage loans,so they tend to be very conservative and may not get you a loan amount highenough to meet your needs. Or they will be shorter-term loans, meaning you willhave refinance costs again in just a few years. If the loan is very high, andyou have large deposits, they may just be loaning you back your own money, andcharging you a pretty penny to do so. Also, bank loans typically requirerecourse or personal guarantees, which mean that in the unlikely event of abusiness failure (which may be no fault of yours, as in the case of a naturaldisaster), the bank may be able to foreclose on the equity in your home.

What is the biggest challenge facing new self-storage facilities?

"Location, location, location!" This old trite-but-true real-estateaxiom is totally applicable to locating a self-storage facility. Everydeveloper, experienced and novice, should have an independent feasibility studyconducted by an unrelated third party that has no emotional attachment to theprospective location. We conduct feasibility studies for seasoned operatorsmoving on their second or third location who use our expertise as a check andbalance to their own research and instincts. We can even help the novicedeveloper select the market and specific property if he has not already done so.

What does a feasibility study cost?

A good basic study should cost around $5,500, plus travel and expenses. Weoffer a special product starting at $995, and our "Rolls Royce" studyis closer to $9,500, which includes helping the developer/ owner-operator getthe doors open--much more than just an opinion about the feasibility of thesite. The top level of service includes design and management services.

What is in the future for Coast-To-Coast-To-Coast Storage?

We are rolling out new products and services every month. Since the launch ofour company, we have added at least one new product every month. As we speak, weare committing to relationships with cell-tower companies to assist storageowners in determining if their location is suitable and marketable for groundleases to communication and cell-tower companies. We will soon be addingstrategic relationships to offer appraisal, insurance, brokerage, feemanagement, advertising, survey, environmental assessments and engineeringservices. We will ultimately offer construction and total "turnkey"service. You tell us you want to be in the self-storage business, and we willlocate the site, get it built, open the store, manage it and send you check whenit starts a cash flow.