I spend a good deal of time talking to real estate brokers all across this great country of ours. I am hearing some of them report the universal glow the industry has basked in for the last couple of years is now turning into cautious optimism in some regions of the country. This is not Chicken Little saying the sky is falling, but merely some of our brokers noticing, in some cases, the wind is beginning to die down.

I thought it was time to survey the situation in an orderly manner and determine the facts on a region-by-region basis. Indeed, reading the reports of our brokers, the Northeast appears to remain positive for self-storage. However, as with all good things in the world of commerce, such times attract competitors, and the Northeast is no exception. Our Northeast brokers--Linda Cinelli, John Gilliland, Ed Magilton and Joe Mendola--join us in this survey.

1. Have you seen the impact of a recession in your area yet?

Cinelli: From my experience, the New Jersey market has never been better. Most areas are experiencing the same market conditions--higher rates and low vacancies. Rental rates have definitely gone up due to low vacancies.

Gilliland: Yes, I've seen it in occupancies. In my area specifically, I know of several projects where occupancies are stalled at 55 percent to 60 percent due to too many properties coming on line at the same time. The market is there, but it will take a couple of years to lease up.

Magilton: Sixty-eight percent of the facilities I track charge between $75 and $120 for a 10-by-10 unit, while 15 percent have rates above $120. While prices are set locally and vary from town to town, there appears to be no difference in occupancy rates no matter what the area price is. I think occupancy may be getting ready to stabilize at this point because of the new construction going on.

Mendola: The only impact I have seen is that storage is remaining very strong with the event of auctioning of major corporate inventories and auctioneers using self-storage to store better goods.

2. Are investors still interested in self-storage and, if so, what kind of investors are they?

Cinelli: Investors as a whole are very serious in pursuing investment opportunities. Most people are experienced with the self-storage industry, but vary in the amount of units they own. We see new developers expanding into self-storage business as well as those feeling the stock market crunch.

Gilliland: Experienced buyers are looking for the cream of the crop in the first-tier cities only. Local, first-time investors are the buyers who are really active. Everybody is talking about the mini-storage business, and they want in.

Mendola: Yes, investors are still interested--everyone from the first-time buyer to the entrepreneur to select REITs. But the properties have to be priced right or they will not sell.

3. Are the local banks continuing to make loans in your area? Are the falling rates having any impact on the buyers?

Cinelli: Banks are still loaning money and are very active in soliciting the self-storage broker for clients.

Gilliland: Falling interest rates have had an impact on prices, but not the desire to purchase a property.

Magilton: Interest rates will eventually affect the owner/investors rate of return and will push down the sales price to maintain returns, but not until there is an inventory of facilities on the market from which to choose.

Mendola: Yes, there is no better time to borrow construction money than now. Rates have fallen between 200 and 225 basis points. Long-term rates are equally as good.

4. Are you seeing any signs of overbuilding? Is it really a big deal in the Northeast?

Cinelli: Not yet. Some areas of the suburbs are nearly overbuilt.

Magilton: I see a lot of new construction going on, but I will not classify it as overbuilding at this point. Years ago, a small number of self-storage facilities met the needs of the area. As the years have passed, new storage facilities continue to be built and existing ones are being expanded. Yet the occupancy rates continue to climb in this area. I feel this is because a larger segment of the population has become aware of self- storage and is now using it.

Mendola: Yes. There are many tradeshows for self-storage and as many participants who want to be owners when they come back from them. There are some signs of overbuilding in certain markets; however, the Northeast has been undersupplied, so major oversupply has not happened yet.

5. Are there many conversions (i.e., warehouses to self-storage) in your area? If so, are people concerned this could add too much space?

Cinelli: In my market, we are seeing the most popular conversions in industrial buildings. There are some retail centers that could be turned into storage. The developers will have to be very much in tune with what the towns have on the agenda as far as existing approvals.

Mendola: Yes, there are conversions in my area. The Northeast has many older building--including mill buildings--and these lend themselves to self-storage conversion. The saving grace is these buildings are usually in areas where vacant land is either very expensive or in very short supply--usually both.

6. Which, if any, REITS are active in purchasing self-storage properties in your area?

Cinelli: Most of the big names are purchasing in the New York/New Jersey area.

Mendola: Sovran, Amsdell, Public Storage and Storage USA.

Michael L. McCune has been actively involved in commerical real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In January 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real estate brokers dedicated to the buying and selling of self-storage facilities. For more information, call 800.55.STORE or visit www.selfstorage.com.