When in Prague

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In 2001, several key people from City Self-Storage and I visited Poland and the Czech Republic to scout for possible places to open more facilities. The owners of the company had been evaluating Warsaw, Poland, as a potential market. One owner, The Selvaag Group, had already opened an office there to observe the market closer, and so we visited.

Warsaw seemed like a world of concrete buildings, and since the weather was bad, we had an unusually poor first impression of the city. There were lots of buildings for sale, but the prices were sky high after several years of boom in the real estate market.

The day after, we visited Prague, the capital of the Czech Republic. This city is a little bit smaller than Warsaw, and we received a very different impression from it. It was sunny when we arrived—about 90 degrees—and our hotel was in the middle of the old town. We wanted to move there immediately. When we met with brokers the following day, they told us the type of real estate we were looking for was plentiful and cheap. We thought we were in self-storage heaven.

Four months later, after more studies on the disposable income of the local residents, and after looking closer at the large group of Americans and Germans living in Prague, we decided to open several self-storage facilities in the city. But because we had no connections there, I wasn’t sure where to begin. I had heard horror stories about Western companies being robbed by the mafia or their own employees. One company told me that when it visited its local office in Prague, everything was gone—the people, furniture and cash in the bank. They lost more than $100,000. We were going to transfer nearly $2 million to cover expenses. What if it all disappeared?

The solution was close to home. I called my brother, Christian, who had successfully turned around another of our small companies in Oslo, Norway, in the totally unrelated field of gas stations and quick car lubes. I asked him to oversee the operations in Prague. After some negotiations, he was on his way.

In the former communist countries, everything is difficult. Just to rent an office takes forever, and getting phones and other equipment is a hassle. I suggest using a hotel-office provider, such as Regus, a worldwide operator of business centers. It is much more expensive, but it will probably be cheaper in the end.

We quickly found a property to buy, an old factory just five minutes from the city center with fantastic frontage off the street. It was 75,000 square feet, ready to be converted into the first self-storage site in Eastern Europe. We figured the purchase transaction would be quick. Four weeks later, we still had not met with the seller. When we finally reached him, nailing down a selling price was difficult. Rather than giving us an asking price, he wanted to know how much we were willing to pay. We were told this is how it works in the Czech Republic. The maximum price a buyer can pay is the starting point for negotiations. Clearly, it was not the way we do things at home in Scandinavia.

Unfortunately, the day we were supposed to meet with the seller was Sept. 11, 2001. When we walked into the meeting room, everyone was pale. We were told of the terrorist attacks in New York and Washington, D.C. Our problems seemed very small, indeed. It was strange to negotiate while wondering if World War III had begun. But we were able to complete the transaction.

The next phase of the project was to get the needed permits to convert and operate the facility. It was much harder than we ever imagined. I participated in a meeting with one of the technical departments of the city, and I could not believe my eyes. The meeting room was full of beer bottles, and there was even a canary in a cage! The people were friendly enough, but I understood why things took time. After seven months and many, many meetings, we finally got the permits to open.

One positive experience we had was the hiring process. Young professionals in this city speak English well and are interested in working for foreign companies. The work morale is high, and it was easy to find a dynamic, friendly and driven staff.

We finally opened the facility in May 2002. We had a high number of calls to our office, so we thought the site would fill up in record time. That did not happen. Our marketing plan had been successful in reaching the middle class, but they could not afford self-storage, even if the demand was huge. We turned to businesses and more affluent populations, and the site filled at an increase of 15 units per month.

Then came the flood. It was reportedly the worst flooding in Europe in more than 100 years. Our property was just 30 yards from the Vltava River. All the tenants’ possessions were destroyed, and we had to rebuild the site. It was a major setback.

Several months after the flooding, we reopened. The rent-up is going well, and we just recently opened another site in Prague on the D1 motorway just south of the city. Well armed with the knowledge from our first selfstorage opening, this one took just three months to open. If you ever visit Prague, look for City Self-Storage in the Yellow Pages.

Carl August Svensen is the founder of City Self- Storage, one of the biggest self-storage operators in Europe, with 25 sites in five countries. Svensen is the chairman and majority owner of Cron Industries, an investment company based in Oslo, Norway, which also owns City Self-Storage with the Selvaag Group. For more information, visit www.cron.no; e-mail cas@cron.no.

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