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Articles from 2009 In January


The State of Self-Storage: Industry Report 2009

“The self-storage industry is at a crossroad as it travels down the path to maturity.” Ray Wilson, Self Storage Data Service Inc.

The above quote from Ray Wilson could well be describing America, for there’s no doubt we, as a country, are at a crossroads—from the wars overseas to the financial one everyday Americans are fighting at home. At the time of this writing in December, a new president had been chosen, but had yet to take office. Automakers were failing, as were lending institutions. Foreclosure and unemployment rates were at an all-time high, while the availability of credit was nearly impossible to find.

Although the economy was feeling the affects of the recession since the beginning of 2008, it wasn’t until Dec. 1 that it was officially declared a recession. Now, some economists are predicting we’re in the worst recession since 1981-82.

For self-storage owners, developers, builders and investors, there’s no doubt that 2008 was a bumpy year. For many, it was a year of losses and slowdown; others fared better. “The self-storage industry is enduring arguably one of the toughest economic environments it has ever experienced,” says Minh Tran, managing director, Holliday Fenoglio Fowler LP in Houston. “Consumer confidence is at an all-time low; unemployment rates are continually on the rise; and many have lost a considerable amount of money in the stock market.”

Now, with a new president in charge and promising a revived economy, everyone is hoping 2009 will be the turnaround year.

Basic Supply and Demand

While the self-storage industry has always been touted as recession-proof or, at the very least, recession-resistant, it was put to the test in 2008. Across the country, self-storage builders and developers saw projects disappear as banks tightened lending and raw materials drove up the cost of construction. Likewise, investors and self-storage owners scrambled to find suitable loans. Some facilities reaped the benefits as foreclosures forced people from their homes. Others saw rent increases and new rentals drop at alarming rates. And many facilities grappled with tenant delinquencies or those who simply walked away because they could no longer pay for their units.

“The belief that self-storage was recession-resistant was based upon its performance in earlier recessions when the industry was still building to a huge pent-up demand,” Wilson explains. “The demand was so great that changes in the economy did not affect the self-storage owner’s ability to increase rent and still maintain physical occupancy.”

Now the balance between supply and demand has tipped the scales in the other direction, Wilson says. “The current level of supply of space has satisfied the pent-up demand and now changes in the economy do impact performance.” However, he does maintain that the self-storage industry is not as sensitive to downturns in the economy as other real estate sectors, such as hotels or retail. “There is that segment of storage demand that comes from ‘need’ resulting from disruptions in people’s lives, which helps balance performance during these turbulent times.”

How a facility faired in ’08 depended largely on the market in which it resided. Markets with heavy foreclosures enjoyed increased occupancies, while other markets had more empty units. “Although we have seen reductions in overall occupancy, a drop off in telephone-call volume and walk-in rental traffic, and increase in the traditional levels of delinquencies, our occupancies on a relative basis are still OK,” notes Jim Chiswell, industry consultant and owner of Chiswell and Associates LLC in Palmyra, Va.

Some facilities experimented with concessions; others conducted exit interviews to pinpoint why they were losing tenants. “People are making very conscious budgetary decisions,” Chiswell says. “For the most part, the purchase of our product is a discretionary expense.”

The Construction Slowdown

One segment of the self-storage industry hit the hardest was the construction of new facilities. The sudden spike in raw material costs—most notably steel—in the first six months of 2008 greatly affected new self-storage construction. “By July, steel escalated to almost 48 percent above pricing at the turn of the year,” notes Chip Cordes, vice president of U.S. Door and Building Components, Orlando, Fla. “Many projects experienced 10 percent to 20 percent increases; however, the total cost of most projects was not as drastic as what was expected.”

As the cost of steel rose, many projects already underway were suddenly under-budgeted. And with the tightening financial market, some developers struggled to keep their projects afloat. Plans for new facilities were put on hold or even scrapped entirely as construction costs soared and financing dried up. “There’s no doubt that the 2008 economy has had a negative affect on new self-storage construction,” says Caesar Wright, president of Mako Steel Inc., Carlsbad, Calif. The rise in raw materials coupled with a soft market made it difficult to find good loans. “In my 20 years in this industry, I’ve never seen anything like it,” Wright says.

The weak economy and lack of good financing “shut down” most new construction, notes Mike Parham, president of The Parham Group in Bulverde, Texas. “In the Southeast and Southwest markets we have been developing in for the last several years, construction has been limited to projects that started before the stock market’s volatility. The whole self-storage development cycle has shut down.”

Despite the lack of good financing from traditional lending sources, there are still a large number of new construction projects in the works. “I continue to work with clients who have identified excellent sites and have established banking relationships that make financing a non-issue for them,” Chiswell says. “The marginal developer who had been relying on finding a silent partner investor, along with high leverage on a cost-to-loan basis, has been almost totally eliminated from the game for now.”

“It’s extremely tough out there,” adds Buster Owens, president, Rabco Corp. in Winter Garden, Fla. “The bright side is that these escalating steel prices and other things we’ve seen over the last couple of years are on the way down, so marginal products are starting to fall back in line with the pro formas. There are still people out there that have access to financing, but it’s tougher now than it has been in the past.”

To stay in the game, some construction companies are turning to conversions and facility remodeling. “Our industry is starting to age,” Owens points out. “There are more 20-year-old buildings; some need facelifts or a new roof. Some of the big guys are taking time to enhance existing facilities by expansion or building a multi-story.”

And as steel and other costs—including crude oil—continue to drop, most remain positive that new construction will ramp up again. “As we recover from this economic slowdown, the population will once again purchase goods and store goods,” Cordes says. “Self-storage will become an important part of this trending cycle.”

The Search for Financing

When the housing crisis hit last year, it was unclear just how far it would reach. Ultimately, it would have a ripple affect. “The residential exposure caused more than 20 banks to fail in 2008, and many more to be considered ‘in trouble,’” Tran says.

With the failure of America’s financial institutions came fewer available loans and tightened underwriting standards. Suddenly, developers and investors, along with owners looking to refinance their existing loans, had a harder time finding financing. “Owners of stabilized properties in the self-storage sector were able to obtain very favorable terms in the past through the commercial mortgage-backed securities (CMBS) market,” says Eric Snyder, senior vice president, Buchanan Street Partners in Newport Beach, Calif. In fact, the CMBS market accounted for $224 billion in financing for all commercial real estate asset types in 2007, and provided self-storage owners with 80 percent non-recourse, 10-year fixed-rate loans in the 5 to 6 percent range, according to Snyder.

With CMBS lending gone, local and regional banks supplied some capital, as did life insurance companies and pension funds. “At the end of the day, a self-storage owner has fewer options available than he did just 12 months ago,” Snyder says.

Today’s highly conservative lending environment is what is known as a “flight to quality,” says Neal Gussis, principal for Chicago-based Beacon Realty Capital. “Quality” is a combination of a property’s physical attributes and condition, location and historic performance, among other factors, Gussis says. “When underwriting a transaction today, lenders are likely to examine a longer historic period, as well as the micro and macro markets for trends and comparables.”

Financing terms have also shifted dramatically because lenders want more equity, according to Gussis, with lending programs not exceeding 70 percent of a property’s value, compared to 85 percent—or even 90 percent in some cases—in the previous years. “This has been a double whammy since cap rates for most properties have widened by at least 50 basis points.”

While financing is harder to come by, it is still available. “But loans are not plentiful and carry shorter fixed-rate terms and amortizations, more rigid underwriting and higher rates than in the previous five to six years,” says David Smyle, president of Benchmark Financial, La Mesa, Calif. “Lenders are very picky about the occupancy, borrower financial strength and experience, and property quality.”

Investors also need to recognize that today’s real estate investments are valued on generated income rather than potential income. “A property’s location must be able to stand the test of time,” Gussis says. “Owners will need to exercise more patience and create value over time by managing revenue and expenses. Making the right investment will also entail obtaining leverage that provides some room to ride out the economy ... most likely a loan that matures in no fewer than three years.”

In today’s recessionary environment, self-storage owners need to be “smarter than ever to manage rents, operating expenses and occupancy levels,” Gussis says. The key to a facility’s operational success is to provide customers with a range of price points and related amenities within their disposable thresholds, he adds. “Whether they want or need to rent a storage unit, most customers these days are highly price conscious. Creative marketing techniques can help attract the attention of potential customers looking for rental bargains.”

At the time of this writing, Congress was still working out the kinks in the billion-dollar bailout to soften the blow of the failing U.S. economy. “The bailout should have a good affect on the storage industry on a long-term basis,” Tran says. “The Treasury is trying to do everything they can to address falling home prices and mounting disclosures. Whether people are downsizing, buying or moving, storage is a good solution for them.”

“Any housing-market jumpstart will also inspire greater confidence in consumers to spend money and ultimately use storage products,” Gussis adds.

Real Estate Stalls

The unstable financial market has also greatly affected the commercial real estate market. The real estate investment trust (REIT) market was poised for big losses in 2008. The industrial sector was down 81.11 percent, lodging and resorts 66.57 percent, and regional shipping malls 66.34 percent, according to the Association of Real Estate Investment Trusts. In comparison, the self-storage industry performed the best: dropping only 14.59 percent last year.

Although self-storage fared better than many other types of commercial real estate, there has been a slowdown in acquisitions. “Deals are still being done, but not at the same pace as before,” Wilson says. In addition, properties are sitting on the market longer. “Values are now down at least 20 percent and I won’t mention equity erosion—all this without changes in net operating income,” says Michael McCune, president of the Argus Self-Storage Sales Network, Aurora, Colo. The average property value is down 20 to 25 percent, predicts McCune. “The net result is that buyers can’t find loans that work at the 2007 values.”

In addition, many sellers have unrealistic expectations based on a “precedent set by a few buyers in the market that spent acquisition money like drunken sailors, without exercising proper due diligence, or in some cases, common sense,” says RK Kliebenstein, owner of Coast-to-Coast Storage, Atlantis, Fla. “When those deals go sour—and they will—that will make it tough for others to get easy access to financing.” 

Falling equity has also has led to a large spread between the “bid” and the “asking price,” Wilson notes. “But that will change when many of the investors who entered the market most recently realize they are locked into a low-yielding investment with little upside, and they decide to cut their losses when their loans start coming due,” Wilson says.

For those looking to purchase an existing facility, due diligence is the key to ensuring it’s the right investment. “An investor must do a serious, professional demand study,” McCune says. “Know all the details of every competitor within five miles and compare them to the proposed purchase, understand the property and be aware of the cap rates in the area.”

Looking Ahead

Without a crystal ball, it’s impossible to predict what the future holds for the self-storage industry in the coming months. As the U.S. government attempts to untangle the housing mess and financial crisis, many self-storage owners, developers and investors are left on the sidelines ... waiting. “Owners and investors alike need to understand that the capital markets look completely different than they have over the last few years and may continue to get worse before it gets better,” Tran warns.

That means fewer loans with tighter restrictions, which could leave some industry people out in the cold. “The developers with good credit, strong net worth and income, and that have a track record in self-storage will have access to capital; others will not find it so easy,” Kliebenstein says. “Projects are going to have to stand on their own merit. Gone for a while are the ‘lend on blue sky’ days.” Kliebenstein also believes occupancy levels will continue to slide, and rate increases will be nominal until the real estate market returns to a healthy state.

Essentially, expect rougher waters ahead, Smyle says. “Most of the financing will be done by local and regional banks but expect tighter underwriting, higher down payments on purchases, more scrutiny and seasoning on cash out, more emphasis on borrower financial strength and income, and higher rates than seen in previous years on fixed-rate product.”

However, the slowdown in new facility construction and tighter loan conditions could have a silver lining for self-storage owners in crowded markets. “It’s simple math,” McCune says. “Self-storage space is growing at a faster pace than the population.” With national average occupancies hovering around 80 percent, the industry, for the most part, is meeting the demand, he says. “You must always watch out for overbuilding in your market, it is the Achilles’ heel of self-storage when demand is even somewhat limited.”

While there is still uncertainty about the economy and what the future holds, most people in the industry remain positive about the future of self-storage and the integral role it plays in American society. “The storage industry has proven its long-term viability by attracting a large and diverse base of customers,” Gussis says. “It will be the self-storage community’s job to continue to capture and fulfill their needs with outstanding products that are priced appropriately given current market conditions.”

Product Showcase: The Coleman SideSlider

Isabel Coleman may be only 11 years old, but she’s pure inspiration ... and the muse of her father, Peter Coleman, creator of the Coleman SideSlider, a self-storage door he expects will revolutionize the self-storage industry.

The Dawning of a New Door

Coleman actually entered the business of self-storage long before Isabel, the youngest of five daughters, was even born. As the founder of Dependable Storage Services, he has been designing, building and operating facilities along the Gulf Coast, just outside of New Orleans, for more than a decade. Over the years, he has purchased thousands of roll-up doors from manufacturers, but grew increasingly more frustrated with their design.

From experience, Coleman knew the springs, which require regular maintenance to operate smoothly, were the weak link in the roll-up door design, so he urged manufacturers to engineer them differently—without springs.

“But every year, the newly introduced, ‘next generation’ of door looked the same, worked the same and had the same problems as the previous ones,” Coleman explains. “After a while, I gave up asking manufacturers and decided they were going to make me invent something.”

The biggest challenge was to eliminate springs in the roll-up design, Coleman thought, but it wasn’t an easy challenge. That’s when his daughter becomes central to the story. It was Isabel’s love of horses that drew her, and her father, to spend so much time in her barn. And it was here that Coleman had an epiphany.

“We were visiting Isabel’s ponies and I was sliding the old barn doors, just like always when it dawned on me: It didn’t need to be a roll-up door. It didn’t need to wind-up at all,” he says. “I could design a sliding door. I could get rid of the springs forever and for good.”

Spring-Free Sells

Coleman sat down with pen and paper and began drawing the sliding door. He gave his sketches to his loyal Dependable Storage Services crew, who built a prototype. “They built it, we tweaked it, made it simpler and lighter,” he says.

The next step was to install some of the newly created ColemanSideSliders into his own facility, with a working model on display in the front office for customers to preview. The doors are attractive to self-storage renters for a number of reasons, he explains. First, they are smaller than roll-ups, leaving more room in the unit for storing goods. Second, they open with just a poke of a finger. No bending and stretching to crank open a wind-up door, he says.

“From a customer point of view, these doors are preferable because they’re so easy to open,” he says. “People want to rent these units right away. I can’t build the doors fast enough.”

The ColemanSideSlider can be inexpensively retrofitted into existing buildings and are compliant with ADA requirements. “From a maintenance point of view, there are no coil springs and no need for regular adjustments. Typical roll-up doors have springs that deteriorate after five years. But this is a quiet, sliding door with only two moving parts that never wear out,” Coleman says.

“The business of self-storage is highly competitive,” he adds. “If someone builds a facility right next door that’s better than mine, I could be out of business in six months. These new doors allow facilities to remain competitive and on the cutting edge.”

The ColemanSideSlider has garnered plenty of interest from self-storage developers and operators attending national conventions, where Coleman displayed a working model of the door. He’s convinced his product is destined for success, something he humbly owes to members of his staff, who are also co-owners of the company’s new division: David Bauman, operations and construction management, Patrick Mackenroth, design and engineering, Douglas Durand, finance, and Robin Riley, architectural.

Of course, he’s also indebted to his inspiration, Isabel ... which is why anyone shopping for this innovative sliding door gets to see the pint-sized pony-lover open and close a ColemanSideSlider all by herself, just by logging onto the company website at www.colemansideslider.com.

Inside Self-Storage World Expo Delivers Global Attendance

Self-storage professionals from around the globe gathered in Las Vegas this week for the Inside Self-Storage World Expo, the industry’s largest conference and tradeshow. Storage-facility owners, operators, managers, developers, investors and suppliers participated in four days of educational sessions and networking events and perused nearly 200 exhibits at the Sands Exposition Center and Venetian Hotel Resort Casino. In addition to an extremely strong domestic attendance, international visitors included storage professionals from Australia, Canada, Chile, Colombia, France, Iceland, Ireland, Italy, Japan, Mexico, New Zealand, Nigeria, Poland, Singapore, Slovenia, Spain and Switzerland.
 
“In the current economic environment, storage operators are looking for ideas and information to sustain a thriving business,” said Troy Bix, group publisher for Virgo Publishing’s Light Industrial Division. “What we’ve provided for them via the ISS Expo are strategies for survival and success in a challenging market.”
 
Professionals from Artistic Builders, Baja Construction, Capco Steel, Chamberlain Access Solutions, Chateau Products, COWS (Containers on Wheels), Damato Associates, eMove, Epic Doors, JanUS Door, Kiwi II Construction, Mako Steel, Sentinel Systems, TrailPods, Self-Storage Talk, Self-Storage Training Institute and many more leading companies attended. 
 
The ISS Expo launched on the morning of Jan. 26 with a hard-hitting opening session addressing the “Top Three Strategies for Self-Storage Survival and Success in 2009.” Hundreds of attendees assembled to hear a panel of specialists providing critical tactics for enduring and thriving in a tough economy. Moderated by self-storage consultancy expert Jim Chiswell, the session revealed what some of the industry’s top operators are doing to sustain and improve facility value.
 
The exhibit hall opened at noon on Jan. 27 with a grand-opening ceremony sponsored by Chateau Products, who awarded several door prizes. Hundreds of participants walked the show floor until 5 p.m. on Tuesday and again from 9 a.m. until noon on Wednesday.
 
"This year's Las Vegas conference exceeded expectations, again,” according to Markus Hecker, President, SiteLink Software. “From the point of view of vendors, attendee interest was strong. All visitors were qualified buyers. I did not speak with one visitor who was not committed to the storage business. Workshops were carefully crafted to cover the topics on operators' minds. Speakers offered solid advice to navigate today's economic climate. Kudos to the organizer who offered excellent networking opportunities to every attendee. The conference was once more one of the highlights of the year." 
 
“Thanks for the great job at the expo in Las Vegas this week,” said Teresa Sedmak, President, Everbrite Inc. “We had lots of highly qualified leads, and the people who showed up were serious about their business. This was the best show for us in years.”
 
Several networking events offered additional opportunities to connect with industry peers, including an evening cocktail reception sponsored by DAI General Contracting, Epic Doors and Mako Steel. ISS was proud to recognize the winners of its 2009 Humanitarian Service Award during Monday’s “Self-Storage Q&A,” as three of the four winners were present to accept a certificate and discuss their charity-related efforts. The winners are A+ Self Storage in Tennessee, supporting the Susan G. Komen Race for the Cure -Greater Nashville Affiliate; Cochrane Road Self Storage (Gina Six Kudo), supporting the Wildlife Education and Rehabilitation Center of Morgan Hill, Calif.; Hawaii Self Storage, supporting numerous charities and programs; and Preferred Self Storage (Mike and Linda McDaniel), supporting the Circle of Friends Club of Lewisville (Texas) High School.
 
The expo’s comprehensive Education Program expanded to four tracks to incorporate sessions focusing exclusively on self-storage marketing. With more than 30 seminars on the slate, attendees also learned about self-storage management skills, operational essentials, site development, facility construction, legal issues, insurance and much more.
 
Mark your calendars for the upcoming Inside Self-Storage World Expo, scheduled to take place in Washington, D.C., Oct. 5-8, 2009. For details, visit www.insideselfstorageworldexpo.com or call 866.230.2311. The 2010 expo in Las Vegas will take place March 1-3 at the Paris Las Vegas.

Virgo Publishing produces Inside Self-Storage World Expos, the Self-Storage Training Institute and its online education website selfstorageeducation.com, and the Self-Storage Talk online community at www.selfstoragetalk.com. In addition, it publishes Inside Self-Storage magazine and the Inside Self-Storage Factbook.

Free Webinar on Self-Storage Marketing to Take Place on Feb. 24

A free webinar titled "Innovative Marketing Strategies for Tough Economic Times,” will be presented on Feb. 24 by Derek Naylor, president of Storage Marketing Solutions. Hosted by MiniCo Publishing, the live event will address the challenges self-storage operators face in an over-saturated market and rough economy. Participants will learn how to decrease their marketing budget while increasing facility occupancy. Other topics will include secrets to Internet success, dominating competitors without competing on price, and increasing the value of each tenant. Online registration is required for this event and can be completed at www.ministoragemessenger.com.
 
MiniCo Publishing is a division of Phoenix-based MiniCo Inc., which provides specialty insurance programs, publications, and other products and services for the self-storage industry.

Results Announced for 1Q Self-Storage Confidence Index Survey

The results of the first-quarter 2009 Self-Storage Confidence Index (SSCI) survey have been announced by MiniCo Publishing. An initiative of MiniCo, The Parham Group and Cushman & Wakefield Inc., the index is designed to anticipate the effects of economic conditions and trends on self-storage operations. The quarterly survey records the next-quarter expectations of U.S. and Canadian self-storage business professionals in the areas of sales, profit, hiring, expenditures and industry economic outlook.

“This quarter’s results demonstrate the effects of the slowing national economy on self-storage owners and operators,” said Poppy Behrens, MiniCo co-publisher. “Despite indications that self-storage earnings have continued to grow during the last quarter of 2008, respondents report diminishing confidence in the areas of rental income, occupancy, cap rates, and the outlook for the national economy.”

SSCI survey results are available at www.selfstorageconfidenceindex.com.
 
MiniCo Publishing is a division of Phoenix-based MiniCo Inc., which provides specialty insurance programs, publications, and other products and services for the self-storage industry.

Congress Passes Health Care Bill for Children

The U.S. Senate passed a bill Thursday to provide health insurance to more than four million uninsured children, as a newly empowered Democratic majority brushed aside Republican objections.

President George W. Bush twice vetoed similar legislation. But President Obama is eager to sign the bill as a step toward providing insurance for all children and eventually all Americans.

The House passed a nearly identical bill two weeks ago, by a vote of 289 to 139, with 40 Republicans joining nearly all Democrats in support of the measure.

The Congressional Budget Office said the bill would enable states to cover more than four million uninsured children by 2013, while continuing coverage for seven million youngsters. The bill would increase tobacco taxes to offset the increase in spending, estimated at more than $32 billion over four and a half years.

Source:  The New York Times,  Senate Approves Children's Health Bill

Selling Self-Storage in a Soft Real Estate Market

In these difficult times, many self-storage owners are giving some thought to selling their property rather than waiting out the market. Real estate prices hit a high in early 2007 and have been on a gradual decline since. One of the most frequent questions we hear is, “What will happen to cap rates and to values in the future?”

A historical look would tell you that over the last couple of decades cap rates were more likely to have been in the nine to 10 range than the six to eight range. Remember, a rise in cap rates from a seven to nine (or two points) will reduce the value of the property by 28.6 percent. Not a happy circumstance, especially if the project had a loan of 75 percent and all the equity was, therefore, completely depleted.

Clearly it’s impossible to accurately project cap rates or values too far into the future, but the historical patterns and current trend may argue for a decline in the near term. Thus, it may depend on how long you want to wait whether you sell or hold, or alternatively how long until your loan comes due.

Those decisions are for you to make, but in these times it may well be a more difficult decision not to sell than to sell. This is true because a sale is final and you know exactly what is in your future, whereas holding may provide future profits or losses, keeping you in the game.

If you have a “selling mindset,” below are important considerations for you to review. This is a time to be realistic about your intentions; if you are not fully committed to the selling process, it’s unlikely you’ll achieve satisfactory results.

Are You Really a Seller?

An old Englishman once said, “Parting is such sweet sorrow.” Nothing could be truer when it comes time to sell your self-storage facility. The decision is not only the largest decision that you will likely make in the economic life of the project, but also one of the most important you may make personally.

Many believe this decision is purely one of economics and a rational process, as described above. However, as any real estate broker can tell you, emotions play a very significant role in the decision to sell. For this reason, the first and most important decision is to determine if you really are a seller.

A seller is someone whose rational reason to sell is stronger than his emotional desire to hold the property. Some of the rationale may be that the owner:

  • Wants to retire and enjoy life
  • Anticipates estate-tax problems
  • Sees severe overbuilding on the horizon
  • Has a desire to diversify assets for greater security
  • Simply wants to capitalize on a good market

Often, brokers hear a potential seller say, “I will sell if I can get my price.” In essence, this means he is not really a seller. This owner either wants an excuse not to sell or is simply deferring what should be a rational decision to the erratic notions of the market.

A potential seller must truly be serious about engaging in the selling process. As we shall see later, putting your property on the market without the serious intent to sell can actually hurt the property and your ultimate ability to sell it effectively.

What’s It Worth?

You’ll have to find out what your property is worth in the market before you decide to sell it. Don’t forget, the market determines what the project will sell for, not the seller. The potential seller can determine whether or not he will sell for the market price, but he cannot change the market. This is particularly true in difficult markets like we are currently experiencing.

Although a property could sell significantly above the market price, most real estate professionals would agree that they’ve never seen such a sale, particularly in a relatively small market like self-storage. Pricing the property incorrectly means one of two things:

  1. Either you lose money because the price is too low, or
  2. You lose money because the price is too high and it won’t sell!

In soft markets we often find “predatory buyers” who spot sellers with properties well priced above reason and then make a lowball offer, leaving it causally “on the table” for the seller to ponder. They know that the property will not sell at the high price, but if the seller winds up in a difficult situation (expiring loan, for example) and is forced to sell to the only offer on the table, he will regret not listing it at a market price.

Think about hiring an appraiser or an experienced broker to target the market value of your site, which is almost always determined by using the income approach. Did you know that your actual trailing 12-month income will determine 95 percent of the variables in the value?

Exposure Sells

As a general rule, the bigger the buying audience, the higher the offers. This means widespread marketing and presenting a listed property to as many potential buyers as possible. A seller deserves to see all the potential offers, not just ones a broker develops from his own list of prospects. However, some brokers feel this broader marketing is just an additional cost and also creates a “hassle” for them to respond to questions submitted by “uninvited” prospects. In short, broader exposure ensures your broker finds the best buyer rather than just a buyer.

Keep Managers Informed

Many owners feel that they must keep their manager in the dark about a proposed sale. While this may be appropriate in some instances, in most cases it is usually counter-productive. First, most managers will quickly figure out what is going on and will not react positively to being kept in the dark. Some may begin pursuing other opportunities or even leave abruptly.

An offer of a bonus upon closing of the sale in the event that the manager is not retained by the new owner or severance is a fair and productive way to assure the manager stays on through the selling process. It tends to put the manager on the same “team” as the owner. Managers know that sales of properties happen and will respect your decision to sell if they are treated fairly. Secondly, because of their intimate knowledge of the property, managers can often be very helpful in the selling process. In most circumstances, a positive manager can add credibility to the property’s performance.

Most buyers of properties are in the market for good managers and actually want to hire the existing manager rather than disrupt the operation. More often than not, a manager can be an owner’s greatest ally in selling a property.

If you follow the practices of good selling guidelines, you can expect to sell a property at a market price and in a reasonable time. Of course, the definition of reasonable time may vary based on the number of buyers in the market. Regardless, consider your motives and be prepared for the realities of today’s market.

Michael L. McCune is president of the Argus Self Storage Sales Network, a self-storage real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for owners in the self-storage industry. For more information, call 800.55.STORE.

Lake Elsinore Self-Storage Business to Be Built on Earthquake Fault Line

A proposal for a self-storage and recreational vehicle-parking business in Lake Elsinore that would be built atop an earthquake fault line is making its way through the city approval pipeline.

The Lake Elsinore Planning Commission in Lake Elsinore, Calif., has initially approved the proposed Lake Elsinore Storage and RV Center on the northwest corner of Palomar and Corydon streets.
It could become the first business in Lake Elsinore to be built on a fault line with city approval.

The commission voted 4-1 to grant Costa Mesa businessman Mike Dunn a special permit that starts the process of allowing the construction of a 217-unit storage facility on land that was originally slated for residential development.

Dunn must return to the commission for approval of an exception to the city code for how close the buildings can come to city streets before the plan advances to the City Council.

The 2-mile fault line runs down the heart of the 2.7-acre property covered with eucalyptus trees and grass. Lake Elsinore is a seismically active area with one fault line capable of generating a magnitude-7.5 earthquake.

While the unnamed fault has not generated any quakes, its presence on the land, according to the city code, renders it unusable for homebuilding and other businesses where people are constantly present.

The plans call for 61 RV and boat storage spaces atop the fault, but no storage units within 50 feet of the line.

Source:  Press Enterprise.com,  Lake Elsinore Planners Back Self-Storage and RV-Parking Business Proposal

Ice and Snow Sweep Across U.S., Hinder Travel

Mother Nature is causing more trouble across the nation as freezing rain and sleet move through states from Texas to Tennessee on Tuesday, icing bridges and roads.

The storm system was crawling toward the East and Northeast. Several inches of snow were expected in the Washington, D.C., area.

The National Weather Service issued ice storm warnings from Dallas, Texas, to just north of Memphis, Tennessee. Roads north of Little Rock are passable, but bridges and overpasses are extremely hazardous and ice-covered.

The sleet and freezing rain began Monday afternoon in northwest Arkansas and then moved to central Arkansas. More freezing weather was expected. It was also raining in the southern part of the state.

Source:  CNN.com,  Ice, Snow Crimp Travel On the Road, in the Air

Texas Self-Storage Market Report Released by State Association

The Texas Self Storage Association (TSSA) published the results of its fourth annual market survey, a 67-page report containing exclusive analysis and commentary by industry valuation expert Charles Ray Wilson of Self Storage Data Services Inc. The study compiles information gathered from approximately 850 Texas self-storage facilities, covering key inventory characteristics such as total number of units, rentable square footage, and average unit and facility size.
 
Data has been compiled for each of the state’s 26 largest Metropolitan Statistical Areas, with a summary for rural markets. In addition to an overview of the Texas market, the study creates a market snapshot for each MSA, listing the average asking rental rates for each of three unit sizes, traditional and climate-controlled.

The study reveals the addition of approximately 127,000 units to the market compared to the previous year. The majority of owner respondents said their facility satisfied their investment objectives, although some markets have experienced softening and occupancies, and rents have not increased in those areas. Economic occupancy in the Texas market is about the same as for the nation, and delinquency rates remain low despite the slow economy and housing crisis.

A complete copy of the survey is available for purchase to TSSA members for $200 and non-members for $300. For more information, call 888.259.4902; visit www.txssa.org.

The TSSA was established in 1986 and is a non-profit trade association dedicated to enhancing the quality of the self-storage industry in Texas. The Association provides opportunities for its approximately 2,700 members to increase their knowledge of the industry through education, research, discussion and exchange of information.