ISS Blog

Inside Self-Storage World Expo: Day 2

As I sit here and type, I can hear strains of Aerosmith's "Dude Looks Like a Lady," the Star Wars theme song and a few others coming through the walls.

Rob Kaminski of Supply Source One is putting on a show here in Las Vegas. He even brought his own Darth Vader to hand out boxes of candy as attendees took their seats for the second day of seminars of the ISS expo.

Monday's seminars were PACKED! Attendees were full of questions. As the economy continues to dip, self-storage owners are looking for answers, and our panel of experts delivered.

Despite being in Las Vegas, where many parties last into the late hours, attendees were in their seats bright and early this morning to gather more information.

The Expo hall will open today at noon, and be open Wednesday from 9 a.m. to noon. The show wraps up Thursday with the popular Developers' Seminar. For a complete show agenda, visit www.insideselfstorageworldexpo.com.

Manhattan Self-Storage Owner Files Suit to Contest Eminent Domain

Nicholas Sprayregen, owner of Tuck-It-Away Self Storage in Manhattan, N.Y., on Wednesday filed a lawsuit to dispute the seizure of his land via eminent domain. The suit is against Empire State Development Corp. to contest its recent approval of Columbia University’s planned $6 billion expansion in West Harlem.
 
Columbia, which plans to spread a new campus across 17 acres in Manhattanville, stands to take over four properties owned by Sprayregen as well as those owned by one other holdout. The university says the project will create 6,000 university jobs as well as 1,200 construction jobs over a 25-year period.
 
A report provided by the state claims the largely industrial area as “blighted” and suffering from “lack of development and disinvestment.” The university already owns 76 percent of the properties in the area, with the city owning or having control over another 15 percent.
 
Columbia is also facing resistance from a family that owns two local gas stations.
 
Source: Columbia Spectator, Two Landowners, Two Lawsuits Fight Eminent Domain in M'ville

Self-Storage Sales Tax Reinstated in South Dakota

On Monday, the South Dakota Senate approved a plan to restore the state sales tax on self-storage units. Last month, the state Supreme Court ruled that self-storage was not a business subject to the tax, but the Senate just voted 18-17 to pass SB42, which changes the law. Fortunately for storage operators, a move to put the measure into immediate effect failed, so if the bill becomes law, the tax will not be applied to self-storage units until July. The bill next goes to the House. Supporters say the state would lose $1 million in revenue unless the tax is restored.
 
Source: The Daily Republic, Senate votes to continue tax on self-storage units

Stimulus Package May Include Health Care for Unemployed

Americans who have been let go from their jobs due to the troubled economy could get health insurance assistance through the stimulus package under debate in Congress.
 
States would receive federal funds to open Medicaid health programs to the unemployed. And workers laid off between Sept. 1, 2008, and Dec. 31, 2009, could qualify for help paying 65 percent of the cost of keeping coverage under their former employers' insurance.

Under current law, many workers who lose their jobs can stay on their employers' health insurance for 18 months if they can afford to pay the full tab plus a 2 percent administrative charge.

The stimulus plan would help workers pay for that coverage with temporary subsidies—12 months under the House version and nine months under the Senate's .

Source:  USA Today,  Plan Aids Jobless With Health Costs 

Successful Self-Storage Construction Begins With Communication

Construction management is an all-inclusive responsibility that entails meticulous organization in addition to knowledge of complex building procedures and relationship development. Successful construction practices begin with strong communication efforts between the client, contractor and designers.

Construction managers must set the tone for these relationships, maintaining the process from the beginning phase to post-construction. The following explores these essential steps, from budgeting to construction phases, as well as why construction managers are earning such a high degree of praise in today’s building industry.

Constructing a Successful Budget

A budget sets the stage for the project, allowing all parties to operate with the same baseline. An overall budget is maintained by the construction manager and includes all aspects of the project, from land acquisition to the completion of the contract warranty. In addition, the construction manager should generate a document that identifies cost implications, responsible parties for each step of the project, and bonding and insurance costs.

Another aspect to consider when budgeting for a project is an owner contingency. In the construction world, contingencies serve as protection against possible financial emergencies and any unknowns that may arise. Construction managers should have contingency funds available, since most financial institutions do not allow for additional expenses to the project. Weather conditions, fluctuations in material costs, code changes and shifts in administrative needs are all out of the construction manager’s control, but they can add significantly to the bottom line of a project.

In addition to the owner’s contingency, the contractor contingency should also be included in the initial budgeting phase. These funds would be allocated to handle excess costs not identified in the design process. The contingency percentage is based on the size of the project; generally a percentage of up to 10 percent would be allocated.

This value would be included in the guaranteed maximum price. The contractor contingency applies to the contractor’s costs only. Changes made by the owner will alter the contract cost, thus creating a “change order” to the guaranteed maximum price. Be sure to receive proper documentation and/or contracts for any use of this contingency.

Maintaining Timeframes

Pre-construction planning and timelines are as vital to the outcome of a project as the budget. A construction manager must consider several facets when setting a timetable, taking into account labor, material, equipment and budget.

Proper scheduling will deter downfalls such as unavailable resources and waste of labor that would ultimately send the project over budget. Make note that an accurate time schedule will create a smooth construction process; adversely, improper scheduling can thwart progress.

Creating Productive Construction Teams

Selecting an appropriate team for a project may be as complex as the project itself. Construction managers develop relationships that will strengthen the success of the project. Three key factors are important to the success of this task: team, trust and communication. If one or any of the three components is not in place, the team begins to break down, causing potential errors, extra costs and unhappy customers.

When selecting the architect and/or engineer, it is essential that the following items are on their list of priorities:

  • Safety
  • Function
  • Quality
  • Completion date
  • Aesthetics
  • Location
  • Maintenance costs
  • Financing

Don’t be tempted by low bidders when choosing a contractor. Instead, make sure the chosen one addresses all of the above. When receiving a low bid, make sure to research the source and ask questions. The bidding contractor should have a strong reputation for maintaining schedules and budgets.

Important Phases of the Project

Three major phases of a project serve as integral elements of the construction process:

  1. Pre-construction
  2. Execution
  3. Post-construction

Construction managers must monitor progress, provide coordination and ensure success throughout each one of these phases. The adequate completion of each phase will include, but is not limited to, controlling timeframes, costs, quality and safety.

Prior to breaking ground on a project, construction managers should have the following issues identified and in process:

  • Preliminary estimates
  • Recommendations through value engineering
  • Plans for the project schedule
  • An updated and refined estimate
  • Prepared bid packages
  • An organized cash-flow schedule
  • Prescheduled meetings with subcontractors and vendors 

During the construction phase, the construction manager provides administrative support as well as project management through meetings and oversight of accounting records. He should also monitor progress as well as oversee onsite safety performance and quality control. Finally, his responsibility also includes obtaining all necessary permits.

Once the project is completed, the construction manager must administer warranties, supply operation and maintenance information, and provide all project documentation to the client.

By adhering to the phases above and making sure these procedures are incorporated in an effective plan, a construction manager can ensure that every project is a success. Although the overall construction process may seem overwhelming, following this outline should aid in finding the right path toward productive project management.

Jerry Kingwill is principal of Cobb Hill Construction Inc. in Concord, N.H. To reach him, call 603.224.8373; e-mail jerry@cobbhill.com; visit www.cobbhill.com.

Product Showcase: SmartClient by QuikStor

Operating a self-storage has never been easier. With advances in technology, you can oversee the operation, run a call center and do everything from anywhere, whether you have one site or hundreds.

Until now there have been trade-offs between centralized data for call centers or management versus the speed of local operations. Now, the advances of the past several years are combined in one single product: SmartClient from QuikStor. SmartClient give you the speed and reliability of local data, and the remote management, customer self-service on the Web and automatic backups of centralized data.

SmartClient doesn’t just give you the ability to view the data from any of your sites, but to actually change it. Make payments, move in tenants, raise rents, run reports, review transactions, configure site operations and more from anywhere using real-time data. Virtually anything you can do while at the site, you can do from anywhere in the world with SmartClient.

Backup and Data Control

With SmartClient, your data is always in your possession. It’s at the site and your corporate office, providing for continual real-time offsite backup of your data. It is never in the hands of a third-party on a server in some other state and there aren’t any monthly hosting fees.

In addition, the speed using SmartClient is as fast as if you were working on local data on a stand-alone machine. There will be no tenant—or manager—frustration while waiting to make a payment or conduct a move-in when the Internet is running slow.

Even when your Internet server is down, QuikStor SmartClient will keep working. The corporate office or call center will continue to work at its normal pace. When the Internet connection is restored, the data automatically and transparently synchronizes so you’re not relying on connecting to a server halfway across the country. And because you control your data, there are no monthly “hosting” fees.

Customer-Friendly Applications

Need to send out a reminder to call delinquent tenants today? Send a message that pops up on screen at the site. Instantly communicate with one site, a group of sites or all your sites.

What about working from multiple locations? If you’re on the road and would like to check in, you can. District managers are rarely in the corporate office, traveling to the sites they oversee. Set up SmartClient on any computer or laptop, login with your password and you’re ready to work. Facility audits can be performed quickly and easily from anywhere.

SmartClient also provides seamless Outlook integration between the corporate office and the self-storage sites. You can easily add calendar events directly to the calendar at the site(s).

QuikStor’s SmartClient management system was designed with every facility owner in mind, from the single site owner to chains owning hundreds of facilities.

Dennis Levitt has built, owned, operated, managed and consulted in the self-storage industry since 1981. He manages two facilities and is a partner in 22 others. As the president of QuikStor, which he founded in 1987, he has developed and overseen many innovative software and security advances in the industry. For more information, call 800.321.1987; visit www.quikstor.com.

ISS Blog

Live From ISS Expo in Vegas

The Inside Self-Storage World Expo kicked off today in Las Vegas. The four-day event combines the industry's best resources with the largest vendor exhibit in the self-storage industry.

About 700 attendees turned out to hear four self-storage veterans open the Expo this morning with advice to not just survive in 2009, but thrive. Attorney Jeffrey Greenberger gave sound advice about avoiding lawsuits and safeguarding your business. His advice included "thinning the herd," dropping those problem tenants, creating an ironclad rental agreement and selling tenant insurance.

Terry Campbell, president of BETCO Inc., urged self-storage owners to make sure their facilities are in the best possible condition. Refurbishing has been "a hot topic for the past six to 12 months," he told the crowd. Campbell emphasized the importance of curb appeal, attractive, easy-to-use doors and leak-free roofs.

Bob Cooper, president of Self-Storage 101, said many self-storage owners are "not expecting much" this year. Instead, they should focus on ways to "thrive." Branding it an Operational Tune-Up, Cooper encouraged attendees to take a hard and honest look at their facilities, managers and themselves and uncover what's working and what's not. Owners need to provide training for their managers and be willing to try new things.

The educational seminars followed the morning address. Eager attendees soaked up information on self-storage marketing, facility auditing, practicing green and collecting on delinquent accounts.

Seminars continue tomorrow, followed by the opening of the Expo Hall from noon to 5 p.m.

To learn more, visit www.insideselfstorageworldexpo.com.

Self-Storage Kiosk Use Numbers Released for 2008

OpenTech Alliance Inc., developer of the INSOMNIAC line of self-storage kiosks, has released detailed kiosk-usage numbers for 2008, providing insight into how consumers use and benefit from self-service tools. As of Jan. 1, 2008, 196 of the company's kiosks were in use across the country. Another 155 came online during the period ending Dec. 31. 
 
During 2008, customers used the kiosks to rent 8,938 storage units, make 76,260 payments and purchase 5,014 locks, representing a total of $8,709,980 in self-service transactions.
 
The statistics show that 45 percent of moves-ins and payments took place outside of office hours. More than 50 percent of kiosk use took place while rental offices were open, demonstrating consumer comfort with self-serve technology. In 2008, INSOMNIAC kiosks rented 249 units and collected $254,155 in rental fees during the country’s 11 major holidays.
 
Credit cards were the preferred method of payments at the kiosk, with 51 percent of transactions paid for using this method. The balance of the transactions was paid with cash (31 percent) and check (18 percent).

OpenTech is creating a detailed white paper on kiosk use that is available upon request. 

To date, self-storage owners have purchased more than 450 INSOMNIAC kiosks, and OpenTech has exceeded the $15 million mark in rental fees collected by its kiosks at self-storage facilities across North America. For more information, visit www.opentechalliance.com.

Bailey Raleigh Self Storage Acquires Security U-Store for $3.95M

Bailey Raleigh Self Storage LP acquired the 47,827-square-foot Security U-Store self-storage complex in El Cajon, Calif., for $3.95 million, or $82 per square foot. Built in 1972, the eight-building facility is on more than 3 acres. It was vacant at the time of sale.
Mark Silverman of NAI San Diego represented the sellers, K Motors Co. LLC and Ynez Two LLC. For more information, visit www.naisandiego.com.

How Will Self-Storage Owners Survive the Credit Crisis?

Somehow we survived Black October 2008, but now found ourselves in the worst credit crisis since the Great Depression. Americans are stressed out. Investors have seen their savings and 401k accounts shrink to unimaginably low levels. It’s estimated that as many as 30 percent of Americans owe more on their house than its worth. All sorts of what-if scenarios are bantered about, with worst-case predictions openly contemplated by business news pundits on a daily basis.

As a nation, and as individuals, we are closer to the breakpoint than we have been in more than a generation or two. What exactly is the “breakpoint?” When you are playing tennis and are on the losing side of a breakpoint, you are one point away from losing the game, even though you’ve been serving the ball.

That sounds eerily similar to our nation’s economic position and the situation many storage owners find themselves in at the outset of 2009. We had been easily holding serve with property financing for several years thanks to historically low interest rates and generous loan program terms.

But as the residential subprime mortgage fallout gained momentum through 2007 and 2008 to morph into a full-blown credit crisis, we found that holding our serve was much more difficult, even if our self-storage businesses were performing well operationally. What became readily apparent is that we need to constantly be cognizant of how macro market conditions can make us more vulnerable and force us into a breakpoint situation.

Working Hard for the Money

The U.S. government has joined with nations worldwide to fashion multiple solutions to the financial crisis. One of the main objectives is to shore up the banking system to better support lending to businesses and consumers. As we’ve seen, the crisis will not be solved overnight and will likely take several months (maybe even years) with many twists, turns and wild gyrations in the stock and bond markets along the way.

Undoubtedly, borrowing will be more difficult for everyone in 2009 and you will have to work extraordinarily hard to obtain commercial real estate financing. There is good news though: For the most part, interest rates are still reasonable and some banks are still making loans on self-storage properties.

Today, banks are controlled by their risk management, with even the strongest institutions scrutinizing loan-request packages more closely than they have in a decade. Lenders are evaluating borrowers’ risk profiles primarily on two main factors:

The ability to borrow based on the credit and financial wherewithal of the borrower and his partners. Banks now review actual credit and balance sheets for reasonableness of values. They’re also giving more weight to liquidity, as they view cash on hand through liquid investments as a positive sign of your ability to repay the loan.

Lenders are examining the historic performance of a property to size up a borrower’s new loan. Remember, though, lenders today use stricter guidelines than in the past, which curtails loan dollars. Therefore, on a case-by-case basis, a borrower may be exposed to a lender denying a request because of credit, or providing him with a loan quote that is less than the current outstanding loan.

Many owners have become accustomed to being able to take additional proceeds out either beyond the current loan amount or, in some cases, beyond the initial costs. Pulling additional equity out in the form of debt will be increasingly more difficult in 2009.

On top of it all, we are dealing with volatility on steroids. Market movement in a single day can be more than we have seen in a previous year’s worth of time. It is impossible for any of us to make predictions on what lies ahead. You can only position yourself to reduce your risk and stay as far away from the breakpoint as possible.

Who You Know

One way you can possibly avoid reaching a breakpoint is by establishing depository relationships with your current banks. Let’s not fool ourselves: Capital sources today are trying to obtain as much capital infusion as possible. By the same token, you may want to diversify your banking relationships.

The banking system is in the middle of a de-leveraging period, or trying to reduce loans to many customers. Many banks are facing regulatory closure and others are consolidating. With all this movement, your well-established banking relationship could disappear overnight, or from a more positive perspective, it could prove to be the difference in receiving a loan.

It is also very difficult to know which lenders are in the self-storage market at any given point. Therefore, in addition to your banking connections, you may want to seek professional advice from a mortgage broker you can trust to provide you with current and objective market information.

How Close Are You to the Breakpoint?

If you own a stabilized self-storage property investment with long-term financing that matures in five or more years, you are as far from the breakpoint as you can be. That’s a good spot.

If your stabilized property has a loan maturing in three to five years, you need to stay aware of markets and potentially refinance to lengthen your loan’s maturity. You may want to start by visiting your current bank, drawing upon your banking relationship, and renegotiating the term length.

If you are on a construction loan and have the ability to convert into a mini perm in the next 12 to 18 months, you probably will be in a situation where going into the mini-perm portion of the loan is your best option. The only caveat is if there are certain operating hurdles to achieve.

If you have a loan coming due in the next two years, it would be prudent to start shopping for new financing now. It takes a lot longer to secure new financing today than in years past. The market is no longer homogenous and each lender will look at each loan request differently.

One of the major changes resulting from the demise of commercial mortgage-backed securities lending is the availability of non-recourse financing. You should expect to receive a recourse loan unless you are seeking a loan-to-value of around 50 percent. Even then, you’ll have limited non-recourse options.

If you have a construction loan maturing in the next 18 months, you should also start planning ahead on your loan take-out strategy. Most developers were able to get highly leveraged construction loans in the recent frothy lending environment. It was not uncommon for construction loans to be made at 80 to 85 percent of cost.

The real challenge for those developers will be to have operating performance that is strong enough at the end of two to three years to justify a take-out loan at the same level. Many of them will be at a breakpoint where they will need to infuse equity in order to obtain a new loan. If the lease-up has not been strong, they also risk facing a challenging market to obtain a new loan at all.

Regardless of where you are in the breakpoint continuum, you must also manage your operations in addition to your financing risks. Your customer base is probably acting differently by now: Looking at their shrinking pocketbooks and cash flow, residential and commercial tenants are making choices about whether they should continue renting their storage spaces.

No need to sugarcoat the truth; these are not the best of times. In fact, they’re quite humbling times.

Here’s some advice: “Staying power will help us stay in the game.” Try that for your New Year’s resolution. Even in the economic downturn, self-storage has again proven to be one of the best real estate investments available and one of the most recession-resistant. That sense of staying power should inspire you to stay in the game.

Through these tough economic times, be mindful of keeping life in perspective. Appreciate all the good around you, as well as all the good you can bring to others ... especially those who may be reaching their own breakpoint.

Neal Gussis is a principal at Chicago-based Beacon Realty Capital, where he directs the firm’s self-storage group. He can be reached at 312.207.8240; e-mail ngussis@beaconrealtycapital.com.