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Articles from 2009 In March


Self-Storage Property: Performance Review

In the self-storage industry, we often ask each other, “How is your property doing?” Usually the response is something along the lines of, “Good, OK, had a few rough months, etc.” This brings up an interesting idea: How well do you know your property’s performance? Do you have all of the facts in front of you? Are you looking at the complete picture or just pieces of the puzzle?

Is your manager or third-party management company using the correct tools to ensure the proper management of your facility and giving you all the right information for view? The answer to this question is crucial to your facility’s success.

Management Summary Reports

When you walk into a self-storage facility and ask the property manager, “How’s business?” they will usually pull out a management summary report and rattle off a few numbers. The report is one of the most important tools you can use to review the performance of a property. However, there are some steps you should take to make sure your management summary report is working in the best way possible for you.

The first step is making sure the report gives you the information you need, including money collected; any concessions given to tenants; rental activity; economic, unit and square foot occupancy; potential rent; and rents that are past due.

The second step is to double check how the metrics are calculated. Metrics can be calculated in many ways and can skew the analysis if not calculated properly. For instance, a metric called “actual total rent” on one report could be called “projected rent” on another, and both are calculated as the sum of the monthly rent rate for every renting customer on a given day. The metric names are not necessarily indicative of their calculation. However, one cannot live on a management summary report alone. Without a frame of reference, the report does not tell you enough about how the property is performing compared to its potential.

Think Big Picture

In order to get the full and complete picture of your facility’s performance, look at the following:

Open lines of communication. Nobody knows your self-storage property better than the people managing it every day. Ask the manager to compose his thoughts and observations for you at least monthly. If you employ a third-party management company, ask them for updates on the property manager and any training they are working on; the current occupancy, delinquency, ancillary sales; and capital improvements or maintenance work that needs to be done. Also, get information regarding the marketing efforts and the local market in general. This communication will often give you more information about what’s really going on at the site than the combination of all other reports.

Profit-and-loss statement vs. the budget. Let’s say you are looking at a management report that tells you your property collected $27,200 in revenue last month. That sounds pretty good, until you look at the budget and realize you had budgeted to collect $35,000 in revenue for that month. Wait a second ... now you know you need to look into this. Has the market changed since the budget was prepared? Is there a different manager running the facility now? Did you lose a big tenant with multiple units? Make sure to look at expenses as well. Get the full and complete picture before jumping to conclusions.

Follow the trends. Sometimes looking at a chart really helps identify positive or negative trends. Implementing a change as soon as you see a trend start to turn the wrong way can save thousands in lost revenue. For example, you can see on the management summary report that occupancy at “Site 1” is currently 78 percent. You remember the facility was a little higher in the summer months but suspect it’s just normal season shifts that’s driven it down slightly.

If you look at the accompanying chart for the occupancy at that facility and compare it to the trend for other facilities in the same geographic region, you can quickly see that you have an issue beyond normal season fluxes at Site 1. Something happened in June to dramatically change the trend.

The next step of the investigation would be to look at the trends of move-ins and move-outs to determine what’s driving the drop in occupancy. Looking at trend charts could mean increased revenue.

Potential revenue reports. Sometimes this report is called a unit mix report or occupancy statistics report. Whatever the name may be, this is an important report that lists all existing unit types at a property, tells you how many of them you have, how many are rented and at what rate and the current street rate for that unit type. If your move-ins are slow, you may want to study this report along with the competitive rates to make sure you are priced correctly.

If your existing tenants are paying much more than your street rates, you may be able to increase the street rates marginally. If you have one or two unit types with many vacancies, you can use this report to determine if you should do a conversion, taking down some walls to create larger units. You need to have the right unit mix at the right price to maximize profits.

Demographics report. Most management software systems have a survey tool built into them. This allows you to ask new and potential tenants a few critical questions at move in such as:

  • How did you hear about us?
  • What is the most important factor to you when deciding where to store your belongings?
  • Did you use a printed phone book to look up our telephone number?
  • How far away do you live?

The answers to these questions will help you determine if your marketing efforts are working and, subsequently, where to spend your marketing dollars going forward to get the highest return on investment. Study who your customers really are so you aren’t marketing to those who aren’t.

Audits. Make sure your third-party management firm or someone working for you who isn’t at the property every day is auditing your facility at least quarterly. This will help protect you and your asset from any liability that could arise from wrongful sales, ignored maintenance issues, incomplete paperwork and items of that nature. Don’t be afraid to ask the management firm to see a copy of the latest audit completed at your property. Protect yourself and your company.

Be Proactive

Keep an eye on everything and be ready to take action should the need arrive. Professional property management firms will study the reports, watch trends and react quickly and proactively for you. Creating an additional $1,000 in net operating income can create $12,000 in asset value for your property.

Knowledge is power and the key to the success of your self-storage facility. If you don’t have the time to look at all this information every month, invest in someone who does. Hiring a management company or a qualified manager will give you access to the data whenever you need it, help you rest easy knowing your asset is in good hands and drive up the value of your self-storage facility.

Alyssa Quill is vice president of Investment Real Estate Management in York, Pa. She has worked in the self-storage industry for eight years in finance and operations roles. Investment Real Estate LLC provides self-storage brokerage, construction and management services to owners and investors in the Mid-Atlantic and Northeastern United States. For more information, call 717.779.0804; visit www.irellc.com.

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Grubb & Ellis Facilitates Sale of Firestone Self-Storage

Grubb & Ellis|BRE Commercial recently facilitated the sale of Firestone Self Storage in South Gate, Calif., for $8.6 million. Greg Wells of the company’s Self Storage Group represented both buyer and seller. The 91,594-square-foot facility was sold by Granite Investment Group to Nova Development, a Los Angeles-based self-storage operator that closed the transaction with all cash.
 
The project also contains 82 outdoor RV/boat parking spaces and was approximately 85 percent occupied at closing. The area of South Gate is a densely populated area of Los Angeles County with a 5-mile population exceeding 900,000. 
 
Based in San Diego, Grubb & Ellis|BRE Commercial is a privately held commercial real estate brokerage firm that represents more than 40 million square feet of industrial, office and retail property throughout the region.

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Exact Self Storage of Washington Sells for $1.2M

Exact Self Storage in Ocean Shores, Wash., was sold by a private investor for $1.2 million. The 15,200-square-foot facility, built in 2003, sits on .7 acres and has 73 units. Joel Deis, Michael Morgan and Christopher Secreto, investment specialists with Marcus & Millichap's Seattle office, marketed the property on behalf of the seller.

Source: Commercial Real Estate Deal News, Washington storage facility sells for $1.2M

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Financial-Crisis Survival Guide for Self-Storage Owners

As the economy continues to struggle, even top economists are unable to say definitively when we’ll see an upturn in the market. This uncertainty has frozen the real estate markets, making acquisition a challenging process during the past year and for the foreseeable future.

Complicating things further, we don’t know how and when the government bailout dollars will reach the market and what it will take to shake that money out of financial institutions.

But on the bright side, transactions are still getting done, especially in the self-storage market. We are seeing opportunities in the marketplace for skilled but cautious investors willing to dig deep and recognize opportunity.
 
Debt vs. Equity: Has the Money Pipeline Opened?

As of the first quarter of 2009, debt remains extremely difficult to obtain, and if investors can obtain it, the terms are often less than favorable. We’ve seen lenders who have changed rates at the 11th hour and sellers who have balked at closing.

It’s clear that buyers and sellers need to be more creative by including the assumption of existing loans and seller financing as part of the discussion. Those kinds of things weren’t even contemplated in the sellers’ market of recent years.

As part of the equation, it’s more important than ever to be sure of the conditions on assumable loans. Be especially cautious of commercial mortgage-backed securities (CMBS), special servicers who attempt to change the terms of the original loan, as they scramble for better guarantees or improved creditworthiness of their borrowers. A loan purported to be assumable may not, in reality, be given this tactic.

Additionally, there will be a continued migration from single-property ownership to greater representation by the regional players and national real estate investment trusts (REITs). That said, from an equity standpoint, we are finding investors who are extremely interested in the self-storage market—particularly on the income side of this asset class.   

The story is simple. It’s easy for investors to understand this real estate sector. Self-storage is driven by people in transition: birth/inheritance, marriage/divorce, retirement, military enlistment, job relocation, business expansion and contraction. We see self-storage facilities throughout our neighborhoods. Many of us have at one time or another rented a self-storage unit.

Today, we’re seeing a steady flow of equity into self-storage and, in this economic turmoil, cash is king. To be successful in this challenging market, the investor needs to find a property that is priced right, with or without debt in the transaction. Being flexible is one of the keys to surviving the financial crisis. If an investor doesn’t have this flexibility, fewer options are available.
 
Investment Opportunities

Some economists predict the commercial real estate market is teetering on the edge of an imminent fall. According to the Urban Land Institute’s “Emerging Trends” report, “The credit crisis and ensuing recession promise to drag commercial real estate markets into a difficult period marked by value losses, rising foreclosures and reduced property revenues.

In 2009, expected total real estate private-equity investment returns will likely register in negative territory for the first time in nearly two decades. After an unprecedented meltdown, housing values should finally hit bottom during the year, followed by later corrections in the commercial sectors.” 

Looking at the performance of publicly traded REITs, as reported by the National Association of Real Estate Investment Trusts, we see a more defined story. While REITs as a whole were down nearly 38 percent in 2008, those specializing in self-storage were up 5 percent, the only property sector to post positive returns. That’s a full 43 points above the average. The next closest sector was healthcare, down 12 percent.

Of course, REITs are traded, which means they’re more affected by the equity markets than the underlying value of the real estate, and cannot be compared to privately owned real estate. But the relative sector performance speaks volumes.

So what does that mean to self-storage? Indeed, many owners are simply watching and waiting, holding onto their cash-flowing properties until the market shifts. On the other hand, some investors are seeking opportunities, analyzing key markets with strong demographics. In addition, we’re seeing signs of distressed properties that will offer prime buying opportunities in the next 12 to 18 months. 
 
An Oasis in a Recession?

Clearly, the financial markets are undergoing a great deal of strain given the over-leveraging that has occurred over the last few years. This de-leveraging process has caused many financial institutions significant pain. If we take a look at our economy, there are only a few areas not directly affected by the downturn in the market.

Developers, builders, homeowners, commercial property owners, hedge funds and private equity are all taking a hit. Unfortunately, it might take a long time before we truly hit bottom. There are few glimmers of a recovery right now.

The good news is the self-storage market offers recession-resistant traits. There are a few signs of weakness in some markets but, overall, the sector is performing well. While no industry is immune to a down economy, this asset class is quite stable.

According to the National Bureau of Economic Research (NBER), specific start and end dates for each recession are determined by the gross domestic product (GDP), employment, industrial production, retail sales and other factors. NBER states these determinations are often made more than a year after the fact; however, a commonly used alternative definition of a recession is two consecutive quarters of shrinking GDP. Some forecasters say we have been in a recession for a year already and the GDP growth will return, albeit slowly, by the end of this year. 
 
Refinance?

Deciding to refinance depends solely on the value of the real estate property. If the property was acquired a few years ago, it would be difficult to refinance, as the terms could be much different. Also, the value of the property may have declined. If this is the case, the owner may have to increase his equity.

Currently, we’re experiencing a circular challenge in the lending community. It’s clear that our government is placing pressure on lenders to lend, but the terms presented are ones investors are unwilling to accept, thus lending is at a standstill. This will hopefully improve over the next 24 months. 
 
Commercial Real Estate in the Cold?

It looks as if commercial real estate executives need to face the realization that federal dollars will not be used to clear debt off lenders’ balance sheets. The Troubled Asset Relief Program (TARP), a measure many believed would open the clogged financing floodgates, was suddenly snatched away this past November. Treasury Secretary Henry Paulson declared that purchasing illiquid mortgage-related assets “is not the most effective way to use TARP funds.”

But there’s still a sliver of hope that the Treasury will help troubled commercial real estate debt. The injection of TARP funds would start to create the stability we need, but it would also cause issues such as an excessive budget deficit and going from deflation to inflation. 
 
What Lies Ahead

In the first half of 2009, further deterioration in real estate fundamentals will force many investors who are still clinging to unrealistic asking prices to swallow a bitter dose of value correction. At the same time, buyers will have to settle for annual returns based on existing income streams rather than the skyrocketing price appreciation that made commercial real estate golden earlier in the decade.

The best way to survive the credit crunch is to not rely on debt. If investors need debt to close a transaction, they should use cash of at least 50 percent of the acquisition price. The lesson we’ve learned has been as simple as it is painful: Leverage is good, but only in moderation. 
 
H. Michael Schwartz is the chairman and CEO of Strategic Storage Trust Inc., a publicly registered, non-traded REIT with a portfolio that includes more than 1,800 storage units and 196,000 rentable square feet. The company’s sponsor is U.S. Commercial LLC, which manages a growing portfolio of 5 million square feet of commercial properties, including 2.9 million square feet of self-storage. For more information, visit www.strategicstoragetrust.com.

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Indiana Apartment Leader Diversifies With Self-Storage

The Gene B. Glick Co., Indiana’s largest owner and manager of apartment communities, spent approximately 20 years building its empire, which had grown to 100 properties and 18,000 total units across 10 states by the early '90s. Having rested on the development side for more than 15 years, new company leadership has returned to building and acquiring apartment properties―and setting its sights on the self-storage industry.
 
Company founder Gene Glick, now 87, is retired and focusing on philanthropic efforts. His grandson-in-law, 38-year-old David Barrett, took over the company as CEO about a year ago. Under Barrett’s direction, the company is not only breaking ground on new apartment projects, for the first time ever, it is acquiring existing ones.
 
In addition, Glick Co. has diversified its portfolio with the addition of self-storage. The company
broke ground on a new facility in Westfield, Ind., and is looking to build another in Carmel. It will also entertain self-storage acquisition opportunities.

Source: Indianapolis Business Journal, Back in the game

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Mako Steel Revamps Self-Storage Building Website

Mako Steel Inc., which designs, supplies and installs self-storage buildings nationwide, has revamped its website at www.makosteel.com. The renovated site offers self-storage owners and operators a variety of features including a building-color selector, event calendar, facility photos and a list of other industry resources. In addition, the company has launched a blog as well as a monthly e-mail newsletter containing company news and special offers.
 
Founded in 1993, Mako has offices in Carlsbad, Calif., Jacksonville, Fla., Vancouver, Wash., and Washington, D.C. In addition to self-storage buildings, the company provides boat/RV storage, multi-story and custom buildings. It is a certified dealer for Nucor Building Systems.

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Combined Self-Storage/Carwash Facility Opens Under New Management

A combination self-storage facility and car wash in Dryden, Mich., has opened under new management. Drop 'N Lock Self Storage and A&B Car Wash have undergone major improvements and construction, according to site manager Pam Gallagher.
 
The car wash has upgraded equipment in five self-service bays and added a fully automated car wash as well as eight vacuum stations. Directly behind the car wash, the storage facility has a new security-surveillance system. Construction has begun on 15 climate-controlled storage units that will offer alarm systems. They should be complete in about a month.

The businesses, staffed by two employees, are owned by D.L. Storage Inc.
 
Source: The Flint Journal - MLive.com, Car wash, storage units revamped

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StorageSeeker.com Creates Premium Listing Option

StorageSeeker.com, a recently launched website that assists consumers in searching for self-storage facilities, has created a new “Premium Listing” option for self-storage companies that wish to participate. The new listing level includes a facility’s contact information, features and rental rates. The site allows users to map and perform side-by-side comparisons of self-storage locations nationwide.

The company has also created an improved results display that allows users to sort results by premium listings, facility names or distance. In addition, the default search radius has been increased to 10 miles, allowing a greater number of companies to be viewed during each search query.

StorageSeeker.com is encouraging self storage owners to sign-up for a Premium Listing during its beta period with a limited-time offer for two free months of service.

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JanUs Door Makes Ever-Green Promise

JanUS Door, a manufacturer of coiling sheet doors, hallway partitions and rolling steel doors for the self-storage, commercial and industrial markets, has made an oath “to produce high-performance sustainable building products through environmentally sound manufacturing processes and effective waste reduction.” The company recently pronounced its commitment in a new four-color brochure outlining in detail the environmentally friendly qualities of its products, processes and vendors as well as its use of packaging and paper.
 
JanUS Door products are made almost entirely of steel, which is 100 percent recyclable.
 
“JanUS has taken the environment into consideration before we even opened our doors for business,” said David Curtis, company president. “We planned from the onset to reduce waste, utilize eco-friendly materials and partner with vendors who are like-minded in their practices.” 

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Self Storage Association of Michigan Attempts Lien-Law Renovation

Thanks to a bill that was introduced to protect deployed service members, the Self Storage Association of Michigan (SSAM) is pursuing renovation of its state self-storage lien law. Senate Bill No. 204 aims to exempt deployed military personnel from enforcement of a lien in the case of self-storage non-payment. Introduced on Feb. 10, 2009, by Sen. Dennis Olshove (D), the bill establishes that a self-storage owner’s right to deny access to a customer who has not paid his bill and to sell the customer’s goods if the bill goes unpaid does not apply to military personnel.
 
SSAM, which is working with the bill’s sponsors to amend the existing “self-service storage facility act,” will take this opportunity to update other provisions within the lien law. In particular, the association hopes to change the law to reflect new options for lien notification. SSAM will attempt to adopt new lien-law language as endorsed by the national Self Storage Association; the language is also being considered in Arizona, California and North Carolina.