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ISS Blog

Self-Storage Legislation: Could Be Heartache on the Horizon

As we approach the end of the 2009 first quarter, we're seeing several legislative issues come to the surface for self-storage operators in particular states. While ours is not an industry that is government regulated per se, we are still affected by statutory laws that drive the operation of our businesses. And this year, some managers and owners are going to find it more challenging than ever to function within the stipulation of the law.

In Maine, the issue of abandoned records is becoming fraught with peril as mortgage companies and others go under, leaving sensitive records left unclaimed in storage. Earlier this month, a public hearing took place that could have serious impact on self-storage businesses in the state. The session addressed SP 130, LD 366, “An Act to Protect Confidential Consumer Records in Self-Service Storage Facilities,” which would require extensive administrative procedures on the part of self-storage operators. [More info: Maine Self Storage Operators Battle Issues of Abandoned Records, Confidentiality]

In Virgina, self-storage operators may be asked to assist the tax man in collecting dinero. Del. Ben Cline has proposed House Bill 2289 that could remove a tax shelter enjoyed by some boat and RV owners, the result of which is storage operators may have to provide their local commissioner of revenue with the names of out-of-state residents who park vehicles in their outdoor storage areas. [More info: Virginia Self-Storage Operators May Help to Out Tax Evaders]

Yesterday, we posted a press release relating to potentially changing lien laws in the state of Oregon. Proposed House Bill 2911 would require self-storage operators to dispose of tenant goods that go to lien sale but receive no bids “in a manner reasonably intended to realize proceeds close to market value of property.” In addition, if the goods are eventually sold for more than the amount of the lien, the operator must hold the balance for the tenant for two years and, if still unclaimed, fork it over to the Department of State Lands. [More info: Proposed Oregon Bill Complicates Lien Sales for Self-Storage Operators]

These are but a few examples of the potential legislative heartache on the horizon for managers and owners in this business. Now more than ever, it is critical that you partner with and support your state self-storage association. If the association is doing its job, it will lobby for your interests, working with bill sponsors and legislators to create laws that help rather than harm the industry. If there is no association in your state (and few states do not have one), reach out to the national Self Storage Association. To view a complete list and get contact information for state associations, visit the association page of the ISS Buyer's Guide.

A note on South Dakota: Good news for storage operators in South Dakota this month, as legislation enforcing a sales tax on self-storage no longer applies. Facility owners even have until Oct. 1, 2009, to apply directly to the Department of Revenue and Regulation for a refund on sales tax charged. For details, read "Refunds on Self-Storage Sales Tax Available in South Dakota."

So, what's happening with legislation in your area? Please share with our blog readers. The more informed we all are, the easier it will be to battle governmental threats.

Refunds on Self-Storage Sales Tax Available in South Dakota

The South Dakota Legislature has established deadlines for business owners and customers to claim refunds for sales taxes improperly collected on self-storage unit rentals. The refunds are the result of a 2008 decision by the state Supreme Court declaring that self-storage is not subject to sales tax.

The deadline for customers to apply for tax refunds from self-storage businesses is Sept. 15, 2009. The deadline for business owners and taxpayers to apply to the Department of Revenue and Regulation is Oct. 1, 2009. Department officials have promised to advertise the availability of refunds along with the deadlines.
 
In December, the justices ruled 3-2 in favor of self-storage owners James Pirmantgen and Patricia Carlson, who own a facility in Sisseton. Gov. Mike Rounds in January asked the Legislature to pass a law overruling the decision. The Senate approved the governor’s legislation 18-17, but the House tax committee killed it on March 6 on a motion by House Democratic leader Bernie Hunhoff of Yankton.

The Revenue Department had been collecting tax on self-storage since 1995. Officials estimate an annual revenue loss of about $1 million.
 
Source: The Aberdeen American News, STATE: Legislature sets plan for storage-tax refunds

 

Related Articles:

Self-Storage Not Taxable Says SouthDakota Supreme Court 

Self-Storage SalesTax Reinstated in SouthDakota

New Web Scam: Free Stimulus Money

The combined dismal economy and promise of stimulus money has led to an increase in cons on the Web. Scammers are promising everything from grant money to help you buy a car or home to simply "free stimulus money." 

 “They’re advertising them on search engines like Google and on social networking sites like Facebook. They’re also promoting them in chat rooms,” says Susan Grant, director of consumer protection at the Consumer Federation of America.

Consumer protection experts are warning Americans to not be taken in by these scams. “Don’t fall for it,” warns Eileen Harrington, acting director of the Federal Trade Commission’s Bureau of Consumer Protection. “There is no money in the stimulus package to send out individual checks to people.”

Source: MSNBC.com, Free Money From Stimulus? Are You Kidding?

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Recession Leads to More Cyber-Scams

Man Suspected for Six Self-Storage Break-Ins in South Carolina

Investigators are searching for a man who may be responsible for breaking into two units at Trenton (S.C.) Self-Storage. They believe the perpetrator is a heavyset white man in a dark blue or black Ford F-150. He is also suspected of breaking into four units at Edgefield (S.C.) Mini-Storage.
 
Source: wrdw.com, Multiple Edgefield County self-storage units broken into

Stock Market Continues to Rise

After three days on the upswing, stocks started off strong Friday.
The Dow Jones industrial average, S&P 500 and Nasdaq all made moderate gains in the first few hours of the day.

The past three days have been good for the stock market—and America's economy—as retail sales posted better-than-expected numbers and General Electric's rating downgrade by Standard & Poor's was limited. Some analysts also credited the guilty plea and jailing of investment banker Bernard Madoff in a multi-billion dollar fraud case.

Source:  CNNMoney.com,  Stocks Edge Up at the Open

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Self-Storage in the Northeast: Real Estate Snapshot

This month, our roundtable of real estate experts gathered to discuss what's happening with self-storage in the Northeast states. This month's panel includes:

  • Guy Blake of Pyramid Brokerage Co. in Kingston, N.Y.
  • Linda Cinelli of LC Realty in North Branch, N.J.
  • Joe Mendola of NAI Norwood Group in Bedford, N.H.
  • Chuck Shields of Beacon Commercial Real Estate in Conshohocken, Pa.

1. Most banks are not lending aggressively or are difficult to work with at this time. What has been your experience?

Blake: It seems that the larger the deal, the more difficult it is to find lenders willing to make loans. Small local banks (that did not get involved in the sub-prime mess or conduit market) are still lending but only up to a couple million dollars. The terms haven’t really changed all that much as they have always been fairly conservative.

Cinelli: There is money out there, but only for an established operator with a track record and a strong P&L. The loan-to-value (LTV) is not going to be what it was in the past. The local banks are still strong; most do not have heavy bad debt, and they are actively seeking to loan money, but only to strong buyers.

Mendola: Banks are increasing underwriting standards to cover the uncertain future. Community banks have excellent balance sheets and are eager to lend. They will still do 75 percent LTV if the borrower has good credit and is not depending solely on the cash flow from the asset being financed. If that is not the case, the LTV quickly can go to 65 percent. The major banks and life companies are not lending because they are going through a de-leveraging process to preserve their capital base.

Shields: In conversations with lenders in eastern Pennsylvania, money is available but the standards and requirements underwriters set for obtaining financing are more strongly enforced. There is more equity needed than in the past, but borrowers with good credit, cash and a history of owning and managing self-storage are still able to get financing. Lenders are more particular. Luckily, unlike residential, self-storage is one property type that is still finding financing.

2. Some analysts say self-storage is a recession-proof business. What are owners in your market experiencing in terns of rental rates, rental concessions and the overall occupancies and turnovers?

Blake: Most operators are not yet ready to declare that self-storage is “recession-proof.” Occupancies are holding fairly steady and we’re not seeing any downward pressure on rates yet. Delinquency rates are creeping up a bit, which is not unusual for this time of year. So, all in all, the storage market in upstate New York seems to be holding its own, but the operators are sweating a bit nonetheless.

Cinelli: Of the operators we interviewed, some thought self-storage was recession-proof, but their occupancies have dropped from various sources: personal or business downsizing, cutting back on overall expenses and job losses. However, people who have to move out of their houses will have to store their belongings as they move into smaller apartments, so that creates an additional demand.

Mendola: In a mild recession like we are experiencing now, self-storage in New England is fairly recession-proof. The people downsizing from a larger home or foreclosed upon have offset the move-outs. They still value their stuff and put it in storage to hope for a better day. The occupancies for my clients, by and large, are as high as they have ever been because they are benefiting from the downsizing effect

Shields: The economy is affecting business. Rates are down and the published rate is not the rate that is required to rent the space. Concessions are needed to “make the deal” and more owners are making concessions to keep their tenants who’ve lost or fear losing their jobs and would be unable to pay the rent. Overall, occupancy is down (some owners have indicated down 5 to 10 percent). The result is that the owners are doing whatever it takes to keep tenants. They will match or better whatever their competition is doing.

3. How would you best describe current buyers?

Blake: Current owners have always been, and remain, the top source of buyers in the storage business. Those with cash available are taking a more predatory stance as far as acquisitions are concerned. The state of the market has put them in a strong negotiating position and savvy operators are taking advantage of it whenever opportunities arise.

Cinelli: Today’s buyers are existing operators looking to pick up facilities at prices more realistic than they have been the last four years. Some new product is coming in with prices that may allow them to purchase at higher cap rates. Both buyers and sellers do not have much of a sense of urgency and appear to be waiting out the market.

Mendola: Some of today’s buyers are becoming “bottom feeders” looking for a bargain. However, sellers are not buying into it partly because many do not have to sell immediately and their cash flows from operations are too great to consider a price concession. Current self-storage owners are also looking for opportunities to purchase properties in complimentary markets to existing facilities to expand their market share.

Shields: A majority of buyers are investors with cash or access to cash that see self-storage as a good investment with a good return. They are not necessarily self-storage operators but are looking to third-party managers or companies to run the facility. This indicates to me that self-storage still remains a strong option for anyone looking to invest.

4. Are you seeing owner financing or partial owner financing to help facilitate deals?

Blake: I am definitely seeing more owners willing to finance some or all of their deals. Since the number of buyers in the market has decreased dramatically, the motivated sellers are doing what is necessary to make the deal.

Cinelli: Sellers are becoming more aware of the possibility of owner financing to get their prices. It works well if the owner has real equity and would benefit by taking back the property in the event of a default. Owners are still hesitant to be the bank, but if the buyers are strong and have credibility and own or operate other facilities this may be the next step to sell. Still, I wouldn’t encourage a seller to take the risk of owner financing for first-time buyers in the self-storage business.

Mendola: Because LTV ratios are contracting, owner financing is something that sellers are willing to consider but the credit worthiness of the borrower and the price offered for the property have to be really good. The larger problem is that many owners have commercial mortgage-backed security loans (CMBS) on their properties. These loans carry a prohibition against secondary financing. Unless the buyer can offer good substitute collateral, this approach will not work in facilitating a sale.

Shields: Today’s lenders are looking for at least 25 percent equity from buyers. The more cash buyers need put down, the less they can pay for the facility. Secondary financing also helps the owner get closer to his asking price by enabling the buyer to come up with less cash. Not many sellers are willing to finance 70 to 75 percent of the sale. The future is too uncertain and no one wants to get the property back, especially if it is worth less than when it was sold. In addition, many times the cash in the deal does not pay off any existing mortgages on the property.

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.

Centershift Announces Vice President of Client Services

Centershift Inc., a provider of Internet-based software solutions to the self-storage industry, promoted Rett C. Thorpe to vice president of client services. During his four-year tenure with the company, Thorpe has served as a program manager and director of account management. With this move, he joins the executive management team and will head up all activities related to account management including relationships with clients. Thorpe has a bachelor’s degree in finance from the University of Utah. He has served in management roles with iBahn and AgencyWorks.

Guidelines for Choosing Individual Health Insurance

With the jobless rate reaching 12.5 million and climbing, millions of Americans are left without employee-sponsored health insurance. Rather than go unprotected, many are seeking individual health insurance policies.

But shopping for health insurance can be tricky. Many policies may lack adequate coverage or be too broad, making discerning a good policy from a bad difficult, health experts say.

The National Committee for Quality Assurance, in conjuction with U.S. News & World Report, publish ratings of health care plans. Consumers can also look at insurance guidance from America's Health Insurance Plans, Families USA and the Patient Advocate Foundation.

Here are five questions to consider when shopping for health insurance:

  • How much are my premiums and will they change?
  • What are my deductibles and co-pays?
  • Is the insurance company licensed in my state?
  • Am I buying a short-term or a long-term plan?
  • Should I consider going with COBRA?

Source:  CNNHealth.com,  How to Shop for Health Insurance

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Maximizing Profit With the Right Self-Storage Unit Mix

Most of us have been to a professional sporting event and sat in seats that, while comfortable, could have used a little more leg room. We’ve no doubt wondered why the designer of the stadium or arena couldn’t have given us just a couple more inches between the rows. While a couple of inches for one row of seats doesn’t seem like much, multiply it by dozens of rows and the impact on the total number of seats in the stadium or arena becomes significant.

In short, the owners of the sporting franchise want to maximize the amount of rentable space (seats) while providing adequate, but not excessive, space for the customers. As owners and operators of self-storage, our goal should be the same.  

In maximizing the amount of rentable space, the most overlooked factor is the unit-mix layout. Since income is derived from renting storage space, it is fundamental to maximize rental areas and minimize common areas such as office space, lobby and access corridors. This is not much of an issue when developing a traditional drive-up facility, but becomes increasingly important as the industry moves toward interior climate-controlled units and multi-story properties.

You might think maximizing storage would be an easy proposition, but a surprising number of unit layouts do not incorporate some basic rules that maximize rentable space.


Hidden Space
Every development requires a certain amount of common area, and each operator has a different preference. Do you favor a spacious rental office with lots of room for merchandise displays, or want little more than a door and front desk? Is it important to provide packing and moving supplies to your customers? Is the profit margin from merchandise sales worth giving up the rentable space? The answers to some of these questions depend on the marketing strategy for your particular location.

Does the customer’s perception of quality require a large rental office? Are your target customers so budget-conscious that a large office sends the wrong message? These are questions that affect how much of the total area will be used for the rental office/common area. Although this is an important consideration, it is not the factor that has the greatest effect on layout efficiency.

Most self-storage layouts are based on a 5-foot grid system, and a 5-foot-wide corridor is standard in the industry. While narrowing the corridor to maximize storage space may result in more rentable space, customers may not appreciate the more restrictive corridors. Instead, the focus should be in minimizing the linear feet of corridors on each floor plan.

A unit mix with an average unit size of 120 square feet will be more efficient than a unit mix with an average unit size of 90 feet. Since every unit requires frontage on a corridor, a smaller mix with more units will naturally require more linear feet of corridor. Whether a space measures 10-by-10 or 10-by-30 feet, it has 10 feet of frontage on a corridor.

A 5-foot-wide corridor for a 30-foot-deep unit has a ratio of corridor width to unit depth of 5:30, or 0.167. Compare this to a 5-foot-deep unit on a 5-foot corridor, which would have a ratio of 5:5, or 1.00. A 5-foot-wide corridor with units on both sides effectively cuts these ratios in half; therefore, double-loaded corridors should be used wherever possible. Remember, the higher the ratio of corridor width to unit depth, the less efficient the unit-mix layout.

The layout of two unit sizes in particular has a strong bearing on the efficiency of the unit mix―namely 5-by-10 units and 7.5-by-10 units. The tendency by many is to situate the unit with the 10-foot dimension along the corridor. This contributes to an inefficient mix. A 5-by-10 unit with the 10-foot dimension along the corridor has a corridor width to unit depth ratio of 5:5, or 1.00, compared to a ratio of 5:10, or 0.50, if the 5- foot dimension is placed along the corridor. This is illustrated in the diagram below. 
  
   
 

 

 

 

 

 

The difference for the 7.5-by-10 units is not as profound, but when multiplied by 60 or 80 units, it has an impact. The rule that should be applied is the side with the narrower dimension should almost always be the side open to the corridor. The only exception would be when such a layout would result in support columns falling in the middle of a unit door.
 
More Convenience
Most storage developers and operators strive to maximize convenience for the customer. This strategy includes minimizing the number of turns required from the elevator to any particular unit. An ideal layout requires only two turns from the elevator to access the majority of the units; however, three turns is not an unreasonable number, particularly if the first turn is the one from the elevator.

Some operators prefer a pass-through elevator design. While this is slightly more expensive, it allows a customer to push the cart through the elevators doors on the bottom floor and then, without changing directions, push the cart off the elevator through the opposite doors on the floors above. Most operators that have installed this type of elevator have received favorable comments from customers.

Efficient unit layout requires “banks” of units be no narrower than 20 feet. This allows for back-to-back rows of 10-foot-deep units. At times, the width of a building may challenge this requirement. In such cases, unit sizes can be shifted between floors to arrive at the most efficient overall mix. Also the depth of units against exterior walls can be varied to allow the interior banks to be no narrower than 20 feet. If the spacing still doesn’t work, one trick that may help is turning corridors in the opposite direction.

Even though the majority of corridors in a particular development may run east-west, there is nothing wrong with turning a section of the units 90 degrees so the corridors run north-south. The primary consideration in doing this is so the number of turns from the elevator and the distance to the units does not become unreasonable.
 
Cost vs. Profit
The beauty of getting maximum efficiency from a building is that it doesn’t cost much more than an inefficient design but will maximize income. Corridors don’t provide any rent, so eliminate them wherever possible. Recently, a reworked unit mix for a three-story structure resulted in an additional 1,400 square feet of rentable space. That’s the equivalent of adding fourteen 10-by-10 units without enlarging the footprint of the building. The cost increase for doing this was minimal, but the added earning potential was significant.

Not all architects are created equal, and leaving the unit-mix design up to the architect may not maximize unit efficiency. Getting the right layout is like putting together a multi-layered jigsaw puzzle. There are many pieces that can fit together in a variety of ways, but for maximum efficiency, each piece needs to be in the right place. Not everyone has the patience or the understanding of spatial relationships necessary to accomplish this task.

However, by learning these few basic rules about layout efficiency, you can move closer to maximizing the earning potential of your self-storage development. Remember the lesson from the ball park: Make the customer comfortable, but avoid the temptation to add a few extra inches between the rows.
 
Kent Flake is the owner of Arizona-based Full Circle Storage Consulting, a subsidiary of West-States Storage Group LLC, and has been involved in storage development since 1996. For more information, call 480.202.1669; e-mail [email protected].

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Self-Storage Construction: Site Selection, Layout and Building Options

Study Shows Doodling Good for the Brain

Remember doodling hearts or racecars on your junior high notebook? Turns out, doodling is actually good for the brain.

The results of a recent study by psychologist Jackie Andrade, of the University of Plymouth in England, suggest doodlers actually have better recall than non-doodlers.

Andrade asked 40 adult volunteers to listen to a monotonous mock telephone message about a party. Half of the participants were told to doodle while listening; the other half were not. The doodlers remembered 29 percent more information than the non-doodlers.

The results were published online Thursday in Applied Cognitive Psychology.

Source:  Newsweek,  Doodle Zone