Wildeck Establishes Eco-Friendly Paint-Line Process

As part of its ongoing commitment to environmentally responsible operations and products, Wildeck Inc., a manufacturer of structural steel mezzanines, material lifts and safety guarding products, has established an eco-friendly process for its paint line. The new metal pre-treatment process is 100 percent phosphate-free, incorporating a heavy-duty, non-toxic alkaline powder that is biodegradable and eliminates the emission of volatile organic compounds into the atmosphere during metal cleaning. According to the company, the low-heat process requires less energy, provides substantial savings in water consumption, eliminates potentially hazardous wastewater discharge, requires less system maintenance, and provides a safer paint-line environment for workers.

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California Self Storage Association Calls for Legislative Support

The California Self Storage Association is appealing to self-storage operators in the state to assist in the cause to amend AB 655, the California lien law. The association is aiming to remove the “Declaration of Opposition to Lien Sale,” a unique provision in California and Nevada that is costly to self-storage operations.
 
AB 655 successfully made it through the General Assembly in May but is being stalled at the Senate because of a current unresolved budget debate. In addition, CSSA said the Senate Judiciary Committee Chairman Ellen Corbett doesn’t wish to change the existing law, which has been in place for 30 years.
 
CSSA is holding a meeting in Sacramento, Calif., with the Judiciary Chairman this week. The association is urging California self-storage operators to write letters to or call state legislators immediately on behalf of the bill. For a list of key California Senators and copy of a sample letter, call 562.304.2864, e-mail info@cssaweb.com.  
 
Introduced to the legislature in April by CSSA and the national Self Storage Association, AB 655 also amends other statute language. If passed, the bill would increase the maximum for late fees to $20 or 20 percent; change the notice of lien requirement to a certificate of mailing; and eliminate the newspaper advertising requirement.

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Lien on Me

CLED Series Exit Signs

High-Lites, a manufacturer of emergency-lighting luminaires, exit signs and back-up power systems, has introduced its new CLED Series of cast aluminum LED exit signs. The company has redesigned the series to provide a cleaner, more contemporary look and offer more options and accessories. The new signs feature self-diagnostic electronics, which provide continuous monitoring of operational parameters, visual product-readiness status, and automatic monthly testing cycles. If the system detects a change in the sign’s AC input voltage, charger voltage and current, transfer circuit, battery voltage, or LED light strip, it will display a visual indication of the area and type of malfunction using the unit’s bi-color LED display.

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Self-Storage Threat of Foreclosure? Dont Hide, Just Seek

While financial headlines during the past year have been dominated by the credit crisis, auto-industry bailouts and bankruptcies, residential foreclosures, the stimulus package, and credit card defaults, something that hasn’t received as much attention in the general press is commercial real estate. Until now.

Many analysts are now speaking of commercial real estate as the other shoe that, if it falls, will bring the economy to new lows and reverse some of the market gains made in recent months. For those in the industry, this potential situation isn’t really news at all. We’ve been aware of this elephant in the room for some time.

One of the largest risks to self-storage owners is the availability of credit. Owners who are most vulnerable are those who acquired or built properties in the last three years during the market’s peak. Those who built or acquired using short-term, high-leverage debt, or who purchased facilities based on pro forma rents or leasing activity, face the greatest challenge.

The reality is the value of many properties in this category are likely not worth their current loan balance. Additionally, many properties acquired based on leaseup or rental projections are not servicing their debt, as the recession has curbed projections. Even properties that are performing but have debt coming due in the next 24 months are at risk of foreclosure.

So what can you do amid all this negative news and outlook? Most important, don’t hide from the problem. Address it aggressively and seek alternative solutions. 

Performing Properties

First, let’s look at properties with enough cash flow to service their debt but loans maturing soon. It’s crucial to contact your lender now to discuss an extension. In this market, it’s never too early to begin these discussions. This will allow you to gauge the lender’s health and determine if you need to prepare for a sale. If you’re successful, it will allow you to avoid being forced to sell or refinance.

If you need to refinance, you’ll be subject to a new appraisal and the accompanying risk of a lower value. A new appraisal will use a higher cap rate against income being pressured by a challenging economy. Couple this with the lower loan-to-value constraints being implemented by most lenders today, and there’s a strong possibility you’ll need to bring significant cash to the table at closing.

Regardless of whether you can negotiate an extension, if you believe there’s an equity gap, it would be prudent to set aside or reserve some of your current excess cash flow. By doing this, you essentially hyper-amortize your loan. If you’re forced to go to market and there’s an equity gap, you’ll have cash in reserve to help fill it. 

Properties at Risk

If your property has adequate cash flow to service its debt and you’re faced with the possibility of a loan default and subsequent foreclosure, remember you’re not alone. This is important to a lender because it may demonstrate that current market conditions rather than the property owner are largely responsible for the loan’s nonperformance. It’s very expensive for a lender to foreclose on a property, so if the underlying weakness is due to market conditions, the lender may determine the most economical solution is to modify rather than foreclose.

Before contacting your lender, do your homework or get help from a mortgage professional to survey the financing market and identify potential alternatives to present to the lender. Once again, don’t hide, just seek solutions. This demonstrates a proactive approach and can prove a loan modification is the best scenario for everyone involved. Additionally, seek an investment-sales broker’s advice to help determine your property’s value and if selling it is a potential solution.

Loans originated by a portfolio lender (lenders who hold the loan on their balance sheet) are easier to negotiate than securitized loans, such as commercial mortgage-backed securities (CMBS), since you work directly with the entity holding the loan. A portfolio lender can make its own economic decisions and modify a loan at any time.

Conversely, CMBS or securitized loans administered by a third party, called the Master Servicer, cannot be modified until they are in technical default.

When a CMBS loan defaults, it’s transferred to another third party, the Special Servicer, who has the authority to modify the loan based on rules dictated by Real Estate Mortgage Investment Conduit tax laws and the “pooling and servicing” agreements governing CMBS loans. At the time of this writing, the U.S. Treasury was considering whether to issue guidance to make it easier to modify a CMBS loan. 

Loan-Modification Tips

If you get to the point of loan modification, some negotiating points you should consider discussing with your lender include:
 

  • Extending the loan’s maturity date.
  • Reducing the principal balance with a cash infusion, thus allowing the property’s cash flow to service the debt going forward.
  • Reducing the interest rate to a level that allows the property’s existing cash flow to service the debt.
  • Creating or increasing the interest reserve. If equity still exists or the property needs additional time to stabilize, the lender may agree to service the debt through additional reserves.
  • Servicing the debt from other reserves, such as maintenance reserves or construction contingencies.
  • Bringing in an additional guarantor with superior financial strength, thus boosting the lender’s confidence that the loan will be repaid at maturity.
  • Offering the lender part of the upside in exchange for modifying the loan.
  • Reducing the principal balance to an amount equal to or greater than what the lender would receive through foreclosure and fire sale.
  • Conducting a short sale in which a buyer purchases the property at a price less than the principal balance. (If you can demonstrate it’s a market deal, then the lender avoids foreclosure costs and the borrower avoids future negative implications caused by foreclosure.)
  • Cooperating with the lender to forgive your personal guarantee by handing the property over via Deed In Lieu, as opposed to fighting foreclosure through bankruptcy and minimizing the potential of the lender looking to your other assets for repayment.

This all may seem like a daunting task to tackle on your own, especially when your expertise is in operating a self-storage property. Rather than hiding from any potential financing problems, seek the expert support of attorneys, mortgage professionals and consultants who can guide you. Undoubtedly, we are in a tough market, requiring tough decisions. Your best chance for a positive outcome is to begin talking to your lender and other professionals sooner rather than later.
 
Devin Huber is a senior vice president with Beacon Realty Capital, a Chicago-based commercial real estate financing firm, where he supports self-storage owners nationwide with their lending needs. He can be reached at 312.207.8232; e-mail dhuber@beaconrealtycapital.com.

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Mako Steel Hires New Administrative Assistant

Carlsbad, Calif.-based Mako Steel, a nationwide designer, supplier and installer of self-storage buildings, has hired Ghia Nellis to its corporate office as administrative assistant. She will be responsible for general office management, answering phones, and preparing plans for permit and construction.
 
Founded in 1993, Mako is an employee-owned comany with offices in Jacksonville, Fla., Vancouver, Wash., and Washington, D.C. It is also a certified dealer for Nucor Building Systems.

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Opening a New Self-Storage Facility: A Manager's Guide to Success

Often, the ultimate success of a new self-storage facility hinges on the people hired to run the day-to-day business. As the manager, it’s your job to help the owner maximize his investment and fill the facility quickly.

Given the opportunity to launch a new site, managers are usually excited and motivated, have lots of new ideas and are looking forward to the challenge. But you may have some apprehension as well. Let’s explore how you can benefit from this experience and create a successful self-storage opening.

Working With the Contractor

When opening a new self-storage facility, there are specific tasks that need to be completed by the owner, the manager or a management company. In this article, we’ll refer to owner or manager, but keep in mind that either or both can or should be involved in the opening process.

A pre-opening checklist is a must, and getting things done on time is vital to a successful opening. In most cases, the manager should be chosen several months before the completion of construction, but it should be at least a month in advance.

The owner should introduce you to the construction superintendent, letting him know you’ll be on site from time to time but will not interfere with construction. Keep in mind that while many superintendents will be polite to you, most don’t want to hear about your personal experiences and what you would do differently if you were the owner. The construction company is following the plans it was given, and any variation from those plans will generate a “change order,” costing the owner more money.

That said, an experienced manager can provide feedback on what may help the operation run smoother, for example, the placement of computer hardware, the layout of the retail-sales area, the location of the maintenance unit, the number of electrical outlets for the office and apartment, the numbering of unit doors, etc. Actual examples can be helpful, and the construction company can often make these kinds of changes without incurring significant costs.

Preparing in Advance

Logistics. The owner should ensure all applicable licenses have been applied for and received. It’s embarrassing and frustrating to be ready to open only to be delayed because of the business license.

The appropriate insurance coverage should be purchased well in advance so there are no problems. Proper state and federal identifications as well as workers’ compensation insurance should be in place before opening the doors.

All appropriate utility companies should be contacted to ensure service will be ready when the store opens.

Shopping. Prepare a list of all the items you will need before opening, including rental agreements, business cards, marketing materials, accounting hardware and software, maintenance tools and materials, and ancillary supplies. Uniforms and other site-specific items should be ordered well in advance of the grand opening. Two weeks before the store is ready to open, acquire all the supplies necessary for facility operation, inside and out. That includes a golf cart, tools, computers, paper, cleaning supplies, etc.

Marketing. Before opening, work with the owner on a marketing plan. First, make a list of all the facility’s benefits and features. This will help define the facility’s branding and set it apart from competitors. (Speaking of competitors, you and the owner should meet and learn as much about your competitors as possible, including rental rates, unit sizes and other services such as mailboxes or retail sales.)

A website and e-mail addresses should be established prior to opening to create buzz and enhance the marketing plan. You and the owner should also join the local chamber of commerce to network and promote the facility’s grand-opening ceremony.

The facility owner should make contact with a Yellow Pages representative early so the deadline is not missed. Most books print several months after the order deadline and are usually distributed annually.

Learning the product. Get familiar with the layout of the facility, and be aware of any potential problems or features such as ingress/egress conditions, turning radiuses, bollards and drainage issues. Ensure that you have access to all of the necessary maintenance items, such as an outlet to plug in the golf-cart battery charger. Make sure you know your site’s inventory of specific unit sizes so you can best rent out spaces and manage the inventory. 

Work Together

If you and the owner work together and are clear about your respective responsibilities, it will result in a smooth opening. Most new facilities experience some problems early on, but by being prepared, you can minimize the negative effect. If, on the other hand, the preparation and communication are not solid, it can result in an opening disaster.

Owners can gain valuable knowledge by partnering with someone like you who has hands-on self-storage experience and knowledge of a facility’s day-to-day needs. If this is an owner’s first facility, he may ask for input.

Now it’s time to open the doors and welcome new customers to the finest facility in Anytown, USA! Good luck.

Mel Holsinger is president of Professional Self Storage Management LLC, which manages more than 40 facilities in Arizona, Colorado and Texas. Holsinger has been in the self-storage industry for more than 25 years. He is a frequent speaker at industry tradeshows, a contributing writer to Inside Self-Storage magazine, and an instructor of the Self-Storage Training Institute. To reach him, call 520.319.2164; e-mail mel@proselfstorage.com

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Texas Self-Storage Facility Hosts School-Uniform Swap

National Self Storage in Horizon City, Texas, will be holding a school-uniform swap at its facility this month. Interested parties who drop off used uniforms at the facility by July 15 will receive a voucher to return on July 18 and participate in the exchange. The business is seeking donations of used and new uniforms as well as backpacks ans school supplies. It is looking for volunteers to help on the 18th. For information, call 915.852.8300. 
 
Source: El Paso Times, Economics & attire: School uniform swap planned

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Lien-Sale Notification Requirements: Old School vs. New School

The issue of lien-sale notifications came to the fore in Arizona this week as the legislature passed HB2435, which will save the state’s self-storage operators money by changing the requirement for expensive Certified Mail notices and newspaper advertisements prior to sale. It's an issue that affects operators worldwide, however: How do you notify a tenant of the sale? At what point have you fulfilled your obligation to the customer before selling his goods?

While not yet signed by the governor, the bill's advocates are hopeful the bill will become law. It eliminates the requirement of publishing lien notices in local newspapers, and replaces the requirement for sending Certified Mail to tenants in default with one for “verified” mail, which means any method introduced by the United States Postal Service that provides for proof of mailing.

But not everyone approves of the changes. Today an ISS reader submitted a comment to the online press release, criticizing the bill's aim and saying some self-storage owners are becoming lazy. "You have given your responsibility as a business owner over to the less responsible U.S. Post Office employee," he writes."These costs are in your overhead, and [it's] possible the real culprit is the corporate self-storage operator who is lazy, cheap and after the almighty buck (ROI)."

Operators discussing the topic on the Self-Storage Talk forum have a different point of view. "Fact is, this legislation will reduce costs, which, in turn, MAY reduce price and still keep a small amount of profit for the owner. It is amazing how many people just think anyone in business is greedy and will do anything for a profit," says Mel Holsinger, president of Professional Self Storage Management in Tucson, Ariz. (To read the full thread, see Legislative Victory in AZ!)

What challenges do you face in notifying tenants prior to lien sale? How do you feel about Certified Mail? Is it a necessary evil and business expense, or an archaic method that needs to be replaced with more modern communication?

Former Motorola CEO Makes Headway in Self-Storage

Since leaving the company his grandfather founded, former Motorola CEO Christopher Galvin has busied himself with his real estate private-equity firm, Harrison Street Real Estate Capital, which specializes in self-storage, medical offices and student housing.
 
Galvin, 59, left Motorola in 2004 and founded Chicago-based HSRE with his younger brother, Michael Galvin, and Christopher Merrill. Since then, the company has assembled a real-estate portfolio worth $1.8 billion. Even in a tight economy, the company is still making deals, in part due to $250 million in lender financing it has obtained since September.
 
Last week, HSRE announced a joint venture with Extra Space Storage Inc. valued at $291 million. The company will have an 80 percent ownership interest in the venture, which is expected to close by the end of the year.
 
According to Merrill, when the joint venture closes, HSRE will be the seventh largest owner of self-storage properties in the United States, ranked by square footage.
 
Source: Wall Street Journal, Deal Makers Put Hopes for Success in Storage

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IRE Brokers Sale of Two PA Self-Storage Facilities

In June, Investment Real Estate LLC brokered the sale of a 13,950-square-foot self-storage facility in Erie, Pa. Affordable Self Storage sold for $420,000. The 2.2-acre site includes land with approvals for an additional 15,000 square feet of storage. Dan Wolf represented the seller and buyer in the transaction. 
 
John Gilliland of IRE brokered the sale Greentree Self Storage in Mount Joy, Pa., for $675,000. Opened in 2004, the facility consists of two buildings containing 92 units and 9,600 square feet. The land also comes with four buildings containing 8,700 square feet of office and warehouse space and approval for an additional 14,100 square feet of self-storage.
 
Investment Real Estate handles self storage brokerage, construction, management and consulting services in the northeast and mid-Atlantic states.

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