Seven Myths of Self-Storage Development and Operation

When it comes to developing and operating a self-storage center, there are a few myths that, if believed, may divert you from your investment goals. Steer clear of them, and you’ll be on your way to success.
 
Myth No. 1: Bigger Is Better

When formulating plans for a new store, it’s tempting to add 30,000 square feet to an average-sized facility to boost the projected rate of return, particularly when we read about a superstore with 150,000 square feet of rentable space. Sometimes facility size is determined by the size of the land parcel, with little regard to what size the market can accommodate. While there are economies of scale to be considered, bigger is not always better.

I recently asked an acquaintance about the performance of one of his 120,000-square-foot stores in the Midwest. After four years of operation, he had finally achieved 75 percent occupancy. In regard to the facility’s size, he says he would “never do that again.” While a superstore may look good on paper, it’s exponentially more difficult to achieve full occupancy.

Do you know the amount of supply in your trade zone? How much is too much? There is no magic formula. I’ve seen successful stores in parts of Southern California where the supply in a 3-mile radius is more than 20 square feet per capita. That’s outrageous considering the national supply averages between 5 and 6 square feet per capita.
Can your market absorb more storage? Where are the customers coming from? What is their lifestyle? Are the homes in the area large or small? Are there multi-family and apartment units? That’s a lot of questions, and there are more to be asked. The more answers you know, the better your odds of building the right size store.

The bottom line is you need to know your market and allow it to dictate the facility size. If you build too big, every time you look at your vacancy report, you’ll be reminded that bigger isn’t always better.
 
Myth No. 2: If You Build It, They Will Come

Twenty years ago, there was a lot less self-storage supply. If you built it, customers would come. But that’s not true today. It doesn’t help that a new storage facility in a good location does create additional demand, contributing to this myth. I’ll explain.

Consider the example of a new restaurant opening in town. Let’s say that on your way home from work, a “Now Open” banner caught your eye, letting you know The Greasy Spoon was ready to satisfy your food cravings. Let’s further assume that prior to seeing the banner, you had no plans to eat out that evening, intending to feast on leftovers.

After a brief discussion with your spouse, it’s decided you’ll try the latest in culinary delights at the new eatery. By being new and located in the right place—on your way home from work—The Greasy Spoon created a demand that otherwise wouldn’t have existed.

A new storage facility can similarly create new demand. Some customers would be content to let their stuff pile up in their garages or attics until you conveniently build a new facility just down the street. However, “created” new demand alone will not fill up a facility. Unmet demand must exist in the marketplace to justify a new site. Simply put, other stores in your market must show high occupancy to justify a new one.
 
Myth No. 3: All I Need Is a Good Website

The Internet does amazing things. I can use it to check my bank balance or find out if my beloved Sun Devils won their last game. Web advertising is the grease that makes the system work. When it comes to self-storage, however, the Internet is not enough. That pair of pants you bought from your lounge chair will be delivered to your front door in 10 days to two weeks, but good luck getting that extra bedroom set to a storage facility without leaving the house.

That’s why location, location, location are still the three most important considerations in storage development and advertising. Odds are that a customer will choose a storage center that is close to home or the office or along his commute. Building a store on a high-traffic street with great visibility is an advertising cost you only pay once.

Although many customers use the Internet to find places, there are still many who thumb through the Yellow Pages before making a selection. A great advertising program makes use of a top-notch location, the Internet, and a print YP ad, linking it all together with a manager who can close the deal.
 
Myth No. 4: It’s Good to Be Full

When it comes to putting food in your stomach or gas in your car, full is good. Having a full self-storage facility is also good ... to a point.

I’ve heard some managers proudly proclaim their facilities are “full.” Some say without apology that they have been 100 percent occupied all summer, or haven’t had any 10-by-10 units available in six months. In these cases, the facility is not being managed to its greatest potential. The key to success is to manage net operating income, not occupancy.

Let’s say I own a facility with 100 10-by-10 units rented at $100 each and I’m at 100 percent occupancy. A new customer may be willing to pay more for one of my units, but it doesn’t matter if I don’t have one to rent. The market is clearly telling me that a 10-by-10 is worth more than $100, but I’m not listening because I’m just happy to be full.

This same facility at $110 per unit and 95 percent occupancy produces more operating income than at $100 per unit and 100 percent occupancy. I should methodically raise my rents until occupancy begins to drop, using total revenue as my goal. Ideally, even a “full” facility should always have a few of each unit available to be rented at a higher price to the next customer. That’s how you constantly raise your revenue without an across-the-board rate hike.
 
Myth No. 5: Wherever You Build it, Storage Is a ‘Cash Cow’

I’ve visited hundreds of storage facilities across the United States and Canada and seen a few that were doing so well they may as well have had an extension of the U.S. Mint in the back room cranking out dollar bills. But those kinds of stores are the exception, not the rule.

There are many older facilities that have long since paid off the mortgage and earn a good stream of cash. However, the owner who wants to build a facility today should beware the lure of the “cash cow.”

Frankly, it’s a load of bull. For today’s investors, the trick is to find a location that will provide a solid and satisfactory return on investment. To use a baseball analogy, if you can build three or four stores that hit a “single” or a “double,” you won’t need to wait and worry, trying in vain to find the one location that’s a “home run.”
 
Myth No. 6: Anybody Can Sell Self-Storage

Let’s face it, there’s nothing exciting about three walls, a roof and a roll-up door. Since there’s not much differentiation of product, customer service and people skills become vital in the selling equation. We spend millions of dollars on state-of-the-art storage facilities, then pay someone a wage below the poverty line to operate it. It seems prudent to make an investment in your facility by finding a quality manager, even if that means paying a little more.

When you find a manager who does his best to look appealing, who knows the storage product, and who promptly meets customers’ needs with kindness and respect, you’ve found someone worth keeping. Even if it means paying a higher wage, a manager like that will pay dividends all year long.
 
Myth No. 7: Unit Mix Isn’t Important

Finding the right unit mix is more of an art than a science. The combination that works in one location may be wrong for another. As you design a new facility, determine your target customers because it will affect unit mix. Are there a lot of high-density uses? What is the mix of single- and multi-family residential? Is there a university or college nearby? What’s the potential for business customers?

A unit mix should be shaped something like a bell curve, with 10-by-10s at the top, then sloping down for smaller and larger sizes. At an urban location in a dense infill market, the bell will be skewed toward small units; in a suburban market, larger ones. I’ve seen downtown stores with an average unit size of less than 75 square feet, and rural stores with an average of 150 square feet or more. Generally speaking, somewhere between 100 and 150 square feet per unit is average for a suburban location.

The efficiency of the unit-mix layout is extremely important if you have storage with interior corridors. One way to improve efficiency is to always use double-loaded corridors and place the narrow side of the unit along the corridor. By following a few simple layout concepts, unit-mix efficiency can often be improved by 1 percent or 2 percent. That doesn’t sound like much, but 2 percent of 60,000 is 1,200 square feet. How would you like to have an additional 12 10-by-10 units to rent without increasing development or operating costs?

Avoid the temptation to believe any of these seven myths and your chances of success will increase. If you have concerns about avoiding these pitfalls, hiring a knowledgeable and experienced self-storage consultant may be the smartest money you’ll ever spend.
 
Kent Flake is CEO of Sure Storage USA, a newly formed LLC created to acquire, develop, own and professionally manage self-storage facilities. Flake has been involved in storage development since 1996. For more information, call 480.202.1669; e-mail kent@surestorageusa.com.

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Sovran Self Storage Announces Quarterly Stock Dividend

Real estate investment trust Sovran Self Storage Inc. today announced a quarterly dividend of $.45 per share of common stock. The annualized dividend is $1.80 per share which, based on yesterday’s share price, equates to an annual rate of approximately 7.3 percent. The dividend will be paid on July 27, 2009, to shareholders of record on July 13, 2009.
 
Sovran is a self-administered and self-managed equity REIT in the business of acquiring and managing self-storage facilities. The company operates 385 self-storage facilities in 24 states under the name Uncle Bob's Self Storage.

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Exploring the Nation's Capital With the Inside Self-Storage World Expo

This fall, the Inside Self-Storage World Expo moves to the spectacular venue of Washington, D.C. Having lived and worked in the Washington metro area for many years, it’s my pleasure to share with you the many wonderful places to visit in this history-rich area. Don’t miss this unique opportunity to improve your business and explore the nation’s capital!

During Oct. 5-8, industry professionals will gather at the Gaylord National Hotel & Convention Center, a 300-acre waterfront destination bordering a mile-long stretch of the Potomac River in National Harbor, Md. The focal point of the harbor area, the Gaylord is the largest non-gaming hotel on the Eastern seaboard.

Just 10 miles from downtown, the hotel is readily accessible from three local airports―a mere 7 miles from Reagan National, and 45 minutes from Dulles and Baltimore Washington International.

There are so many free or low-cost attractions that will appeal to everyone’s interests, young and old. It will require some planning to take maximum advantage of all the region has to offer, but it will be worth your effort.

The White House

No matter what your politics, visiting the White House can be a once-in-a-lifetime opportunity. Public tours are available for groups of 10 or more, but you must submit your request through the office of your state’s member of Congress. These requests are accepted up to six months in advance. You can call the Capital’s switchboard (202.225.3121) to be connected directly to your House of Representative member or Senator.

Self-guided White House tours are available from 7:30 a.m. to 12:30 p.m., Tuesday through Saturday (excluding federal holidays), and are scheduled on a first-come, first-served basis approximately one month in advance of the requested date. Since the number of daily visitors is limited, I encourage you to submit your request as early as possible. All White House tours are free of charge, but they can be cancelled at any time by the White House staff based on circumstances. For more info, visit https://writerep.house.gov/writerep/welcome.shtml or www.senate.gov/general/contact_information/senators_cfm.cfm.

Visitor’s Center and Capitol

The White House Visitor Center is on the southeast corner of 15th and E Streets. The center is open seven days a week from 7:30 a.m. until 4 p.m., and provides info on many White House subjects including architecture, furnishings, first families, social events, and relations with the press and world leaders. You can even watch a 30-minute video. Allow yourself 20 minutes to an hour to explore the exhibits. The White House Historical Association also sponsors a sales area. Restrooms are available, but there is no food service.

There are also guided tours of the U.S. Capitol. Tours need to be scheduled in advance through the Capitol’s registration system or by contacting the office of your Representatives or Senators. Many Congressional offices offer their own staff-led tours to groups of up to 15 people, and most can assist you in booking a general tour.

The guided tour includes “Out of Many, One,” a 13-minute film that illustrates how the United States established a new form of government. The video also highlights the vital role Congress plays in the daily lives of Americans, and introduces the building that houses the U.S. Congress. The Capitol Visitor Center is open from 8:30 a.m. to 4:30 p.m., Monday through Saturday. For details, visit www.visitthecapitol.gov.

Library of Congress

You also might want to consider a visit to the Library of Congress. The tour offers an hour-long docent-led tour of the historic building. The Library was founded in 1800 and is the oldest federal-cultural institution inthe nation.

On Aug. 24, 1814, British troops burned the Capitol building, where the Library was housed, and destroyed the Library's core collection of 3,000 volumes. Responding to an offer to help restore this resource, Congress approved the purchase of Thomas Jefferson’s personal library of 6,487 books for $23,950 in January 1815.

During your tour, you’ll learn about the building’s symbolic art and architecture, and view the grandeur of the Main Reading Room. Professionally trained docents discuss the Library’s history, collections (including the Gutenberg Bible), and the services provided to Congress and the nation. The Jefferson Building West and the Library of Congress Experience are open Monday through Saturday, from 8:30 a.m. to 4:30 p.m. Visit www.loc.gov for information.

Smithsonian Institute and Holocaust Memorial

No trip to the Washington, D.C., area is complete without visiting the Smithsonian Institute, the world’s largest museum complex that comprises 19 museums and nine research centers. While it’s impossible to see all the Smithsonian has to offer in a single day, try to visit at least a portion of this vast establishment.

The Smithsonian houses fascinating exhibits such as the African Art Museum, the Air and Space Museum, the American Art Museum and its Renwick Gallery, the American History Museum, the American Indian Museum, Hirshhorn Museum and Sculpture Garden, and the Natural History Museum and Portrait Gallery. The Smithsonian also operates the National Zoological Park. Visiting hours vary, so check the website: www.si.edu.

Another museum to consider visiting is the United States Holocaust Memorial Museum, which houses photographs, artifacts, film, letters and a survivor registry. You’ll find information at www.ushmm.org.

Places Honoring Fallen Soldiers

More than 4 million people visit the Arlington National Cemeteryevery year, and there are nearly 100 graveside services conducted each week. The Visitors Center, located by the entrance, offers maps, guidebooks, exhibits, information services (including grave locations), a bookstore and restrooms. The cemetery does not provide wheelchairs or strollers. It’s open every day at 8 a.m. Visit www.arlingtoncemetery.org for details.

If you’ve never experienced the power and honor of the Vietnam Veterans Memorial, plan a side trip to these hallowed grounds that honor the 58,248 men and eight women killed or missing in action in Vietnam. The Memorial consists of three parts: the Three Soldier’s Statue, the Vietnam Women’s Memorial and the Vietnam Veterans Memorial Wall, with the names of fallen or missing soldiers etched into two, black granite walls. Find information at www.nps.gov/vive.

Presidential Memorials

The iconic Washington Monument, Lincoln Memorial and Jefferson Memorial are all must-visits if this will be your first time in the D.C. area. All are maintained by the National Park Service. The Lincoln and Jefferson memorials are open 24 hours a day. The Washington Monument is open from 9 a.m. to 10 p.m. Details are available at www.nps.gov.

More Adventures

If you’re up for a sightseeing adventure, there are many to choose from, including the 90-minute DC Ducks land-and-water tour that departs from Union Station (www.dcducks.com). Capitol River Cruises on the Georgetown Waterfront offers a 45-minute sightseeing tour from the Potomac River (www.capitolrivercruises.com).

Other tours include Tourmobile (Tourmobile.com), Old Town Trolley Tours (Trolleytours.com) and Open Top Sightseeing (Opentopsightseeing.com), which offer hop-on, hop-off narrated tours year-round, along with night tours of the monuments and memorials. The routes of Open Top and Old Town Trolley include stops at neighbourhood attractions like the Washington National Cathedral (Nationalcathedral.org) and National Zoological Park (www.nationalzoo.si.edu).

Washington, D.C., is one of the most visited cities in America. Its official website, Washington.org, contains a wealth of information and helpful links to help you make the most of your trip. There is also a direct link for The National Harbor complex at Nationalharbor.com. Also remember that once there, you’re only a two-hour drive from Colonial Williamsburg (History.org) and Thomas Jefferson’s home at Monticello (Monticello.org).  

I look forward to seeing you at the ISS Expo in D.C.!
 
Jim Chiswell is the owner of Chiswell & Associates LLC. Since 1990, his firm has provided feasibility studies, acquisition due diligence and customized manager training for the self-storage industry. He has served for a number of years on the Inside Self-Storage Editorial Advisory Board, is a moderator on the SelfStorageTalk.com online community and is faculty member of the Self-Storage Training Institute. He can be reached at 434.589.4446; e-mail chiswell@earthlink.net; visit www.selfstorageconsulting.com.

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U-Store-It Closes $37.4M of Secured Loans

National self-storage company U-Store-It Trust has obtained four secured term loans totaling $37.4 million. The loans carry a weighted average interest rate of 7.2 percent and are secured by 17 of the company's self-storage properties throughout the country. One of the loans has a 10-year maturity, one has a five-year maturity, and two have a five-year maturity subject to a five-year extension at U-Store-It's option.
 
The company also closed on the sale of a single property for proceeds of $5.9 million.
 
To date in 2009, U-Store-It has raised a total of $51.4 million through five secured loans and $11.7 million through three property dispositions. The loans have a weighted average interest rate of 7.1 percent and maturities ranging from five to 10 years. The three assets sold were in California, Florida and New Mexico.
 
As of June 30, the company has $146 million of borrowing capacity under its $250 million credit facility, an increase of $68 million since December 31. In addition, the company has reduced outstanding borrowings on its secured term loan by approximately $11 million and repaid one mortgage that matured in June for $1.6 million.
 
"We are delighted to announce that we have closed all of the loan commitments that were in the company's pipeline at the end of the first quarter as well as the sale of another asset. We continue to demonstrate our ability to raise capital in the current environment," said U-Store-It President and Chief Investment Officer Christopher Marr.
 
U-Store-It Trust is a self-administered and self-managed real estate investment trust. The company provides self-storage in all 50 states through its 384 company-owned facilities and the U-Store-It Network, which consists of approximately 263 third-party locations.

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Legislative Victory for Arizona Self-Storage Operators!

In the wee hours of this morning, while exhausted Arizona legislators worked to pass a budget, self-storage operators in the state landed a fantastic victory with the passage of HB2435, a bill that amends the notification requirements for self-storage lien sales. Introduced to the legislature by the Arizona Self-Storage Association (AZSA) and spearheaded by attorney Richard Marmor, the bill will save the state’s self-storage operators money by changing the requirement for expensive Certified Mail notices and newspaper advertisements prior to sale.  
 
“We were on a death watch. We were sure we were going to go down in flames,” said Marmor of the days preceding the final vote on the self-storage bill. Tempers in the assembly were running high over issues relating to the state budget. Advocates of HB2435 worried that their cause would be lost in the skirmish.
 
The support of two key legislators became essential to the bill’s survival: its chief sponsor, Laurin Hendrix (R), a freshman representative, and Barbara Leff (R), a senior senator. “Both stepped to the fore, working to advance the bill,” Marmor said. “Without the support of these two people, this never could have happened.”
 
As chair of the AZSA’s Legal and Legislative Committee and a member of its board of directors, Marmor has been working to make long-overdue revisions to the statutes that govern the lease and foreclosure activities of Arizona self-storage operations. The bill proposed by AZSA this spring 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. The bill also eliminates the requirement of publishing lien notices in local newspapers.
 
As of this morning, HB2435 is one only 130 bills that have cleared both houses during this session, Marmor said. With more than 1,200 bills on deck, that in itself seems remarkable.
 
“Both parties were going sideways on our issue by Saturday night,” said Marmor, remembering the apprehension of the weekend. “When we got to COW [Committee of the Whole], things were descending into a morass.” Democrats were disturbed by the loss of the newspaper-publication requirement in the existing statute. The republicans couldn’t understand why self-storage operators would abandon Certified Mail for more modern communication methods.
 
Very early this morning, in the midst of heated budget debate, about 30 bills were suddenly added to the agenda, including HB2435. The bill passed with only one “no” vote at about 2 a.m. 

AZSA hopes the bill will be signed by Gov. Jan Brewer sometime within the next seven days and is not derailed in a festival of vetoing as a result of the continuing budget battle. If the association gets its wish, the bill will go into affect 90 days from sine die.

The complete bill can be viewed at http://www.azleg.gov/legtext/49leg/1r/bills/hb2435h.pdf.

Marmor served three years as the AZSA’s founding president. He lobbies the Arizona Legislature on behalf of self-storage operators throughout the state. He has been in the self-storage business since 1982 and currently works as a consultant to AZSA and individual operators.

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What a Great Country We Live In

Gina Six Kudo is the general manager for Cochrane Road Self Storage in Morgan Hill, Calif. She is one of four recipients of the Inside Self-Storage 2009 Humanitarian Service Award.

Over the past few weeks watching the thousands of people taking to the streets in Iran and around the world in protest over the disputed election of Mahmoud Ahmadinejad made me think about life in America. How many of us who enjoy freedom the Iranian people only dream of actually use our freedom to their fullest? Do you vote in every election, or do you find yourself too busy to go to the polling place?
 
I won’t go into politics, but look at what we have at our fingertips! We have uncensored access to all the World Wide Web has to offer. The ability to post our words to share with others without fear of recrimination. We enjoy the freedom to express our thoughts and even openly state our objections to our government leaders in hopes they will listen. At the very least, we need not fear we’ll vanish into the night, never to be seen or heard from again simply for stating an opinion.
 
Understanding we are all in an economic upheaval, and some are fairing better than others, maybe this is a call for perspective. Even if you don’t agree with whoever is in control in Washington, D.C., at any given time, you do have so many opportunities open to you.

Or, would you rather be a business owner in a country in a similar upheaval to Iran's? Let’s say you are a self-storage owner and you’re treading water trying to stay afloat. Even at that, your life and options are much better than those around the globe and here at home.

When you gripe about the $3-plus per gallon of gas you put into your tank, think of the mother who could feed her children for an entire week on three bucks in her country.

It’s so easy for us all to whine about how bad things are, but how many times per year, or optimistically per month or week, do you step back to truly count your blessings? Is there food on your table, a roof over your head and people around you who care? Are you taking full advantage of the freedoms bestowed upon you by our forefathers? If not, why not? Don’t sit idle, get involved, be passionate about something. Maybe there is a lesson to be learned from Iran ... if only we stop to think.