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Articles from 2009 In August

Arizona Self Storage Association Offers Automated Mailing Forms

Due to recent amendments to the state’s lien law, self-storage operators in Arizona will no longer have to use Certified Mail to send lien-sale and other notices as of Sept. 30. Instead, they can use any method offered by the United States Postal Service that provides evidence of mailing, the cheapest of which is First Class Mail, Certificate of Mailing.

As a member benefit, the Arizona Self Storage Association has created a series of fully automated mailing forms for sending notices with a Certificate of Mailing. Approved by USPS, the forms are available to members for downloading from the association website,, as well as on disk and in print in the association’s upcoming Resource Book.

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New Self-Storage Business Proposed for Rome, N.Y.

The Zoning Board of Appeals for Rome, N.Y., will hear a request for a new self-storage business at its meeting on Wednesday. Andrew Madonia is requesting a use variance to establish three self-storage buildings at 8490 Turin Road, with the long-term plan of adding more units. Madonia’s property covers 46.2 acres and includes the M&M Collision auto body shop, to which he leases the land and building. The self-storage business would occupy the same lot. The zoning meeting will take place at 7 p.m. at the City Hall.
Source: Rome Sentinel

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1-800-Mini-Storage Collects Cell Phones to Support U.S. Troops

1-800-Mini-Storage collected more than 700 used cell phones to support U.S. troops. The phones will be recycled or refurbished and sold to purchase calling cards for U.S. soldiers.
Last year, the company’s three Detroit locations partnered with non-profit organization Cell Phones for Soldiers to become collection points. Started five years ago by Massachusetts siblings Brittany and Robbie Bergquist, the organization has raised $4 million and distributed hundreds of thousands of pre-paid calling cards to troops. Brittany received the phones from 1-800-Mini-Storage at ReCellular, the Dexter, Mich., company responsible for recycling and selling them.
Cell Phones for Soldiers collected 4 million phones last year and 2 million this year; it sends about 7,200 phone cards per week to soldiers abroad. Each card allows for a free hour of talk time.
1-800-Mini Storage will continue make collections of used cell phones, old cell-phone batteries, chargers, PDAs and accessories.

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Goldi-Locks Self Storage Owner Shares Business Insight

Rod Goldberg, the owner/operator of Goldi-Locks Self Storage of Colchester, Conn., gave an interview to The Hartford Courant about his self-storage business and the overall state of the industry. A town native, Goldberg launched his storage business in 2004 on a 40-acre former chicken farm. Last year, he added 171 climate-controlled units to the existing 165 units.

Goldberg’s business has experienced a downturn like the rest of the economy, he said, about 10 percent. He’s at approximately 65 percent occupancy. He also said more customers are falling behind on payments than in the past. His typical auction will yield $40 to $300, and he sees an average of 15 people at these events.
Source: The Hartford Courant, Colchester Self-Storage Company Has Inside Knowledge Of Tough Economy

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U-Store-It Buys Tennessee Home, Transfers Shelby County Property

This month national self-storage operator U-Store-It Trust bought a 5,744-square-foot home in Germantown, Tenn., for $985,000. The five-bedroom home on .65 acres was built in 2007. The Shelby County Assessor appraised the property at $1 million.
In addition, U-Store-It quitclaimed its self-storage property at 9275 Macon Road in Shelby County to its trust division. U-Store-It bought the property in 2006 for $4 million from Macon Road Partnership. Operating the new transaction as YSI XXX LLC, it filed a $2.6 million loan on the facility through First Capital Bank. Built in 1994, the multi-building, 66,643-square-foot storage facility sits on 7.6 acres. The county assessor’s appraisal is $3.1 million. The transaction also included an assignment of leases, rents and income.
Source: The Memphis Daily News, U Store It Buys Germantown Home

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Online Marketplace for Self-Storage Companies, an open marketplace for storage, has launched a Web-based platform that will enable self-storage companies to process online bookings. In the same way provides airlines with the opportunity to sell their vacant seats, SpareFoot is providing storage facilities with the ability to rent their unoccupied units.
The SpareFoot platform makes it possible for facilities to accept bookings outside of business hours and is entirely pay-for-performance, meaning facilities are not charged unless a customer actually books a unit through the marketplace. Customers who book through SpareFoot make a deposit equal to 50 percent of one month’s rent. When the customer shows up to claim his unit, facilities simply discount the first month’s rent by the amount of the deposit. There are currently no other listing or monthly fees.
SpareFoot is currently integrating with self-storage management-software applications SiteLink (SMD Software) and STORE (Centershift Inc.).
Headquartered in Austin, Texas, SpareFoot provides consumers looking for storage an online comparison shopping experience and enables facilities to increase their online presence and sales.

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Big Yellow Acquires Armadillo Self Storage

United Kingdom-based Big Yellow Group, the parent company of Big Yellow Self Storage, has acquired the 10- facility Armadillo Self Storage portfolio. Launched 15 years ago, Armadillo will be renovated with a new look and feel. A regional radio campaign will promote the new partnership.
The Armadillo facilities are in Derby, Dundee, Hull, Liverpool, Middlesbrough Stockton, Peterborough, Sheffield and Stoke on Trent. The Peterborough store is the first to be unveiled with the new look.

Armadillo rentals will now be handled through the Big Yellow website at

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Self-Storage Real Estate Challenges: Pricing, Debt and the Market

After reviewing the year’s financial reports from the self-storage real estate investment trusts (REITs) and hearing feedback from self-storage owners, I’ve concluded that the industry is doing pretty well in this Draconian economic climate. After the first quarter of 2009, most of the REITs were very close―or, in some cases, even a little ahead of the game―to their revenue and net operating figures from the first quarter of 2008.

A recent survey of self-storage owners revealed that very few are having serious problems with operating revenue where their markets are stable, although delinquencies are up somewhat. On the other hand, few owners were experiencing much growth in revenue or rental rates. Many new properties are leasing up slowly, which probably indicates that new rental demand is generally weak. Existing renters are more willing to stay put, but prospects are less likely to rent.

Despite the industry-wide belief, self-storage is more recession-resistant than recession-proof, but even that’s really good for our team.

The Real Estate Side of Self-Storage

This is the part that’s not good news. The problems we face in self-storage today fall into three general categories: pricing, old debt/new debt, and the market.

Pricing. Real estate pricing depends on the market capitalization rate (cap rate) at which the income of a property is discounted. The lower the cap rate, the higher the price, which, of course, makes the reverse true as well. Cap rates for the entire commercial real estate market were at long-term historic lows (meaning higher prices) from early 2005 to late 2007.

In addition to cap rates declining dramatically, property appraisals were also increased because higher anticipated rents and occupancies were added into the income, which was capitalized into the value of the property. The traditional cap-rate model for valuation was (and is again) that net operating income (NOI) was based on the trailing 12 months of actual income. Thus, prices were inflated by the lower cap rates and the positive assumption of future rents.

Just to give you a little perspective, in 2006, it would not have been unusual to see a property with a $200,000 NOI and a 10 percent anticipated increase in rent to be valued on a 7 percent cap rate and, therefore, valued at $3.19 million. Today, the cap rate would be in the range of 8.5 to 11.5 percent (more on this later). Just to use a number, let’s assume the cap rate is 9.5 percent and the NOI is actually down 7 percent; the value of the same property is now $1.9 million, a loss of 40 percent.

The same general pricing rules apply to all commercial real estate, except revenue in other types of real estate is down much more than in self-storage. All in all, self-storage pricing is holding up better than other real estate categories. However, this isn’t much consolation to owners who have seen their value and equity decrease. The question is, will cap rates go back down? This is for you to decide, but in the last 60 years, they were never as low as they have been in recent years.

Old debt/new debt. The nice thing about “old debt” was that it was cheap, plentiful and easy to obtain. The problem is it eventually matures and sometimes prohibits a sale of the property until loan maturity, which limits owners’ flexibility. At the height of the commercial mortgage-backed security (CMBS) loans, money was inexpensive―sometimes as low as 4.5 percent to 5 percent―and no loan amount was too much. All it took was a call to just about any bank or mortgage broker. This happy confluence of circumstances caused many owners to over leverage (a polite way to say they borrowed too much) by getting too large of a loan for their property.  

Now, many owners are now locked into these loans for the duration of the term and can neither sell nor refinance their property. Unfortunately, given the current situation in the lending world, it’s unlikely that many of loans financed before 2008 could be totally refinanced today. The new lending standards would reflect the new valuation. The loan-to-value ratios have also declined from about 80-plus percent to 65 percent (on a good day), and interest rates have increased about 1.5 percent. Additionally, the amortization periods will likely be shorter, and there aren’t many interest-only loans. The lack of available loans is a serious problem for buyers as well, because in essence, the lenders are setting the maximum price.

The market. Self-storage buyers and sellers are deeply uncertain about the future. Of course, this is not the greatest scenario for agreeing on a price. Sellers don’t want to accept that property values are down because they believe their facility is still performing or will come back quickly. The buyers, who are almost all existing owners these days, think the market may go down further or are thinking they can drive a hard bargain.

In addition, the appraisers are not helping to identify the appropriate market cap rate or value―not because they don’t want to, but because comparable information on past sales is scarce and likely out of date. Information is also sparse because there have been so few deals in any one market over the last six months.

Clearly, all this is a problem not only for buyers and sellers, but for brokers who advise them in these difficult times. Sellers should first understand their reasons for selling. Is it simply fear, or do you have a personal reason (retirement, health, etc.)? Is it that you know your property is in a declining market? Is your debt more than the property is worth? When you answer these questions, you’ll have a better idea of what you should do.

If you make up your mind to sell, you must accept that the value available in the market today will likely set the price, and lenders may be even more difficult than the buyers themselves. This doesn’t mean you must accept the first buyer’s offer, but you should know that qualified buyers are scarce and be willing to negotiate.

The buyers in the current market fit into one of two general categories. They’re either experienced self-storage owners looking for good deals, who have the equity and ability to finance purchases, or they’re “bottom feeders” who make quick, but low offers and may or may not have the ability to close a deal. These buyers, however, may be the only option for some troubled properties.

While the market is slow and inconsistent in pricing, we’re beginning to see some modest convergence in sale prices reflected in a narrower spread of cap rates. The rates (and, hence, prices) are highly dependent on location, market and quality. The actual sales we’re seeing at this time often tend to be in the 9 percent to 10 percent cap-rate range.

I’ve seen sales at an 8 percent cap rate and some as high as 11 percent. You should know cap rates are still volatile and may be trending generally higher, according to some analysts. However, if someone tells you they know the current cap rate, you can bet they don’t know for sure.

Fortunately, self-storage is probably the best kind of real estate to own right now. Given the miserable performance of all other commercial real estate, this is now merely a consolation prize. But for the longer pull, we’re optimistic about our industry. This contraction of this highly speculative real estate market, funded by grossly errant, greedy lenders will bring constrained funding for new projects and allow markets to adjust to new realities.

The performance of self-storage in the worst downturn in the last 80 years has shown the business to be quite adept at competing and remaining profitable in the marketplace. This bodes well for the future of our industry. Ultimately, the real estate side of the business will also reach equilibrium. At least, it always has! 

Michael L. McCune is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE.

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ISS Blog

Atlanta News Station Trashes Self-Storage

Publishing or airing news stories that highlight the potentially negative aspects of the self-storage business—fires, break-ins, lien sales, etc.—is one thing. Running a poorly researched attack on the business is a completely different animal.

This week an Atlanta news station ran a very slanted story about a tenant who said items were stolen out of her storage unit at O'Storage in Kennesaw, Ga. 11 Alive Atlanta broadcasted a piece titled "Storage Problems" in which its "Center for Investigative Action (CIA)" reported some very sketchy statistics. For example, the reporter said there are "many published reports" about crime at self-storage facilities and delivered an uncited statistic that as many as 75 percent of storage facilities experience some kind of theft within a five-year period. He went on to say "those secure self-storage contracts have little meaning," but failed ot mention what the real purpose of those contracts are.

The video shows an interview with the tenant, Catherine O'Neill, as she walks a reporter through the facility and to her unit, where she describes what was stolen and how. They proceed to the rental office and talk to the manager, who handles the situation just right: She explains she is not authorized to comment on the incident and provides the reporter with the name and phone number of the corporate office. At least she had some sense, unlike other managers I've seen on TV who launch into a full-scale discussion of the incident. (See this news report, related to Michael Jackson's death, his doctor, and his doctor's storage unit.)

The report goes on to dissect the storage rental agreeement, the clear statements about the facility's level of liability and the limitation of value on stored property. Not a bad contract from the industry perspective, and yet the operator was more or less criticized for protecting himself. The tenant said the situation boiled down to poor security. Though her unit remained locked, the thieves had managed to peel down a corner of the back wall from the inside.

Facility owner James O'Neill (I assume there's no relation to the tenant) issued a professional statement explaining his cooperation with police, the actions taken on the tenant's behalf, the tenant's decline of storage insurance, and the course of action that would be taken should the situation escalate. Again, well-handled.

The news station has amalgamated the related information on a Web page, inviting people to comment and offer suggestions for choosing a storage facility. You should read the commentary at the bottom of the page. If you feel comfortable adding comments in the industry's defense, great. If you prefer to discuss the situation with fellow self-storage operators, jump in on this discussion, "TV Story Hammers Self-Storage," on Self-Storage Talk.

Strategic Storage Trust Buys Jersey City Facility

To expand its presence in the Northeast, Strategic Storage Trust Inc. purchased the U-Store-It self-storage property at 69 Mallory Ave. in Jersey City, N.J. The facility was acquired for $11.63 million in an all-cash transaction. Constructed in 1985, the property contains approximately 1,090 units and 91,500 rentable square feet on 2.2 acres.
Strategic Storage Trust is a publicly registered non-traded REIT. Since the company’s launch in 2008, its portfolio has expanded to include 11 self-storage facilities in six states.

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