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Articles from 2001 In September


Inside Self-Storage Magazine 10/2001: Real-Estate

Mirror, Mirror on the Wall
What is the fairest real estate investment of them all?

By Michael L. McCune

This article represents the inauguration of a new series of monthly articles for Inside Self-Storage dedicated to the real estate market. In the future, this column will offer a dialogue with industry experts on the state of the self-storage and real estate markets. Twice each year, our experts will focus on each of five regions and national trends. However, we thought we would kick off the roundup with an article on why self-storage is such a great real estate investment. This article previously appeared, in part, in the Market Monitor newsletter. I think you will find it interesting as well as encouraging. Next month we will look at the Northeast and poll our experts on what is going on with real estate in that region.

The self-storage industry has grown up over the last quarter century. In the not too distant past, everyone in the real estate business thought those little "tin" buildings just couldn't be worth much--and they certainly weren't very pretty. The institutional-type investors much preferred to run the boss out to a new luxury hotel or mega-mall and say, "Look at what we just bought!" As they were getting they're picture taken with the trophy project, they thought about how great the picture would look in the annual report. Meanwhile, the lowly self-storage developer was sitting at his kitchen table with pencil and calculator in hand saying something like, "Gee, these numbers sure look good." Slowly but surely, some of the real estate gurus began to catch on--after they stored some of their junk at a self-storage facility, did a quick calculation of the rent per square foot and estimated the costs.

During our rather brief history in the self-storage business, perceptions have changed somewhat, but not dramatically. The facilities look better, but no one calls even the best self-storage facility a "trophy." Wall Street endorsed some self-storage REITs, but now seems to have moderated its appetite. There was even a brief time recently when the folks east of the Hudson thought self-storage should be included in portfolios of real estate loans, but that concept, too, has now faded to near extinction.

A Hidden Beauty Is Found

Despite mainstream real estate investors continuing to yawn about the self-storage business, I thought we might explore the reasons they overlook the best of all real estate investments. Having kicked around the real estate business for the last 30 years--and having worked with just about every type of property: office, hotel, industrial and retail--I am prepared to make an argument that self-storage may well be the best type of investment you can make in the real estate world. It is the "Snow White" of real estate--a real hidden beauty.

This is not to say all self-storage is better than all other real estate; but, on average, the income-producing characteristics of well- conceived self-storage are better than those of other types of real estate. I must warn you, however, my "mirror on the wall" only reflects certain attributes, such as product-demand growth, cash flow, return on equity, break-even risk, additional capital costs and other mundane numbers. If you'd like the mirror to reflect more subjective criteria--such as annual-report picture value or suitability of a property as a location for your daughter's coming-out party--my mirror probably will not suit you. So for the balance of this article, I am going to make several arguments about the relative merits of self-storage investments compared to other types of real estate. Let's see how this reflection compares and see if we think, like the Prince, we have indeed found Snow White.

It Is a Growth Industry

One significant factor makes self-storage a better bet in the long run than a lot of other real estate types: Its market is growing faster than the population. First, only about one-third of Americans have ever used self-storage. Second, after a period of time--say five years--many self-storage facilities report most of their business--say 80 percent--is from repeat customers. If you look at what these statements mean, it is clear customers are not only discovering self-storage but, more important, they are learning to use it repeatedly. The point is, the growth of self-storage is not limited to the population growth in a market. It gets a great boost from "moving up the learning curve" of the consumer.

Icing on the Cake?

There is one other factor that probably impacts growth demand but is harder to quantify, and that is the fact self-storage doesn't require a "body" to make it useful (although there may be one occasionally). Hotels, apartments, offices and homes all require human beings or they are not very useful or profitable. Self-storage, on the other hand, thrives on our fast-growing accumulation of stuff and our emotional attachment to it.

To get a perspective on the potential for self-storage in our society, just think of all the things you are saving for your children vs. what your parents saved for you. This is to say nothing of your own "toys" you can't bear to part with but need a resting place. The net result is the demand for self- storage is growing very rapidly and in excess of the rate of population growth--at least for the time being. We also know that fast growth in demand covers a lot of sins in real estate, but it also enhances our ability to earn greater returns on our self-storage investments than other types of real estate.

If you want more proof of these arguments, think about what has happened to self-storage rents over the past 25 years. Despite the fact the industry built approximately 30,000 facilities in that general time frame, rents have continued to go up, proving the total demand has exceeded the supply and the population growth. Of course, you might say rents have gone up for all real estate types, and that is generally true; but when you think of the relative absorption of supply in such a short time, the story is truly remarkable.

Cash Flow

I am now going to explain five reasons the cash flow on self-storage is higher--and probably more secure--than on other kinds of real estate. This translates to higher returns on your investment, less risk and possibly higher prices. All of my arguments are based on the assumption a facility is well-maintained, in a good location and in a rational market (i.e., one that is not overbuilt). Remember: Even though we believe self-storage is the best real estate investment, this doesn't mean it will bail out "dumb deals."

Zoning. We all know that securing zoning for self-storage is becoming more difficult in almost every community. It is not that self-storage is a bad civic citizen (actually, it's among the best); but it is not glamorous, there are no sales taxes and the real estate taxes are usually modest. What planning commission in its right mind would ever approve a project that had no glamour and didn't produce a lot of taxes? This, of course, tends to restrict additional development and increase cash returns of existing facilities as demand builds. If you have a good facility, it is increasingly likely the local zoning board will not jump through hoops to help developers build potential competition.

Cap rates. In Chart 1 (compliments of Ray Wilson of Charles Ray Wilson & Associates), you'll see some national averages of cap rates on competing real estate types. A cap rate is really the annual return you can expect on your investment (i.e., a 9 cap rate equals a 9 percent return, etc.). As the chart shows, the returns on self-storage are generally higher than most other real estate types. At first glance this looks like only a "so what" difference, but closer examination shows self-storage will yield 10 percent to 20 percent more in annual cash for the same dollar of purchase price.

Overall Capitalization Rates
Current Range Nationwide

Self-Storage 9.8% to 11.5%
Industrial 8.0% to 10.0%
Neighborhood Retail 9.0% to 10.5%
Office Suburban 8.5% to 9.8%
Apartments 8.0% to 9.3%
Hotels 9.5% to 11.5%
Source: Self Storage Data Services Inc. and Real Estate Research Corp.

If you leverage your self-storage investment (i.e., get a mortgage), the difference in cash-on-cash returns becomes truly impressive. For example, compare a self-storage facility at a 10 cap rate and another real estate investment with the same net operating income at an 8.5 cap rate. The cash-on-cash return on the self-storage is 13.4 percent vs. 7.4 percent on the other investment (see Chart 2).

Comparison of Cap Rates

Office Buildings Self-Storage
Cap Rate 8.5 10
Net Operating Income $100,000 $100,000
Sales Price $1,176,000 $1,000,000
Loan at 75 percent loan-to-value $882,000 $750,000
Equity $294,000 $250,000
Debt Service $78,200 $66,500
Cash Flow $21,800 $33,500
Return on Investment 7.4% 13.4%
Source: Self Storage Data Services Inc. and Real Estate Research Corp.

Capital risks. Often times, investors for other types of real estate overlook the requirement (and risk) for additional capital. Hotels always need new furnishing and redecorating; office buildings require massive amounts of tenant finish and commissions; apartments need everything and often. (If you would like some detailed comparisons, drop me an e-mail and I will send you some startling numbers on this capital demand.) However, as one industry wag puts it, self-storage has its own capital requirements to handle--a new broom about every three months! While this comment is somewhat facetious, the capital demands of a self-storage facility are very small, not only in relative terms to other real estate, but also in absolute terms.

Operating costs. Once again, self- storage appears to have an advantage because the operating costs for self-storage usually have only a small exposure to volatile energy costs and labor. Many other real estate types have as much as 70 percent of their operating costs consumed by energy and labor. Because of the lack of exposure to dramatic changes in these key expense components, the risk for self- storage is reduced and the consistency of income is improved.

However, what is a blessing for self- storage is also, in some ways, a curse. The reason, of course, is the lack of glamour or, as one of my friends in the self-storage finance business, says, "no glass, no granite." This lack is a blessing because all of the return comes in the form of cash flow and not ego satisfaction. While you probably won't hold your daughter's wedding reception in the parking lot of your facility, you will have the cash flow to rent the place she really wants.

The curse, however, comes when you sell. Buyers are seldom ever so smitten with a self-storage facility they forget the numbers. The usual buyer of self-storage is someone just like you--in it for the money. In almost every case, the buyer already owns a storage facility, knows the market cap rates and operating costs, and refuses to overpay. Thus, it is unlikely you will find the "greater fool" who will pay above market cap rates, or the non-self-storage investor who will take the time and energy to understand the product and bid up the price to his own detriment. While we can earn great returns as owners, we aren't likely to sell a project on cap rates much different than those we bought it on--although, from time to time, cap rates do vary.

Sometime in the future, as the market gets better educated on self-storage, we may see these cap rates decline and our selling prices increase. But in the meantime, just enjoy the returns. When someone asks the question, "Mirror, mirror on the wall, what is the fairest real estate investment of them all?" and the mirror provides an accurate reflection, it is likely there will be a series of bright blue garage doors staring back.

Michael L. McCune has been actively involved in commerical real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real-estate consulting, brokerage and development company based in Denver. In January 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real-estate brokers dedicated to the buying and selling of self-storage facilities. For more information, call 800.55.STORE or visit www.selfstorage.com.

Stacking Up Storage Profits


Shed providing density storage of boats up to five levels high.

Self-storage operators and developers in recent years have targeted the ever-expanding boat-storage market as another potential source of revenue. Providing ground-level storage of boats in vacant lots, under canopies or in individual storage units can generate reasonable fees. However, by overlooking the vertical storage of boats, self-storage operations are missing out on far greater income.

The vertical storage of boats is known in the marine industry as dry-stack storage. The concept is to store boats vertically, two to six levels high, in storage racks. Large forklifts that can handle boats up to 50 feet long lift the boats to their respective racks.

Dry stack was pioneered by modifying warehouse pallet racks to store boats on land in limited applications. Since the boats were small, the forklifts needed to handle them were relatively light-capacity, and the racks themselves were light-duty. The typical system had open racks designed to store small boats (14 to 20 feet long) in single-bay cubicles. The height of the racks was limited to the lift height of the forklift, usually 20 to 25 feet. These early dry-stack systems were often installed inside clean-span buildings that measured 80 to 90 feet wide. These systems provided water access to boat owners, along with protection from vandalism and the elements.

As boating has become readily accessible to more people, the demand for water access has increased dramatically. The majority of new housing developments have covenants that prohibit storing boats at one's home. While new marinas continue to be constructed, many of the best sites are sold for the development of waterfront communities. This creates even more pressure to increase the supply of boat slips--wet and dry.

Dry-stack storage has become the essential answer to the increased demand for water access. Today's dry-stack applications give marinas a method of supplying boat owners a slip for their prized possessions. Whether the marina is very large or quite small, dry stack greatly increases the number of boats in a facility. It adds a tremendous benefit to the revenue stream for the marina, with construction costs far less than that required to add more in-water slips. It can also enable the marina to reconfigure its wet slips to accommodate larger boats, while providing a home for displaced smaller boats.

As the demand continues to exceed the available slips, off-water dry-stack storage facilities become attractive alternatives for boat owners. By using the same type of marina forklift to handle the boats, these off-water sites can accommodate double or triple the quantity of stored boats as can the ground-level storage lot. And these facilities can be constructed on land far more affordable than premium waterfront property.

Dry-Stack Systems


Free-standing open racks, doubling the storage capacity of the yard.

There are three basic dry-stack systems: free-standing racks, covered sheds and fully enclosed buildings. All of these systems should be designed to resist environmental loads as specified in the local, state or federal building codes. And each of these systems should be designed to store current and projected boats. In most marketplaces, these structures are being designed for much larger (heavier, wider, taller and longer) boats than their predecessors. The racks can be constructed to store two or three large boats side by side on a given shelf level. The racks can be designed to store boats and trailers in the same or separate bays.

Covered sheds are the dry-stack structures most consistent with self-storage applications. These include roof-covered systems, three-sided covered sheds and bow-to-bow covered sheds. They provide protection from rain, snow and ultraviolet rays that can seriously damage a boat's interior and exterior. All three sheds are rack- supported structures, with the racks providing the main support of the building components. For the most part, these systems are open on and accessed from the stern side. The three-sided sheds can have individual doors placed on each unit, or can have large sliding doors that span the full height of each storage bay. In most cases, a fenced yard will provide the desired security for the boats.

Fully enclosed buildings are considered the ultimate dry-storage structures, as they provide the maximum in boat security and protection from the elements. These buildings are either clear-span with free-standing racks or rack-supported. In the latter, the racks are the integral support of the building structure and must be designed to take all applicable environmental loads (wind, snow, etc.). Since they provide the utmost protection for the boats, these structures most often generate the highest storage revenues.


Fully enclosed boat-storage building.

The dry-stack storage operation will require more labor than the typical self-storage facility. A trained forklift driver must handle the boats on the upper levels. It is not a self-storage operation in that the customers are dependent on others to access their stored boats. But the convenience, security and protection dry stack provides can result in significant revenues, especially when multiplied by two, three, four or more levels. For example, a lot measuring 150-by-150 feet can provide efficient, accessible storage for approximately 20 to 30 boats. Two four-story, covered sheds on this same level lot can accommodate up to 112 boats.

Dry-stack storage is not for every self-storage facility. However, many businesses should look seriously at developing this vertical boat-storage application as part of their existing operation. The density storage of boats will greatly enhance their revenue stream and profitability. By dry-stacking boats, profits will definitely stack up for the storage operation.

Patrick Farrell is a co-owner of Coastal Marine International Inc., a manufacturer of dry-stack boat-storage systems. The company has provided storage for more than 30,000 boats to marinas and storage operations throughout the world. For more information, call 704.948.6895 on the East Coast or 209.523.5012 on the West Coast. Visit www.boatracks.com.

Inside Self-Storage Magazine 10/2001: Getting The Most out of Self-Storage Expos

 

Getting The Most out of Self-Storage Expos

By David Wilhite

If your self-storage operation is successful beyond your wildest dreams and you're absolutely rolling in money, feel free to skip this article and head out to the golf course. If, however, you're still working on your first million and looking for new ways to help cut your costs, stimulate new rentals and increase your profits, here's a worthwhile suggestion: plan to attend one of the upcoming self-storage industry tradeshows.

To paraphrase an old Zen master, "To a tradeshow you must journey, if success is what you seek." Few self-storage owners I know would disagree. For those individuals looking to get that extra edge in this industry, tradeshows, expos and fairs provide a forum for information exchange that is guaranteed to help improve your bottom line. In fact, one extremely successful self-storage owner I know told me his attendance at an industry tradeshow resulted in one of the most profitable ideas he ever had, and his business plan provides for participation in a variety of regional and national tradeshows each year. For the rest of us, attending one major show each year should suffice.

An Educational Experience

For those of you who have never had the experience, attending your first industry tradeshow can be a revelation. There, under one roof, is everything you need to know about owning and operating a self-storage facility, including firsthand advice and information from successful facility owners and managers. Most tradeshows offer a wide variety of seminars and workshops hosted by industry experts and focus on topics of interest and concern.

These workshops typically cover such topics as buying and selling a self-storage facility, investing and financing, management and marketing, and construction and security, etc. In addition to the seminars and workshops, you'll have the opportunity to participate in roundtable discussions, chat with vendors in the exhibit hall and network with other self-storage professionals.

Strategies for the Successful Show-Goer

Since your time at a tradeshow will be at a premium, it's important to arrive with a game plan. Actually, you should begin your plan well in advance of the show date. Be sure your show registration, hotel reservation and flight arrangements, if any, are confirmed well beforehand. Once you arrive and receive your attendee packet, head for the lounge, grab a cup of coffee, and take some time to read through the program book. Your first task will be to choose the seminars and workshops that meet your needs. You might also want to make a list of alternatives, as one or more seminars may be filled to capacity by the time you arrive.

Your next task is to schedule two or more visits to the exhibit hall. This is one of the most interesting and valuable benefits you will receive as a show-goer, as it presents the opportunity to learn about the latest products and services in the industry. I recommend scheduling multiple visits to the exhibit hall for a couple of reasons: First, there is usually so much to see and learn, you may run out of time or become too tired to experience it all at once. Second, key exhibit personnel may be away from their booths or visiting with other attendees during your first visit, so you may want to return at a later time to meet them and get information about their various products and services.

To further maximize the value of your time in the exhibit hall, it's a good idea to make a quick run through the exhibit area with the exhibitor's guide and mark off each display you want to visit at length. Then you can return and spend as much time as necessary with exhibitors you most want to meet. You might also consider arranging appointments with the key exhibitors on your list. This will ensure you get the information--and attention--you need.

As a final exhibit-hall strategy, try to collect as many brochures and handouts of interest to read at home later. If for any reason you don't get a business card from a vendor, be sure to note his name and address on the appropriate handout materials and save it for your files. Such industry contacts can prove invaluable later.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; call 800.844.2101; fax 480.970.6240; e-mail [email protected]; www.vpico.com/universal.

Vehicle Storage

Vehicle Storage
A profit-making opportunity

By Rex W. Young

There has been a great deal written in the past few years about boat and RV storage, but often the reader is left with more questions than answers. There is a good reason for this. The vehicle-storage business is like the self-storage business was 30 years ago in its sophistication. Once, an open dirt field with a fence around it was the norm. That is changing and will continue to change as the vehicle-storage industry evolves, just as the self-storage industry did.

Determining Need

If you are looking to expand your self-storage facility to include vehicle storage, you should have a good feel for the demand as indicated by your customers. If this is not the case, the first thing you need to do is determine if there is a need for this type of storage in your area. If there are no other storage facilities (including dirt fields) offering vehicle storage, that may be a pretty good indication that a demand has not made itself evident.

The development-radius concept of one facility every three to five miles does not apply to vehicle storage--in this case, the radius is usually about 10 miles. One of the quickest ways to determine need is to use your Yellow Pages and check how many RV, boat and trailer dealers--as well as their counterpart service facilities--exist and where they are generally located. This information will be very useful when it comes time for choosing a site location.

Look up city ordinances to see if they restrict on- and off-street parking of recreational vehicles. Check also to see how many retired persons live in the area, as they are the ones with the highest percentage of RVs, fifth-wheel vehicles and trailers. Break down the demographics and study them closely. Finally, listen to your "gut feeling," as this can sometimes be the best indicator of all. Remember, there are not yet any "books" of answers regarding vehicle storage.

Definition of 'Vehicle'

At my facility, we choose to define a vehicle as "anything on wheels or that can be put on wheels that needs to be stored." The individual/consumer side of the vehicle-storage business includes RVs, boats, fifth-wheel vehicles, trailers, pop-up camping trailers, box trailers and automobiles. On the commercial side, it will include small cranes, commercial trucks of any nature, landscape trailers, 45-foot construction trailers, church buses and small business vans, etc. We have stored an Indy racing team's support vehicles as well as a TV satellite truck. These are examples of some nontraditional vehicles that require storage.

Land Requirements

There are three basic development choices: expansion of an existing self-storage facility, a new self- and vehicle-storage facility, or a stand-alone vehicle-storage facility. Whether we are discussing the integration of 300 to 350 vehicle spaces into an existing self-storage facility or the construction of a 550-space vehicle-storage facility, the project will require a minimum of five acres for expansion or 10 acres for stand-alone vehicle storage.

The Facility

Operating a first-class facility requires that it be paved and offer at least some covered parking for all the lengths of vehicles you will store. A simple answer is to provide 50 percent covered and 50 percent uncovered spaces, but each market has its own demand. One advantage of vehicle storage is you can paint over your "mistakes" or adjust to your customers' changing needs. At our facility, we repainted the 40-foot covered spaces twice to provide more width until we had something that worked. We repainted all the uncovered 35-foot spaces from 90-degree angles to 45 degrees. We lost spaces, but gained paying customers because the aisles were widened.

You should include, as a minimum, a free dump station, 24-hour-a-day, seven-day-a-week access, separate ingress and egress gates for the vehicle area from the self-storage area, night-patrol security, TV surveillance with a recorder on at least all gates, excellent lighting, and electrical outlets on the poles of the covered parking for keeping batteries charged. Other amenities may include a wash rack or special vehicle services, but first check your liability and its costs. Our philosophy is that we are in the vehicle-storage business, not the service business.

Finally, if you design your canopies to extend more than 5,000 square feet, most cities will require you to include fire sprinklers. A loop fire line with hydrants and retention basins may also be required. Check with your local fire marshal.

Location, Location, Location

This is one of the most-used expressions in real estate development. At the same time, it is the least understood. For our purposes, "location" consists of accessibility, visibility and market area. All three are necessary in order to be successful.

Accessibility. Your customers must be able to easily enter and exit your facility. Remember, they are driving 45-foot vehicles or larger. You must also have accessibility to a freeway, state highway or other major traffic artery that leads to recreational areas such as lakes, ocean marinas, camping sites, etc.

Visibility. If they cannot see or easily find you, potential customers will not store with you. Street signage is extremely important. Visibility can also be achieved through advertising in the Yellow Pages with a clear map in all the listings, i.e., household storage, RV storage, boat storage, trailer storage and so on. Cold call all the RV, boat and trailer sellers or service facilities in your area and leave them with your information.

Market area. We discussed this previously, but there are always additional ideas to explore. For example, look for new home subdivisions and see if they ban outside vehicle storage in their CC&Rs. This is also an excellent place to provide information to home builders so they can easily answer their customers' questions about where to store their "toys."

The Site

Check with your city's planning department to determine the type of zoning required for your facility and with the building department to find out about building codes and retention requirements. Now comes the biggest restraint: price. We have found that $1.75 to $2 per square foot is the maximum you can pay or allocate for vehicle storage in order for economic viability to exist. Before you start yelling that there is no land available for that price, get in your car and start driving through the general area where you wish to locate your facility. Take an aerial map to assist you. There are usually sites tucked away that have been leaped over by development or have unusual configurations. The sites exist--you just have to find them.

Layout

Whether it is a combination or stand-alone facility, you must determine your mix of space sizes and widths, isle widths, canopy locations, sun orientation, and ingress/egress gates. Remember: A 30-foot fifth-wheel vehicle or trailer is really 40-feet-plus with the hauling vehicle when you consider the turning radius and space needed for backing into a space.

A Worthwhile Investment?

I have intentionally avoided discussion of the economic feasibility or costs of this type of facility because there are just too many variables involved to make broad generalizations. However, proceed with caution. The final economic viability of a project will depend completely on your county assessor. In our case, property taxes jumped from $20,000 to $70,000 per year because our land is zoned industrial and there were some prime pieces of real estate in the area selling for $4 per square foot. The assessor also treated our 70,000 square feet of canopies as buildings. We have filed suit against the assessor to reduce our valuation, the outcome of which will determine our project's feasibility. Find out before you begin how your local assessor will value your project to ensure the best financial success.

Rex Young has more than 30 years of experience in commercial development, 11 years in the self-storage industry and five years in the development of vehicle-storage facilities. His entities own and control a total of 1,641 vehicle-storage spaces, 642 of which are covered. He operates out of Gilbert, Ariz.

Storage-To-Go

Whether you call it portable self-storage, storage-to-go or pick-up and delivery, it is probably the hottest new wrinkle in the self-storage business since climate-control. The idea is as simple as self-storage itself: The storage facility delivers a storage container to the customer's home or place of business. The client fills the unit and locks the door, and the container is picked up and returned to the storage facility. Two of the largest self-storage operators in the country--Public Storage and Shurgard Storage Centers--have jumped into the business along with a number of regional and local operators.

While storage-to-go may be a great business opportunity, it is not self-storage. The providers of this service take possession of and transport customer's goods. The customer has limited access to his container and generally cannot access the property without the assistance of the business operator. The relationship between the storage-to-go operator and his customer is most likely a bailment rather than the landlord/tenant relationship that governs self-storage.

Research Before You Start

Storage operators should research the business carefully before providing this new service. If you treat your storage-to-go customers as traditional self-storage tenants, you could be making a grave error. There are a number of legal issues that should be considered in preparation for such a venture.

The one mistake you do not want to make is thinking you can take a self-storage rental agreement and use it for the portable-storage business. A self-storage rental agreement assumes the facility operator is renting real estate. The portable-storage operator rents personal property-- the container--and agrees to store the container in a warehouse or other suitable place. Legally, these are very different businesses and require different types of contracts.

Don't assume you can use your state self-storage lien law in the portable-storage business either. This is possible in California and Florida because the lien laws were amended to include this new business. In other states, it is unlikely self-storage lien laws will apply because, like a self-storage rental agreement, these laws assume self-storage is a rental of real estate, not personal property. Before venturing into the storage-to-go business, consider the following:

  • Is the transportation of goods a regulated business in your state? Trucking was once a highly regulated business. It is less so today. Some states have completely deregulated this business; others regulate certain aspects of it. One area that is often regulated is the transportation of household items. Check the laws regulating trucking in your state.
  • Storage-to-go is most likely a form of bailment. This means the storage-to-go operator, unlike the self-storage operator, takes possession of the property, and the customer cannot access it without the aid of the storage-to-go service provider. You will need a different type of contract if you enter this business. Your self-storage rental agreement is not the right type of contract for this business.
  • Do you have the right insurance? Storage-to-go has exposures that are not present in a traditional self-storage business. You need more than just coverage on your vehicles. You need to have coverage on your customer's property while it is being transported. You should check with your agent as to whether your current policy covers stored tenant property while on the premises.

Most liability policies exclude coverage on the property of others in your care, custody or control. A bailee by definition has care, custody and control over the property he stores. Be certain your insurance carrier will continue to insure your facility if you enter this new business. The specialty insurers provide customer-goods legal-liability coverage that provides defense and indemnity of customer claims of property loss or damage even if it is in your care, custody or control.

Storage-to-go may be a great business. The financial commitment of the industry's largest companies certainly suggests this. However, we advise you do your legal homework before jumping into these uncharted waters.

From the SSA Rental Agreement Handbook, Copyright © 2000. All rights reserved. Self Storage Association Inc., 6506 Loisdale Road Springfield, VA 22150.

Inside Self-Storage Magazine 10/2001: Prospect in a Pickle?

Prospect in a Pickle?

By Harley Rolfe

Your prospect is in a pickle. He believes you can get him out of it, but you're not sure you need to know much about his particular problem. That's just wrong. His predicament is your ticket to offering him a meaningful sales proposal. The more you know about his situation, the better your proposition can be.

Your mission as a marketer is to deliver appeals that sing for every kind of user. But there's a catch. While your product is the same for everyone, each different class or kind of user wants storage for a distinctive purpose. That's an anomaly: identical product for all, yet dissimilar benefits. It is unlikely there is one "song" that will work for all prospects. What is significant to one is irrelevant to the others. That's our challenge and opportunity, and is at the core of thinking like a marketer.

You're Not Serious?!

I can hear it now: "Are you kidding? You mean I need a different appeal for each kind of user? That may mean 20 different messages!" Let's hope so. I hope you do have a large number of potential prospect "pickles" to which you can respond. It's a fact: You cannot entice a lawyer with the same angle you use with a new family moving into town, so don't try. It won't work. Why should it? They are totally separate market segments.

Keep in mind, people generally volunteer themselves into their particular segment. Whether they're moving to a new home or leaving the area, people are vitally interested in the success of whatever task they have at hand. It makes them quite responsive to appeals based on their specific group. You get their attention when you focus your sales approach directly on their current problems or projects.

You will appeal to a given segment by claiming you understand its specific problem and have a solution to it. Be sure you live up to that promise. You have raised your prospect's expectations for a reason--you want him to stop regarding you as a commodity. If he does, he knows instinctively he will pay a premium. To abandon his tendency to choose the cheapest option, he requires you know something specific about his situation and help him in ways the facility down the street cannot. Accomplish this, and you will have made yourself a choice of one for that segment. This is one of the classic marketing ploys for subduing the effects of commodity price competition.

All Segments Are Not Created Equal

The marketer hopes for several characteristics among the various market segments. The characteristics of a useful segment include:

  • The segment should be sizeable and significant enough to justify spending time and, perhaps, money to reach it.
  • There should be some form of media available to reach the segment. (It is frustrating to develop an appropriate message for a particular group and have no practical way to deliver it.)
  • There should be some method available to track the overall growth of the segment and determine what percentage of your market it represents.
  • There should be structured distribution of individual members. Why? Read on.

Not all important segments feature all of these characteristics. It's just easier for you if they do. What is key is to identify your good segments, then figure out how to solve for the other supporting elements. That's why I suggest you start with your current tenants to determine which uses/problems have already gravitated in your direction. Your tenants--current and past--have individually evaluated their own situation and found in your favor. It's best you find out why.

Unstructured vs. Structured Segments

Generally speaking, economics limit the use of general media in self-storage (TV, newspapers, radio, etc.). The larger the city, the truer this becomes. The thing we hope for as we develop an organized approach to marketing is to discover structured segments. Here's why:

Unstructured segments are those that appear at random. There is no way to identify the next guy who will decide his garage is too stuffed and it's time to move the "big toys" to storage. You don't know who or where these guys are, but you know they're out there. If you want to reach that segment, you're stuck with general media. Much of the formation of your marketing program will be determining how or whether to tolerate general media costs when you have a salient message to deliver.

Now check out this little vignette as an example of structured segments: There are a number of small retailers in a nearby shopping mall. At present, many use some of their high-priced space for storage rather than sales. They could increase their income per square foot if they could just free up that storage space. Boy, do you have a deal for them! Trot right down to one of those stores and give it your proposition. Once you get one store on board, you'll have a testimonial you can use in some direct-mail pieces to the others.

For example, first determine how much space each store in the mall is using for storage. Then compose an individualized direct-mail piece showing your interest and knowledge about each of them. That's not junk mail--that's useful data, particular to those prospects. After you have softened them up, you can move in for the close. When you discover a segment that is structured, you have a distinct marketing advantage.

The finer you can break down your facility's segments, the more likely you are to uncover the structured ones. And they're worth looking for. Using directed media requires more knowledge, but allows you to deliver a deadlier message and avoid the general media rat race.

Classes of Characteristics

Segments have two general classes of characteristics: those relating to their desirability to the self-storage operator and application characteristics. Preferred unit size would be one of the former, as well as payment habits and length of stay. In examining existing tenants, you already have this information. These help you to sift through the segments you have discovered in your facility and decide which to pursue in the public.

The other set of characteristics is applications-oriented. Here you need to know what kind of activity or business you are dealing with plus its specific application for self-storage. It is not enough to know lawyers are using self-storage without also knowing how and why they use it. Identify the use or problem being solved for each segment. The self-storage industry is blessed with having appealed to so many categories of users over the years. Your job is to capitalize on what your tenants can tell you about why they're spending money with you each month.

Most self-storage operators become interested in marketing because of concern about destructive price competition. That can only only occur when several suppliers are seen as "the same" by prospects. Your goal is to seem different from the others. You can attack price competition by making yourself a single source for each segment. If you can't have one big monopoly, how about 20 smaller ones? This will be accomplished when you understand the pickle your prospect is in--then help him to get out of it.

Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.

Inside Self-Storage Magazine 10/2001: Thoughts From the Road

Incentives, Recognition and Motivation

By Jim Chiswell

As I work and talk with owners across the country, I am constantly asked: "What type of bonus system should I use for my employees?" It seems one of the most popular is a compensation for every unit rented. Others have recognized that a manager's incentives should be tied directly to the performance of the store compared to the yearly budget. Sharing a percentage of the financial success over the expected budget can be profitable for owners and managers.

I am rarely asked, however, about the big picture: keeping employees motivated in their jobs. Motivation cannot be accomplished by money alone. Yes, I know dollars are important, but research study after research study points to the need for a combination of factors to keep your team at peak performance.

It is important employees feel knowledgeable about the business itself. This can be achieved by having all employees participate in planning the annual budget, as well as the design of future Yellow Pages ads and other sales literature. This means having everyone create the written goals and objectives for the year and then keeping them informed of the progress.

If you give someone the responsibility for carrying out a specific task, he needs to have the authority to act accordingly. Nothing can undercut morale more than a boss who is constantly second-guessing the employee and getting in the middle of things with a "No, let's do it this way" approach. OK, maybe everyone that works for you cannot do something as well as you could, but do you really want to be behind the counter every day? Probably not.

The other critical factor is in recognizing people for the job they are doing. If you are a part of Storage USA, Shurgard or other organization with countless employees, having a "Regional Employee of the Month" is much simpler than if you are a single-store operator. But even with one facility and two or three employees, a recognition program can be created. The recognition could be for the outstanding results from a "mystery shopping" phone call or positive comments from a customer. Many times, just having an owner come into the store to say a simple "thank you" can have a significant impact. Bringing in an unexpected lunch treat or taking over the office so an employee can have the afternoon off will have positive results.

I would also like to encourage owners to think about giving unexpected incentives to their managers, a concept Joe Niemczyk of Executive Self Storage has used for many years to help motivate his troops. A CD player or tickets to a sporting event, when totally unexpected, can produce a lasting memory of appreciation. I know of one owner with several properties who took everyone to dinner one night and just as the meal was ending handed out gift cards that read, "You are as good as gold to me!" Inside each card was a solid gold coin. It was a direct way to give people an unexpected bonus with a unique twist. If you do not have an incentive and recognition program in place, it is never too late to start. There are no rules or restrictions, so use your creativity.

Speaking of recognition, I would like to acknowledge Louise and Leo, managers at Plantation Self Storage in Bluffton, S.C., for being selected as Managers of the Year by Mini-Storage Messenger magazine. I know this team and the award is well-deserved. Congratulations!

Telephone Research

I had an opportunity to see firsthand the telephone-research information being produced by a company called Client Discovery Service in Georgia. (See the "TechTalk" column published in the July issue of Inside Self-Storage or visit www.callerid.com for more information.) Its telephone-monitoring devices are picking up some significant weaknesses in our telephone operations. Monthly reports show you, by the hour, when inbound calls are coming in as well as when, and to whom, outbound calls are being made. You may think that simple five- to seven-minute call you make to a friend each day is not telephone abuse--until these calls show up on the report as consuming five to six hours a month.

The reports from Client Discovery are some of the most powerful telephone-research tools I have ever seen. The visual reports pinpoint the actual locations of the phone calls on a map. You can instantly see where your marking efforts are having an impact. The company will even provide a daily fax service to provide you with the telephone numbers of inbound callers whose phone call was never answered. These lists, waiting for the managers on the fax machine when they come into the office in the morning, can generate real customers with a simple courtesy call.

Who could object to receiving the following phone call: "Hello, Mr. Chiswell. This is Alyssa from Silverado Self Storage calling. Our caller-ID telephone database indicated someone from this number called our office yesterday. I am sorry we were not able to take your call. How can I help you?" OK, the real privacy freaks might be taken aback that you had their name and telephone number, but even the most cynical person will be impressed by your follow-up. The individual with a storage need will appreciate the fact you are trying to assist him.

Where Did This Come From?

Thanks to everyone who responded to the burning question from May's Thoughts from the Road column about the origins of two phrases: "dead as a doornail" and "easy as pie." Congratulations to Jimmy Murtaugh of Florida and Kim from South Dakota for being the first two to reply. Jimmy and Kim nailed them both with an online search.

It is apparent to me that because of modern technology, the answers to these sorts of questions are readily available on the Internet. Therefore, I have decided to abandon my idea of including phrases like these in each of my columns. This is a prime example of how you sometimes have to try things out yourself to see if they work for you. Someone else's lack of success with a concept does not necessarily mean it won't work for you or your facility. So don't stop trying new ideas. I know I won't.

Jim Chiswell is the president of Chiswell & Associates. Since 1990, his firm has provided feasibility studies, acquisition due diligence, expert testimony and customized manager training for the self-storage industry. In addition to contributing regularly to Inside Self-Storage, Mr. Chiswell is a frequent speaker at Inside Self-Storage expos and various association meetings. He can be reached via e-mail at [email protected] or by calling 716.634.2428. Visit www.selfstorageconsulting.com.

Considering Vehicle Storage

Considering Vehicle Storage
Incorporating boat or RV storage into an existing self-storage facility

By Tron Jordheim

Are you considering the addition of boat and RV storage into your existing self-storage facility? Perhaps you have some unused land you are tired of mowing. Maybe you are planning to add another self-storage building in two years and would like to bank on your vacant land in the meantime. Maybe your community just passed a restrictive covenant or zoning ordinance that prohibits people from parking boats or RVs in front of their houses or in their driveways. Or perhaps you do business in an area with a large concentration of retirees, known for their affinity for recreational vehicles, or one with good sport-fishing opportunities. Any of these scenarios could mean success for boat- and RV-storage operations.

Proceed With Caution

To offer this service, you are naturally going to have to deal with land-use policies. In some areas, you can offer outdoor, uncovered parking without disturbing any ordinances, which makes it easy to convert extra land into potential revenue. You may think if zoning allows you to put a building on a piece of land, you should be able to park vehicles on it before construction without issue, but that may not be the case. In cities where boats and RVs are being restricted in residential areas, they are also being restricted citywide. You may not be able to secure the approval you need.

If you are convinced there is a market in your area for boat and RV storage, forge ahead. But first, you will have to get creative in determining the local need for this service. Kevin Bowman, of Millstadt, Ill.-based JKB Consultants, conducts self-storage feasibility studies around the country. When folks ask him about the prospects for boat and RV storage, he shrugs. Though he has done the due-diligence research on vehicle storage, he has had a difficult time compiling solid numbers to work from. Determining a benchmark for a good ratio of vehicle storage to to self-storage on a particular site isn't easy. Information is limited on average rental rates, return on investment, or determining the appropriate unit mix (covered vs. uncovered spaces, spaces that provide electricity vs. those that don't). Bowman recommends proceeding with caution.

Ways to Proceed

If you are doing a brisk business in self-storage but your boat- and RV-storage effort doesn't fly, one possibility is to use the land to build a new phase of self-storage. In any case, you need an exit strategy in the event the venture fails.

One option is to phase in boat and RV parking the way you might build self-storage in phases. Pat Porter manages the Sunbelt Discount Boat and RV Storage Center in Baton Rouge, La. He says Sunbelt's owner, John T. James, experimented with phasing in the development of his facility, allowing time to evaluate each phase before moving forward.

Start slow. Perhaps begin with mostly open parking on limestone with some covered spaces. The biggest threat to a recreational vehicle is the sun and the damage it can cause, so a covered space might be enough added value to attract many RV and boat owners. Make sure your canopies are tall enough. With the radar towers and air-conditioning units found on many RVs, you probably need canopies at least 15 feet high.

Another consideration is whether to offer spaces with electricity. Try adding a few spaces with 20-amp electric outlets so tenants can charge their batteries. A nominal monthly surcharge should cover your electricity costs. You may have some tenants requesting larger amperage--be wary. Adding more amperage might encourage people to live in their RVs on your lot.

In the next phase, offer some concrete spaces and units that are fully enclosed with large roll-up doors. You will find there is a market for "good," "better" and "best" service. Do some experimenting and talk with boat and RV owners to determine the best mix for your facility. If your plan is to bank on the land before putting in self-storage, you may want to have only enough premium parking to maximize your return. On the other hand, you don't want to construct any structures that will have to come down or be converted to self-storage later.

You will need aisles large enough for people to maneuver their RVs and boat trailers. Forty-foot-wide aisles are not going to provide enough room to move. This also creates questions about profitable land use that you will have to answer for yourself.

Be prepared to offer 24-hour access. Fishermen get their boats at all hours of the day. RVers are on their own clock and may come and go at the strangest hours. Some folks like to be on the road when there is the least amount of traffic and pull into their storage space at 4 a.m.

Security is, of course, an issue. Your perimeter will need to be secure. RV and boat storers will likely require video surveillance on the premises to ensure no one breaks into or vandalizes their homes-on-wheels or prize possessions. Be sensitive to these tenants' needs, particularly those storing in unenclosed spaces. Their valuables are obviously more vulnerable to tampering.

Other Considerations

How seasonal is the boat- and RV-storage business? That depends where you are. Some areas may have year-round boating opportunities, but only winter business for RVs. Get a feel for the seasonal patterns before you make too many decisions you can't change later.

One benefit to adding boat and RV storage is you can attract some long-term tenants. In self-storage, you get a lot of tenants who need a unit for several months and then might not need a unit again for a long time. Boat and RV enthusiasts usually stick with their passion over time and always need a place to leave their "toys."

Will you be satisfied storing strictly boats and RVs, or do you think a value-added service is called for in your area? For instance, some storage facilities have sanitation hookups so RVs can purge their systems. You may find there are many services you could perform that would add revenue. Or you may find it doesn't make sense to get into new businesses unfamiliar to you. Becoming an expert usually takes time and money.

Those with extensive knowledge of boats may find it profitable to offer dry-stack marina storage. This is a different animal than a boat-storage facility. You must ask yourself if you want to create care and custody obligations. Stacking boats in racks increases your revenue per square foot, but it also creates labor costs, racking costs and the potential liability of damaging an expensive boat. I have seen dry marinas overflowing with boats. Is it the right business for you? There are many operators offering stack storage successfully. You'll want to do some careful research before draining time and resources away from your core business.

Finally, execute some inspired marketing to fill up your facility. If your location and Yellow Pages ads are prominent, you should generate phone calls, but there may also be some boat- and RV-specific markets on which to focus. Does your area hold a sportsman's show? Do you have RV parks or fishing tournaments nearby? Any way you can get your name in front of boat and RV enthusiasts will help you. If you build on the right location, you might experience the "build it and they will come" phenomenon. It is more likely, however, you will need to shake the bushes to make the tenants come.

Tron Jordheim is the director of the PhoneSmart Call Center. PhoneSmart helps storage owners turn after-hours calls and missed phone calls into rentals. Mr. Jordheim can be reached at 866.639.1715 or [email protected].

The Downside to Convenience

The Downside to Convenience
Lock-picking tools leave self-storage open to crime

By Chris Shope

Every occupation--be it physician, carpenter, engineer or, yes, even self-storage operator--involves its own passion. My passion revolves around my specialty, security, which is important to all business owners. Companies in any industry rely on security to protect their hard-earned profits, property and livelihoods. So when I see products designed to manipulate what I work so hard to protect being sold on the open market to anyone with a credit card, it is like a slap in the face. I'm talking about lock-picking tools sold to storage operators as a convenient way to get into a lock that has been abandoned or is missing keys.

The companies that sell you these tools aren't security companies or locksmith suppliers. They are simply retailers. They are not even registered with the Associated Locksmiths of America (ALOA). Simply put, they provide you a convenient way to solve a problem. Unfortunately, they have created a bigger problem than the one they intended to solve.

These tools have leaked into the public as well as different coin-operated industries and created quite a stir. Criminals are using these devices to get into machines that rely on locks to protect their bank. They have also been used in the industry that gave them life: self-storage. We have seen a dramatic increase in these types of thefts over the last two years. How are criminals getting their hands on these tools? The companies who sell these products in the storage industry have no standards for selling them. Their only requirement is that a purchaser claim to be a storage operator and have a credit card or check.

We put these lock-picking-tool companies to a test and they all failed miserably. The last one we tested was unquestionably the worst. I had one of my sales assistants call this company and request its lock-picking kit and instructional video. The salesperson for the company didn't even verify our position or intentions. My assistant gave a number for a credit card that wasn't even in her name and had the company ship the tool to a P.O. box that was under a different name still. We received the shipment with no problem.

The company not only broke the law by shipping the tool through the U.S. Postal Service, it also proved it has no concern whatsoever about to whom they supply these tools. We have taken action against the company with representation from ALOA and the National Automated Merchandisers Association, two leading security associations with which we are affiliated. We are taking legal steps to put an end to the open sale of these tools to unauthorized consumers. The violated laws are:

39 USC 30 ß3002a. Nonmailability of locksmithing devices

a) Any locksmithing device is nonmailable mail, shall not be carried or delivered by mail, and shall be disposed of as the Postal Service directs, unless such device is mailed to:
1) a lock manufacturer or distributor;
2) a bona fide locksmith;
3) a bona fide repossessor; or
4) a motor vehicle manufacturer or dealer.

b) For the purpose of this section, ''locksmithing device'' means:
1) a device or tool (other than a key) designed to manipulate the tumblers in a lock into the unlocked position through the keyway of such lock;
2) a device or tool (other than a key or a device or tool under paragraph 1) designed for the unauthorized opening or bypassing of a lock or similar security device; and
3) a device or tool designed for making an impression of a key or similar security device to duplicate such key or device.

18 USC 83 ß1716A. Nonmailable locksmithing devices and motor vehicle master keys

a) Whoever knowingly deposits for mailing or delivery, or knowingly causes to be delivered by mail according to the direction thereon, or at any place to which it is directed to be delivered by the person to whom it is addressed, any matter declared to be nonmailable by section 3002 of title 39, shall be fined under this title or imprisoned not more than one year, or both.
b) Whoever knowingly deposits for mailing or delivery, causes to be delivered by mail, or causes to be delivered by any interstate mailing or delivery other than by the United States Postal Service, any matter declared to be nonmailable by section 3002a of title 39, shall be fined under this title, imprisoned not more than one year, or both.

People often ask me how they are supposed to get into locks that were abandoned or have lost keys. The answer is simple: Call a bonded locksmith. Also consider adding a section to your lease as well as posting a sign in your facility that states the renter is responsible for removing his own lock. Think about it for a moment--renters are responsible for locking their units, so why shouldn't they be responsible for unlocking them?

Some managers feel obligated to open locks for customers with lost keys. I understand about customer relations and trying to be helpful, but sometimes you have to draw the line. You must explain to your customers why you encourage the use of locksmiths vs. taking matters into your own hands. They might not like having to pay someone to remove their lock, but they will keep a closer eye on their keys in the future. And you will be taking steps to ensure security in our industry.

One solution to the abandoned-unit/lost-key problem is to offer tenants a choice of cylinder lock systems that allow them to register their individual key codes. For example, we offer a master-keyed system with a restricted keyway as well as another system with an overlock function. The key codes for these systems are registered in our database so customers always have access to their key numbers. If their keys are lost or a unit needs to be opened for auction, we can cut and ship a new key to a facility within 24 hours. For operators who want the same registration benefit but don't want to retrofit their whole facility, we provide a disc lock with the same capability. All of these systems eliminate any need for lock cutting or picking.

The big difference between a security company and company that sells security products is simple: A true security company provides its customers with quality products that deter crime. It also does everything in its power to constantly monitor criminal activity so new products can be developed to retaliate. The companies that merely sell security items don't specialize in this area. They treat these products as retail items. That is why it doesn't seem to them a bad idea to include manipulation tools in the spread. These tools may seem harmless enough. The offending companies don't even ask for bonding verification when they sell them to you. But imagine the same criminals who are reaping havoc on coin-op machines and other facilities paying a visit to you. I wouldn't want to be the one to explain that to my tenants.

Christopher Shope is the national marketing and sales director for Lock America Inc. (d.b.a. L.A.I. Group), which manufactures a complete line of security locks and custom-designed security hardware for self-storage and other industries. The L.A.I. team is committed to taking knowledge gained from other security industries and applying it to the self-storage market. For more information, call 800.422.2866; visit www.laigroup.com.

Ripening on the Vine

Ripening on the Vine
Wine Storage may still be a niche market, but competition is growing

By Amy Campbell

In 1987, Owen Deutsch was sitting in his office when he overheard a self-storage customer ask about renting space to store his wine. "We weren't doing wine storage," recalls Deutsch, who was nonetheless intrigued by the concept. After a few months of research, he decided to dedicate space for wine storage in the basement of his self-storage building in the Chicago area. Seven years later, he added wine storage to a second facility.

Many self-storage operators have discovered the expanding world of wine storage. While not for everyone, this niche can be rewarding for storage operators on several levels. First, the per-square-foot return can easily exceed that of traditional climate-controlled storage. Also, unlike car and boat storage, wine storage is still considered a rarity in the self-storage market. Lastly, because wine has such an upscale image, offering this highly specialized service can elevate your facility's reputation.

"We have gotten people into the facility for wine storage who would have never otherwise come into the facility," says George McCord, co-owner of Plantation Self Storage and its wine storage, aptly named Plantation Cellars. "About half of the people who have wine storage with us also have a storage unit."

Before you start measuring your cellar for wine lockers or painting extravagant murals celebrating all things wine, you must first determine if there is a need for wine storage in your area.

Know the Market

When Jim Ledwith and his partners began scouting for a location to build a combination wine/self-storage facility, Marin County was a natural choice. "It's wine country, and Marin is the richest county in the state of California," says Ledwith, co-owner of Marin Wine Vaults in San Rafael, Calif. "I just took the money, the location, the proximity to all the major freeways and figured it would probably work. I also looked at a few small competitors who'd been around for a while and they were all full."

Deutsch took the concept a step further, meeting with local wine experts and retailers to determine if he was in the right market for wine storage. "I took a class on wine to become more knowledgeable about it. I needed to have an idea of what the demand might be, what people would be looking for," he says.

If your facility isn't located in an ideal wine market, the chances of succeeding are slim. "You have to have the right mix--the location, the clientele. It's all got to make sense before you even consider it," says Henry Halle, co-owner of Old Naples Self Storage in Naples, Fla. Halle, along with partners Mark Rasmus and Barry Gomez, opened two facilities with wine storage in the past year. "There was a real void here," Halle says. "We felt like it was another service we could do for our customers. We had two wonderful, brand-new facilities with state-of-the-art security. We wanted to give customers the nicest amenity package we possibly could."

Although the two Naples facilities filled quickly, Marin Wine Vaults has struggled to find tenants. A year and a half after opening, the wine storage is only 50 percent occupied. "When someone does this, no matter where it is--New York City, L.A., San Francisco or Marin County, Calif.--they've got to plan on a five- to six-year fill-up rate vs. self-storage, which is probably in the two- to three-year evolution," Ledwith says.

Because of the slow lease-up, operators must be able to exist financially without the steady cash flow they've come to expect from traditional self-storage. For Deutsch, it took nearly seven years for his first location to hit full occupancy. Now the Strongbox Wine Cellar boasts 483 tenants. The second location, which opened in 1994, is about 60 percent occupied. "It grows steadily, but it grows very slowly. Now with some competition, it's growing a little bit slower," Deutsch says.

However, McCord says self-storage operators should remember wine storage is not their bread and butter. "The core of our business is renting storage units. This is an ancillary use that from a market standpoint offers a certain kind of upscale nature to your facility," he says. "Also, it brings in people who might not otherwise have come, expanding the market for potential renters of storage units."

Construction Costs

Even if there is a market for wine storage in your area, construction costs may be prohibitive. Costs will vary depending on the size of area dedicated to wine storage, whether you're building from the ground up or converting existing space, and the materials you use; but wine storage is generally quite expensive. For example, the developers of Plantation Cellars and Marin Wine Vaults spent an average of $110 per square foot. "We knew we'd have to spend a lot of money and we did," Ledwith says.

But the return is also there. Rental rates typically run about $1.50 per case, per month. An eight-case locker will net a $144 income annually. "If you fill it up, you can make a good deal of money. If you're 90 percent occupied, you're getting about $50 per square foot," McCord notes. "But I looked at it more as an amenity. If I never made a dime from it, the notoriety and advertising I get because of its uniqueness is worth the cost to build."

Spoiled Grapes


A decorative door is used to set off entry to the wine room at Plantation Self Storage in Bluffton, S.C.

Wine storage seems simple enough--climate-controlled units, lots of space and a few lockers. Like other specialty services, however, it requires an extraordinary amount of attention to details. "We did a lot of research to find the quality refrigeration equipment, insulation techniques and various kinds of construction techniques necessary to create a facility that would actually maintain a constant 55 degrees and 70 percent humidity," McCord says. If the correct temperature and humidity are not maintained, the wine will spoil. McCord suggests operators dedicate two refrigeration units--one as a backup to the wine-storage room. Installing a backup generator in case of power failure will further protect against any damage.

In addition to a cooling/humidifying system, the room should be wrapped in plastic. This provides a vapor barrier on the inside of the room with an insulation rating of R22 in the walls and R30 in the ceiling, according to McCord. The drywall applied over the insulation should be green board, which better resists moisture. The green board should be covered with a hardcoat finish by troweling drywall mud over the entire surface of the walls. The walls can then be painted for a final finish.

Most agree a variety of locker sizes ensures a better occupancy rate. Although cases may vary in size, a typical California cardboard carton will generally fit in a space 12-by-12-by-14 inches. McCord advises using this case size as a basic building block for the wine-storage lockers.


Offer customers a lounge area in which to enjoy their stores. This can double as a venue for wine tastings.

Locker sizes can also be altered as the need arises. Vaults can vary from walk-in units that can hold up to 312 cases to those that accommodate only a few cases. "A lot of people who are new wine collectors start out with a small, eight-case unit," Deutsch says. "At least one-third to 40 percent of rentals are from people who are expanding. I have a tenant who has 5,000 cases of wine. We have a lot of people who have 150 cases of wine."

It may be prudent, however, to initially construct only a portion of lockers, and then see what the demand actually is. Deutsch did this during construction of his second site. The wine storage is now about 80 percent built-out. "We build them as we see the demand for the units. It'd be foolish to build then three-quarters of the way through find out people want larger units and we've got a whole bunch of small units available," he says.

The lockers themselves can be constructed from several kinds of materials including simple plywood boxes, cages of wooden slats, elaborate oak lockers with louvered doors or any combination. Some permeable surface, such as that provided by slats or louvers, is preferred to assure proper air circulation within the lockers. The lockers can be spaced on 3-foot aisles within the room. A rolling staircase should be provided to allow convenient access to the upper-level lockers.

Smart Security


Murals are a beautiful way to lend an air of authenticity and excitement to a wine-storage area.

Next to climate control, security is probably the most crucial factor in a wine- storage facility's design. One of the easiest ways to ensure the security of your customers' wine is secure is simply by limiting who has access. Only those who are wine- storage renters should have admittance to the wine-storage area. This can be done in several ways. For example, at the Plantation Cellars in Bluffton, S.C., wine-storage renters have two electronic-identification codes--one for the front gate, another for the wine-storage area. The wine vaults are also near the front office, allowing employees to keep an eye on access into the area.

Many operators install the wine storage on a different floor or area of the facility, and usually set it apart by another locked door. Wine-storage access should be limited to hours when an employee is on the property. Surveillance cameras and motion detectors should also be in place. Typically, tenants use their own locks and must sign in and out at the front desk.

Ledwith has taken another precaution. When building Marin Wine Vaults, he made sure all 600 vaults were individually alarmed. "Without alarms on each vault, theft is so easy," he says. Ledwith illustrates his point with a simple scenario: A renter chooses a large wine vault and signs under an assumed name. While pretending to check his own stock--which could be dirt-filled bottles to keep up the appearance--the renter observes other customers' actions. When he is alone, he waits for the camera to pan to another area, easily clips the individual lock with a pair of bolt cutters and begins rummaging through another customer's vault. He then transports bottles--maybe even cases--to his own vault, and covers his tracks by replacing a new lock on the vault.

"The commodities stored in wine storage are worth much more than that of typical storage," Ledwith says. "No one robs self-storage units unless they know what's in them. In wine storage, every unit is a score. You're going to get a couple of hundred dollars to maybe $300,000 or a million dollars worth of wine. It's much better than TVs, dishwashers and the other stuff that's in self-storage units. And no one's the wiser."

Customers who store wine at Marin have a personal code. The code must be input into a computer at the main office before the renter can enter the storage area. If the personal code checks out, the storage unit is disarmed, allowing the customer access. "With wine storage, it is critical to have something like that," Ledwith says. Marin also uses cameras and tamper-proof screws between vaults.

Murals and Magic


Wine storage lockers can involve simple construction or more decorative wooden louvre doors.

With all the essentials in place, you can turn your attention to the lighter side of wine storage--decorating. Elaborate murals depicting European countrysides, soft lighting, spacious booths and trendy posters will not only serve as distinctive marketing tools but also will create a magical atmosphere.

Plantation Cellars is set apart from the rest of the facility by a hand-carved mahogany door designed with a wine motif. The wall surrounding the door is painted to look like the exterior of a wine-storage building in France. Inside the room, a mural depicting a wine cellar lined with barrels gives the illusion of depth and dresses up a back wall between lockers.

Deutsch constructed a wine-tasting room where renters can drink wine and socialize. "It adds to the mood and the feeling," says Deutsch, whose customers walk through the room on the way to the cellar. "We have a decanter where they can open their wine. We have some wine glasses. We have a nice booth where they can sit down and drink their wine." Elegant murals and wine posters further enhance the mood. Renters can also leave messages for one another on a bulletin board. Stocking wine magazines also add to the atmosphere. "It's all part of the ambiance and it's not a huge cost," Deutsch says.

Marketing Blitz

Whether you're dedicating 100 units to wine storage or building from the ground up, the experts agree a key ingredient to success is marketing. "The marketing is phenomenal," Ledwith says. "You don't just an ad in the Yellow Pages cross your fingers and hope."

Ledwith uses a variety of marketing tools including billboards, radio and newspaper advertising. He also promotes the facility by meeting with people in wine clubs and visiting wine stores. "Most operators don't want to do that," he says. "You've got to prepare for a major marketing campaign. It's a lot of money and lot of time."

In addition to the traditional marketing strategies, McCord found another way to get wine connoisseurs into his facility: Host a wine tasting. He discovered local wine distributors are more than willing to market and provide the wine for such events "They already do this in their own wine store, so you simply offer your facility, make arrangements for people to pour wine and cater the event with finger foods," McCord says. Last summer, McCord also hosted a chamber of commerce mixer at his Lexington, S. C., facility. Some 200 people from the local business community who had never visited the facility attended the event.

The key to good marketing is to try new avenues, McCord says. "You're limited only by your imagination. We all have time constraints. But if you just acknowledge it's not your primary business, it's a fun ancillary activity to include within your storage business."

In the right setting, and with the right marketing campaign, many self-storage operators will find wine storage a delectable complement to their existing business. "You're blazing new territory," Deutsch says. "You take a risk. I've taken some calculated risks over the years and they haven't all worked out, but this worked out pretty well."

Delivery Dilemmas

Before accepting a wine shipment on behalf of one of your customers, make sure it is legal to do so. A number of states have regulations regarding the direct shipment of wine across state lines. Eleven states already have shipping restrictions and roughly 20 more are considering some type of legislation that would limit the direct shipment of wine to consumers. One organization, Free the Grapes!, is fighting for small wineries and the wine connoisseur. The nonprofit organization hopes to abolish such legislation against direct wine shipment. To determine your state's direct wine-shipment policies, contact your state alcohol regulatory authority or visit www.freethegrapes.org.


Plantation Cellars
Wine Storage Construction Cost

Project Data

Area of Wine Storage Room 640
Number of Lockers 88
Case Capacity 2,032
Total Cost Per Square Foot $110

Construction Cost Breakdown

Framing N/A
Insulation/Vapor Barrier $2,200
Drywall - Green Board $400
Drywall - Hardcoat Finish $1,400
Painting $1,200
Refrigeration/Humidification $15,400
Standby Generator/Transfer Switch $5,400
Temperature/Humidity Data Recorder $600
Electrical - Wiring & Set Up Equipment $2,500
Electrical - Light Fixtures $1,250
Entry Door $4,300
Wine Lockers $36,000
Total Cost $70,650

Plantation Cellars
Wine Storage
Summary of Wine Storage Lockers

Framed
Module
Size
Number
of
Modules
Total
No. of
Lockers
Case
Capacity of
Lockers
Total
Case
Capacity
24 Cases 26 28 12 Cases 336
    36 8 Cases 288
36 Cases 1 2 18 Cases 36
48 Cases 7 2 48 Cases 96
    10 24 Cases 240
72 Cases 1 1 72 Cases 72
84 Cases 4 4 84 Cases 336
112 Cases 4 4 112 Cases 448
180 Cases 1 1 180 Cases 180
    88   2,032
Cases

Plantation Cellars
Wine Storage Rental Rates
Rental Rate = $1.50 per case, per month

Locker Capacity Rent Per Month Rent Per Year
8 Cases $12 $144
12 Cases $18 $216
18 Cases $27 $324
24 Cases $36 $432
48 Cases $72 $864
72 Cases $108 $1,296
84 Cases $126 $1,512
112 Cases $168 $2,016
180 Cases $270 $3,240

Plantation Cellars
Wine Storage Income
Rent per case per month = $1.50

Locker Capacity Number of Lockers Total Cases Rent per Month Rent per Year
8 Cases 36 288 $432 $5,182
12 Cases 28 336 $504 $6,048
18 Cases 2 36 $54 $648
24 Cases 10 240 $360 $4,320
48 Cases 2 96 $144 $1,728
72 Cases 1 72 $108 $1,296
84 Cases 4 336 $504 $6,048
112 Cases 4 448 $672 $8,064
180 Cases 1 180 $270 $3,240
Total 88 2,032 $3,048 $36,576

Total Capacity

Cases 2,032
Bottles 24,384

Potential Income

Rental rate per case per month: $1.50
2,032 Cases @ $1.50 = $3,048 per month
$3,048 per month x 12 = $36,576 per year

Total Potential Annual Income

$36,576

Less 10 percent vacancy $3,658

Net Annual Income

$32, 918

Income Per Square Foot

Total income @ 90 percent occupancy $32,918
Total square feet in wine storage room 640

Income Per Square Foot

$51.44