By Foy & Co. Investment Real Estate Services
In Canada, portable storage has become an increasingly popular storage option for consumers. While its certainly not replacing traditional self-storage facilities, it is a growing section of the industry, offering an additional short-term storage option.
Having worked with a few portable-storage companies on acquisitions and financing, were impressed with this increasingly popular business model. That said, there are still points to consider before a storage operator decides to jump on the bandwagon.
1. In Canada, the portable storage business is still somewhat in its infancy. The model is considered a cross between a moving business and a self-storage business.
2. A number of self-storage operators are interested in this emerging segment, and a throng of companies are flooding the portable-storage market. As a result, margins will become increasingly pressured as businesses compete for profit.
3. Portable storage requires warehouse space to store units, and the location of the warehouse is important. Owners generally look for convenient locations close to a major artery for effective access and efficient delivery to target populations.
4. Staffing a portable-storage company is much more intensive than traditional self-storage. There are more logistics, and the number of trucks you own will factor into the number of clients youre able to accommodate each month. Additionally the business requires more maintenance staff plus drivers, which increases overall scheduling and payroll.
Before jumping into portable storage, facility operators need to be aware of the initial hurdles and uncertainties that come with the emergence of this new industry niche.
Financing
Traditional loans continue to be hard to come by unless you have a very strong track record, personal guarantees, or the leverage is below 50 percent. There doesnt appear to be a set formula for obtaining capital, and each bank has its own criteria. Loan terms can be quite specific, and self-storage hasnt been on the radar for most banks when trying to match investment opportunity with corporate goals. That said, theres been a slight increase in the availability of capital from banks compared to last year.
The biggest concern for Canadian self-storage is the amount of loans coming due in the near future, and lack of available funding options. Refinancing will be a struggle as primary lenders look only at the best deals, leaving the rest to find more expensive or alternative financing solutions.
Development
Portable-storage development projects that received financing before the economic downturn are continuing as planned. However, most projects appear to be focused on building additions to existing facilities rather than developing new ones.
Many development projects that failed to receive loans before the downturn have been shelved due to lack of financing. Finding capital has been a major stumbling block, and many groups have had to struggle under the burden of debt.
Acquisitions
The real estate market has seen significantly less activity over the past two years. People are holding tight to equity. Low sales are likely being driven by lower leverages on bank loans and owners who are unwilling to reduce asking prices.
There are properties listed, but they are struggling to find buyers due to the reasons listed above or poor operation. The few properties that have traded hands have done so with cap rates ranging from sub-8 percent all the way up to 10-plus percent.
Another factor that has affected the Canadian market is the lack of interest by large companies in expanding portfolios. Two of Canadas largest storage players are shying away from acquisitions to focus their efforts internally. The Hughes family, owners of Public Storage Canadian Properties, just bought out its shareholders. TKG-StorageMart Partners, another large Canadian operator, is working hard to stabilize its purchase of InStorage Real Estate Investment Trust by focusing on operations rather than aggressively pursuing acquisitions.
Operations
Stable, consistent, well-run operations are more important now than ever. A facilitys rates and occupancies need to constantly outperform the market if the business is going to succeed. If operations are not top-notch, the facility will not grow in value. As a result, obtaining any required financing will be a significant challenge.
The best operations continually find innovative ways to get consumers through the front door, including helping local charities and events, offering concessions for storage, participating in sporting events, and even trips. Stable facilities are investing more in staff training and additional consumer perks such as traffic cameras. These companies are also scaling back on Yellow Pages advertisements. Advertising is taking on new, cost-effective forms such as social media.
Opportunities for breaking into the Canada portable-storage market exist but will require realistic expectations and diligence on behalf of operators. If you can secure the necessary financing and an appropriate location, as well as deal with increased competition and logistical requirements, it can be a successful niche venture.
Foy & Co. Investment Real Estate Services specializes in equity raising and brokerage services for the Canadian self-storage market. For more information, visit www.foyco.ca.
