So what is a cap rate, and how do we use it to compute value of a self-storage facility? The capitalization analysis is used to determine the present value of anticipated future income. Cap rates are mostly market driven and vary based on the type of investment real estate (apartments, shopping centers, office buildings), as well as many other factors such as location, age, type of construction and management of the property.

Appraisal methodology simply states that the value (V) of the property is calculated by dividing the net operating income (I) by the cap rate (R) (net operating income being income before debt service, income taxes and depreciation). Conversely, the cap rate is determined by dividing the purchase price (V) by the net operating income. You end up with the following formula: V = I/R.

It so happens that in todays low interest-rate environment, a quality self-storage facility can sell for a 9 cap rate. The cap rate could be lower if the property is being acquired by a motivated buyer looking to do a 1031 tax-deferred exchange or someone looking to increase or protect his market share; or if a property is a part of a portfolio sale. The cap rate may also be higher if there is deferred maintenance or the property is functionally obsolete by todays standards.

Remember, there is an inverse relationship between the cap rate and purchase price. The higher the cap rate, the lower the value/price. The lower the cap rate, the higher the value. The buyer usually places a higher cap rate on a property he perceives to carry greater risk. The $64,000 question is not necessarily which cap rate is used to determine the value/purchase price of the property, but what income and expenses did the buyer use to derive his net operating income? Did he use last calendar years income, the trailing 12 months of income or a projection of current annualized income?

There are several other items that could affect that income figure. For example, in reviewing the sellers expenses, did the buyer change the size of the Yellow Pages ad? Did he add more payroll/benefits because he is going to open the office on Sundays? Is he going to enlist the help of a national call-center service? Does he plan to implement a free truck-rental program to be more competitive and aggressive in soliciting new customers?

Changes in any of these expense categories will alter the net operating income used in the buyers analysis in comparison to the actual income and expenses of the subject property. All of these questions and others go into the buyers calculations of what income and expenses to use when applying the formula V=I/R. This will determine the cap rate and, ultimately, what price the buyer is willing to pay for the facility.

Nicholas Malagisi is president of Storage Realty Advisors, a commercial real estate brokerage firm specializing in the sale of self-storage facilities, primarily in the Northeast. Malagisi has participated in the sale of more than $93 million worth of selfstorage properties since 1993. He also prepares feasibility studies for new projects. For more information, call 716.633.9601; e-mail [email protected]; visit www.storagerealty.com. 

The self-storage market is experiencing a recent surge in transaction activity involving large and small portfolios. While each of the self-storage REITs is currently trading near its individual 52- week high, these investment trusts have been less active in acquisitions over the last two years.

In response to strong privatemarket pricing of self-storage transactions, Green Street Advisors has decreased the capitalization rates used to value the stabilized domestic portfolios of the two largest REITs. Public Storages cap-rate value has been revised downward to 8.2 percent, while Shurgards dropped to 8.3 percent, each from 8.5 percent.

Public Storage

Public Storage, based in Glendale, Calif., is by far the largest company and REIT in the selfstorage industry. With a market capitalization of nearly $5 billion, it is the ninth largest REIT overall. Public Storage has 1,411 properties in 37 states, with geographic concentrations in California, Florida, Illinois and Texas. It was founded in 1972 by recently retired CEO Wayne Hughes, whose family owns approximately 36 percent of the company at a value of nearly $1.8 billion.

While Public Storage has the lowest dividend yield of the selfstorage REITs (about 4.88 percent) it also boasts the lowest debt ratio (only 2.33 percent, compared to 38 percent to 41 percent for its REIT competitors). Its companywide average occupancy levels increased from about 85 percent last year to more than 91 percent. The increase, however, is partly due to about $5 million in promotional discounts on rentals and television advertising costs.

In October 2003, Public Storage issued 5.3 million shares of preferred stock at a price of $25 per share, generating $132.5 million in proceeds. The company plans improvements to existing operations by renovating up to 40 older properties on an annual basis. The company has not acquired any new facilities recently, although 44 projects are under construction, expanding or remodeling. Other plans include the closure of 28 pick-up and delivery storage facilities and an exit from the Knoxville, Tenn., market through the sale of four facilities.

Shurgard Storage Centers

Shurgard Storage Centers, based in Seattle, is the second largest self-storage REIT, with a market capitalization just under $2 billion and interests in 599 properties (493 in the United States and 106 stores in seven countries in Europe). Shurgard, founded in 1972, has a total portfolio of 38.2 million square feet of rentable space.

Shurgard Europe (Shurgard Self Storage SCA) is now the largest self-storage operator in Europe, with 106 properties in seven countries: Belgium, Denmark, France, Germany, the Netherlands, Sweden and the United Kingdom. The company also has 18 stores under construction.

Shurgard recently increased its ownership stake in Shurgard Europe from 61 percent to 81 percent through the $101.6 million purchase of equity interests held by AIG (AIG Self Storage GP LLC, AIG Self Storage LP LLC and AIRE Investments SARL) and Deutsche Bank (REIB Europe Operator Ltd. and REIB International Holdings Ltd.). Last year, Shurgard agreed to pay approximately $49.75 million in cash for Credit Suisse First Bostons (CSFB) 10.6 percent stake in Shurgard Europe.

The 47 Shurgard Europe properties in its same-property pool have occupancies stuck in the mid-70- percent rangebelow proforma stabilized occupancy of 87 percent to 89 percent. Europes net operating income (NOI) is up 11.4 percent over last year vs. domestic operations, the same-store NOI of which is up 2.5 percent.

Domestically, Shurgard acquired a $90.1 million portfolio of 19 self-storage properties in Minneapolis, which was financed entirely with newly issued common shares of stock. These facilities (17 of which have stabilized occupancies) are operated as Minnesota Mini-Storage, but will be rebranded under the Shurgard name. Using the stock price on the day the deal was announced, Shurgard anticipates achieving a 9.4 percent initial yield. Substituting a netasset value estimate of $33.75 for the market price adjusts the acquisition to about an 8.25 percent capitalization rate.

Shurgard plans modest future expansion, with 15 new stores added to the 35 newly opened facilities. Company focus will include upgrading 75 to 80 stores, many of which are 20 to 25 years old. Additionally, all Shurgard facilities are now open for business on Sundays.

Sovran Self-Storage

Sovran Self-Storage, headquartered in Buffalo, N.Y., is an equity REIT with a market capitalization of about $444 million. Sovran operates its stores under the name Uncle Bobs Self-Storage and owns and operates 266 facilities. Uncle Bobs facilities are predominantly located in the eastern United States, Arizona and Texas. With 15.4 million square feet, it is the fifth largest self-storage company in the United States. Founded in 1982, the company had its initial public offering in June 1995 and is traded on the New York Stock Exchange.

Sovran just announced new financing arrangements of $300 million of senior, unsecured debt. A total of $209 million was used to repay outstanding balances, and the remainder of the financing package will be used to fund acquisitions and improve and expand existing self-storage properties.

Sovran has recently advanced its revenue initiatives and expects to incur $3 million to $4 million in capital expenditures during the year. The Dri-Guard humidity-control program is installed at 54 stores, encompassing 700,000 square feet. A total of 158 stores now feature free use of an Uncle Bobs truck. The companys call center has become fully operational as an integrated sales and reservation system.

Strong performance was shown at stores throughout Florida, Georgia, North Carolina, South Carolina and Virginia, while some of the Arizona, Texas and New England area stores experienced slower than expected growth. The company could sell some facilities based on market conditions and acquire facilities with high growth potential. Sovran recently made a $5.2 million acquisition of an 80,000-square-foot self-storage facility in Dallas after acquiring another in the city for $4.5 million. There are now 16 Uncle Bobs stores in the Dallas metro area.

Conclusion

Each of the self-storage REITs appears poised for continued income growth as economic activity picks up. Concentration on improving and upgrading existing facilities will remain a focus as private buyers continue to accept low cap rates (i.e., low initial yields) and sellers enjoy high prices.

Marc A. Boorstein is a principal with MJ Partners Real Estate Services in Chicago. He is an expert in the disposition, acquisition and evaluation of self-storage facilities nationwide, as well as a featured speaker and author regarding market trends in the self-storage industry. For more information, e-mail [email protected]; visit www.mjpartners.com.

By Fred Gleeck

I have a sign hanging in my office that reads, Measurement Eliminates Argument. Without measurement, business decisions are made without context. If I were to try and teach you to shoot a bow and arrow, for example, I would hand you the bow and some arrows, show you some basic techniques, and ask you to start shooting. But what if I didnt give you a target at which to shoot and mark your progress? How would you know how well you were doing?

Many owners and managers operate their businesses in a similar way. If you were to ask any McDonalds franchisee how many Big Macs he sold between 1:15 p.m. and 3:30 p.m. yesterday, he could give you an exact number. Ask a storage owner how many calls he got last month and he will most likely give you a very perplexed look. If were running a real business, we have to measure certain critical elements. In the storage business, there are some basic things that must be measured to make intelligent decisions.

Number of Total Calls

First, you need to know the number of calls you receive every month. Since the majority of your marketing efforts are geared toward getting people to call you, this number will give you a good idea of the effectiveness of your work in this area.

If youre asking how many calls you should be getting, that isnt the right question. The absolute number of calls will vary based on how much advertising you do and where you are located. The important thing to watch is the relative number of calls that come in from month to month; so the first thing you need to do is start tracking the number of inbound calls you receive. If you normally receive 350 per month, and then receive only 300 during a particular month, it could be an indication that something in your marketing or sales approach is no longer working.

How do you measure the calls? Youll naturally want to separate the number of new callers from existing tenants; but even if you dont, tracking a gross total over time will still give you a good indication of your marketing efforts success. You can track calls manually, or use a phone system that tells you how many inbound calls you receive. Whichever way you choose to track, start measuring this important item.

After youve measured, take your numbers and graph them for you and your staff to see. Its sort of like going on a dietthe visual representation can be very reinforcing. What youre after is a positive trend line. You want to see an increase in the number of calls you receive each month.

Number of Calls Converted to Visitors

Next, youll want to record how many of the individuals who called you actually visited your facility. This ratio will let you know a very critical factor in this business: how well youre doing in the area of telephone- closing ability. Once again, youll have to establish a baseline measurement in this area. Once you determine this number, you can compare your results from month to month to see how well youre doing.

If you make any changes to your phone-sales approach to improve your conversion number, only change one variable of the presentation at a time. This way, youll be able to accurately assess which approaches are working.

Number of Visitors Converted to Renters

Most storage operators claim they close more than 90 percent of people who visit, convincing them to rent a storage unit. I had one manager claim he closed 100 percent of his visitors. This is a nice goal, but practically impossible.

Like the two items discussed above, this measurement has to be looked at in comparison to previous months to truly judge your progress. The measurement youre taking here is your ability to close people in a face-to-face environment. You are essentially measuring your managers sales skills.

Customer Service

How successful are you in the area of customer service? There are some things that make it clear. For one, you can count how many repeat and referral customers you get each month. The more of each of these you receive, the better youre probably doing in the area of service.

To really see how well you are doing in customers eyes, hand people a postcard-format, customer-service survey when they move out. Keep it short, but ask people questions that rate your facility and its service on a scale of one to five or one to 10. Compile these numbers over time, and youll know how your facility rates in this crucial area.

Source of Calls

In addition to the absolute number of calls you receive, youll want to measure how many calls you get from each of your marketing sources. You can do this manually or automatically. To do so automatically, you can ask people to press a given key on their touch-tone phones when they make their initial call, with each number identifying a different source where they found you. Although this automates the process, it could hurt sales and annoy customers.

It may be better to track this information manually. Simply keep a tally sheet next to the phone, then ask each customer where he heard of you. Count how many calls you receive from each of your marketing methods over the course of a month. This will tell you where your efforts are having the greatest success and which ones you can ignore.

Conclusion

To determine your facilitys overall success and which marketing and sales methods are working for you, you must consistently measure your results. When you go into a doctors office, the staff will always measure your weight, blood pressure and temperature. Why? These are your vital statistics. Listed above are the vital statistics of your storage business. They need to be measured and monitored for your long-term success. Calculate all of the critical criteria and youll be able to make changes that will have a substantial impact on your bottom line.

Fred Gleeck is a self-storage profitmaximization consultant who helps owners/ operators during all phases of the business, from feasibility studies to creating an ongoing marketing plan. Mr. Gleeck is the author of Secrets of Self Storage Marketing SuccessRevealed! as well as the producer of professional training videos on selfstorage marketing. To receive a copy of his Seven-Day Self-Storage Marketing Course and storage marketing tips, send an e-mail to [email protected]. For more information, call 800.FGLEECK; e-mail [email protected].

The most common misconception regarding the cap rate is it’s the number by which you multiply net operating income to arrive at property value. Many owners believe a “10 cap” means you multiply the income by 10. This is not the case. In fact, this misunderstanding results in a calculation that is actually the opposite of what a cap rate does. Using cap rates involves dividing, not multiplying. Lower cap rates mean higher values and vice versa.

Think of it this way: A property generates gross annual income of $200,000 and has annual operating expenses of $100,000. The net operating income (gross income minus operating expenses) is $100,000. This is the amount of cash flow generated by the property in the current year. This amount is fixed—it will not change. The buyer of the property will receive this amount for his investment. The accompanying chart shows how much a property that generates $100,000 of net operating income is worth at a variety of cap rates.

Self-storage properties are purchased for their cash flow. The more income a property generates, the higher its value. Buyers looking for an 8 percent return on their investment pay more for a fixed cash flow than those looking for a 10 percent return. As buyers often compete with each other to buy a given site, the buyer willing to accept the lowest return on investment will pay the most for the property. This type of buyer establishes the environment in which all purchasers must compete.

Factors exist outside of self-storage—and outside of real estate entirely—that affect cap rates. These factors consist of the availability of alternative investments and the risk/return available on them. These external factors are now in an alignment that has created the lowest cap rates in the history of our industry.

Bill Alter is a real estate broker. For 17 years, he has been a facility sales specialist with the firm of Rein & Grossoehme Commercial Real Estate in Phoenix. For more information, call 602.315.0771.

What about square foot per capita? This analysis is as overrated as it gets. The premise for determining market saturation when measured by square feet per capita seems very logical. The reality is this analysis could not be more wrought with trouble. Lets consider this. The 2002 Self Storage Almanac, produced by MiniCo Inc., indicated the following statistics:

What is interesting is the occupancy levels in the two city markets are not entirely dissimilar, despite the huge gap in supply. So is the market-saturation level .73 or 8.56? Remember that Las Vegas, at some point in the data set, had been at .73. At some point, it was also at the U.S. average of 4.59. Does this mean New York City has a supply capacity 10 times what it was in 2002? Was the market, by this definition, already oversupplied when the last development was in the consideration stages? When is enough enough?

First, consider that in arriving at the numbers for square foot per capita, the Almanac made some assumptions. To completely buy into the analysis, we would have to believe all self-storage facilities in both markets are 38,808 square feet. It would be a challenge to support that assumption, but the Almanac has done the best it can with the limited data available, so we give it credit for starting somewhere to create a data set.

The reality may be that, in metropolitan areas, the actual number of square feet could be substantially higherpossibly double. One of the problems is we simply do not have good data with which to start. Does anybody really know how many storage facilities there are in the United States or how many square feet are in each one? What about those 20 spaces run out of a car-repair business do you count them? Do you count shipping containers for rent in a yard?

What defines populationevery man, woman and child? Do 2- year-olds use self-storage? At what age bracket do I exclude a group? Doing so would greatly increase the number of square feet per capita. That statement alone should give every banker who made a loan based on this statistic instant heartburn.

Lets make the case against this analysis even stronger. What is the saturation level for square feet per capita? Is it the U.S. average? Is it the average from the top 50 markets? Is it the average from the top 100 markets? Is it the New York City supply or the Las Vegas supply? Do you count footage in development? What about footage under construction?

Finally, what about the commercial factor? How does square foot per capita measure commercial demand? Who could ignore a segment that produces 25 percent to 40 percent of the typical selfstorage customer base?

Market OwnershipA Better Analysis?

If we discard square foot per capita and attempt to define a market by concentrating on potential customers, we may be able to forecast saturation levels. Here are the assumptions connected to this analysis:

• There are two existing competitors in the market.
• The market is a perfect circle with a 2-mile radius.
• The competitors market is a perfect circle with a 2-mile radius.
• The population in the market is evenly disbursed. There is no area more or less dense than another.
• The population is 10,000.

Already I see problems with this approach, and we have not even gotten past the assumptions. But here is the popular methodology. First, on a map, draw a 2-mile circle around your subject property, as well as a 2-mile circle around each of its competitors. Any area in the subject propertys circle that is not overlapped by a competitors is the area the facility owns. Then you measure the population in that area.

Lets say, for the sake of example, that 25 percent of your area is not covered by a competitoryou own 25 percent of your market. If the total population of the two-mile area is 10,000, your target population is only 2,500. What is the storage use among this group? If the per-capita analysis worked, you could multiply your owned customer base by the number of square feet per capita, and that would give you the number of feet you could justify building. Uh-oh. Were back to square foot per capita again.

Now the appropriate test is to temper the results with the average occupancy levels in the market. This further qualifies the number of square feet anticipated for absorption based on the market ownership. The dilution serves to provide a more correct result.

True Test

These exercises only point out there may be flaws in traditional theories of demand. Many believe the only true test is the continued absorption of space. Once measured in a market, the actual absorption level promotes and predicts future assimilation. If the most recent projects have rented at 2,500 square feet per month, and no other drastic changes are noted in the market, there is validity to the suggestion that the market will continue to absorb at the same level.

I subscribe to this theory. I also suggest that if there is a high level of discounting and rental-rate growth has been stagnant, demand may be soft in a market with those characteristics. Developers should be cautious about a market in which no new projects have been built, or one that has not had high occupancies (above 95 percent) in all stores. While each project must be evaluated on its own merits, there will be many influences that can alter demand potential.

In most feasibility studies, there is insufficient time to measure the many differing amenities that may give rise to absorption. These would include:

• Climate-controlled vs. standard space
• Multistore vs. ground-level space
• Geographically challenged competitors
• New, state-of-the-art projects in first-generation dominated markets
• Price concessions
• Marketing effort
• Quality of management

These discussions have solely focused on predictive analysis. They have no relevance to forging new product in markets. I recall a market in which, when developers proposed to build a self-contained, completely climate-controlled building, competitors encouraged them to throw their money away, because the consumer will not rent that space. Whos laughing now? These projects are wildly successful, and many of the operators who thought these developers were crazy now have climate-controlled space in their projectsso much for predictive analysis.

For those readers who are experienced self-storage developers, you have already wrestled with many of these issues, and perhaps had interesting and lively debates with banks and investors. Most worked their way through the morass of misinformation and speculation. For those who are novices, you may be best served to hire a consultant to answer these tricky questions. Make sure you hire someone who owns, operates and is currently developing self-storage properties. He is in the trenches with you and can give the best advice.

RK Kliebenstein is a consultant and the team leader at Coast-To-Coast Storage, a self-storage consultancy firm. With a home office in South Florida and affiliate offices in Dallas-Fort Worth, Orlando, Southern California and other locations, Coast-To-Coast specializes in demand and feasibility studies. For more information, call 877.622.5508, ext.81, or e-mail [email protected].

To have an effective sales program, you must actively prospect for new business. This can be done in a number of ways. It might be through creating a list of potential customers, building relationships with key influencers, or maybe pursuing referrals through your current customer base. These are just a few examples of ways you can prospect and make your selfstorage operation more profitable.

Our industry is in a time of transition, and we must become more sales-oriented in our approach to doing business. Many self-storage operators are faced with stiff competition, and the customer has many choices when selecting a location. One way of overcoming this is through prospecting.

Customer Log

Keep an active log of customers who call or visit your facility with interest in renting a unit. It is imperative every customer interaction be documented on this log with a name, phone number, appointment time and comments of what was discussed. This is an excellent opportunity to not only track appointments, but have a system for following- up and prospecting for new business.

For example, if Sally calls but is not ready to commit to an appointment and wants to discuss the information with her husband, offer to send her a brochure about your store. This will give her ample information about your features and benefits, but will also allow you to follow up in a couple of days to answer any questions she may have.

Even though you have already discussed your unique features with her over the phone, the mailing will reinforce the key points. You can also personalize the brochure with a hand-written note thanking Sally for her call and saying you look forward to speaking with her again. She is now expecting your call, which will provide an opportunity to set an appointment. It is critical all of this information be documented in a customer log to ensure the consistent followup necessary to be effective.

Key Influencers

Another way of prospecting for new business is through your key influencersin other words, those key businesses or individuals that will refer the most customers to your facility. Again, it is important to have a system in place to actively call on these people. This will help develop a long-term relationship that is needed to create a steady stream of referrals to the store.

For instance, a self-storage manager or company representative might develop a marketing plan to make sales calls every month. This will strengthen the relationship with these key contacts. If done properly and with consistency, it will create a strong demand for your self-storage space.

It is imperative to document in the marketing plan every key influencer contacted, the date, referrals planned and actual referrals made. This will give vital information on how the plan is working and the results of your efforts. It will help tremendously in knowing where to focus your time and money, based on the results being tracked and measured over a period of time. If you devote the resources to develop an effective prospecting approach, you will become more successful and profitable in your business.

Existing Customers

Another effective means of prospecting is through your existing customer base, particularly through an effective referral program. Once a catchy program is designed, it is critical to reinforce the program at the most optimal timesfor example, when a customer moves in. If the referral program is made part of the move-in process, it will develop the consistency needed so every customer is introduced to the program and know of its benefits.

Customers like incentives, such as money or gift certificates, as a reward for newcustomer referrals. The referral might be for a friend, co-worker, family member or someone else in need of storage. It will make the program even more effective if the person being referred is also given some sort of an incentive. This will give him more motivation to come to your store.

Another time to reinforce the referral program is when you do something nice for an existing customer. It might be letting him use a moving dolly for a few hours or taking him a soft drink in the middle of his move. The customer will appreciate the kindness, which allows the opportunity to ask for a referral. When a customer experiences this type of service and knows you really care, he will be more open to providing referral information.

The average self-storage operator converts approximately one-third of his callers to renters. If a prospect physically visits the store, more than 90 percent of the time, he will rent a unit. To be successful, we must have a method for prospecting and setting appointments. To develop a prospecting program, you must begin by researching the training resources available and spend the time and money necessary.

If you can create more customer visits to your store through prospecting, you will rent more units. This will improve the demand for self-storage space, helping to gain more rentals and raise rates on a continual basis. Prospecting will ultimately lead to stronger occupancies and higher profits.

Brad North is founder of Advantage Business Consulting, which specializes in on-site sales, marketing, feasibility and operational training for the self-storage industry. He has produced two live videos and a workbook titled Maximizing Your Sales and Marketing Program, which can help managers improve their sales and marketing efforts. He most recently launched A TelePro, a mysteryshopping service that assists in educating, evaluating and improving the phone-sales performance of self-storage professionals. For more information, call 513.229.0400; visit www.advantagebusinessconsulting.com.

Self-storage and car-washing are two of the fastest-growing business opportunities todayopportunities that are still within the reach of most investors.

In the past few years, the incentive for professionals to start their own companies has been overwhelming. I experienced this firsthand a few months ago when my company hosted a car-wash investment seminar. The response was staggering. More than 40 people from a multi state area participated in the class. I was amazed at the backgrounds and professions of the participants. We had everyone from captains of industry to doctors. After that presentation, I took the seminar to other areas of the country. The demand for these tutorials was also high and drew people of similar walks of life.

At the beginning of every seminar, I ask two questions: Why are you here? and What do you want to leave with? Participants almost always ask me why they should consider the car-wash business. They also want to know what the initial investment would be and what kind of return on that investment they could expect. There are some obvious standard answers to these inquiries, but the more specific responses are as difficult and as varied as the people inquiring.

I tell participants to ask themselves some questions. What are their needs, resources, goals and objectives? I tell them to take an inventory of the opportunities that exist and create a realistic plan that can and will be executed. Once those questions have been answered, participants want to know how they can get into the car-wash business.

Types of Car Washes

There are basically three forms of professional car-washing: the self-serve car wash (commonly referred to as the 25-cent wash); the in-bay automatic car wash; and the conveyorized full-serve or exterior-only tunnel wash. All three require significantly different investments and have varied site requirements. As a result, they each have different levels and barriers to entry. Interestingly enough, they all are very close when you look at the criteria of return on investment, or return on assets or cash.

The most requested form of car wash is the self-serve wash, because many investors see it as being the least expensive option. Typically, a self-serve car wash will consist of four or more bays, an in-bay automatic car wash, and a number of vended items, such as self-serve vacuums and other car-care products. Generally, selfserve car washes are considered nonimpulse or planned purchases; they are, therefore, typically located on nonprimary sites. Ingress and egress are the some of the key location factors, as well as permitted use, utilities, demographics, competition and a host of other factors.

For most communities, self-serve car washes are a welcome addition to their retail base. Motorists are always looking for a place to care for their vehicles, and with more people living in communities that frown on washing in driveways, the environmental benefits of a professional car wash are extremely attractive.

As a potential developer of a car wash, you will need to think of yourself as a real estate developer. You will also need to be sure the carwash business creates enough profit to pay all the costs associated with the site. That site will need to generate a return on investment sufficient enough to support the value of the land. Simply put, do the numbers work? Is the car wash the highest and best use of the land?

Like death and taxes, landespecially permitted retail sitesis a sure thing. It will become scarcer and more valuable. The availability of small, single-purpose sites at reasonable investment costs are hard to find. What should you do when faced with the predicament of larger than required site? Like any successful developer, you will need to look for alternative profit opportunities or automotive businesses that work well with a self-serve car wash.

One industry that offers good business synergy is self-storage. There is a general rule of thumb that says the deeper you go on a site, the less value it has for prime retail. Even if this is true, you will still need to generate a return. What a perfect place for self-storage units! Organize your business with a car wash in the front and self-storage units in the rear.

From what Ive read, the investment on a typical self-storage facility is about the same as a self-serve car wash, approximately $350,000, with net profits before taxes of about $89,000. A four-bay self-service car wash without an in-bay automatic, depending on the part of the country, has approximately the same cost and profit picture. Both businesses do well in areas of apartments, cater to customers of a similar age, have a population base that is mobile, require minimal labor and are well suited to less-than-primary retail sites.

So erase those self-doubts. The timing and opportunity exists, and car-washing and storage may be just the right combination to provide the highest and best use for your site.

Fred Grauer is the vice president of corporate accounts for Mark VII, a car-wash equipment manufacturer located in Arvada, Colo. He has made a life-long career of designing, selling, building and operating car washes. He can be reached at [email protected].

At the time of this writing, theres a new movie in the theaters about a real estate transaction gone horribly awry. In House of Sand and Fog, an alcoholic yet sympathetic protagonist loses her home on the San Francisco Bay due to a bureaucratic error regarding taxes and the auction that results. The error was not her fault. Her failure to read her mail because of alcohol- and drug-induced stupor is very likely the fault of her ex-husbandbut I digress.

The heroines homeleft to her by her fatheris purchased by a former Iranian colonel wishing to present his family a charming bungalow by the sea. What ensues is sure to be a heart-wrenching battle of wills. (I didnt see the film personally, but I did see the preview trailer, which is about as much as anyone needs to see of a movie these days.) The moral of the story as it pertains to real estate is one of several things:

1. It is extremely important to avoid wallowing in a pool of vodka, or you could lose your shirtand everything else you own.
2. Its good to have friends in high places.
3. Always openand readyour mail.
4. Dotting your is and crossing your ts in any legal transaction could be the difference between disaster and accomplishment.

I can vouch for this. Back in the fall, my fiancée received a letter from the Maricopa County Assessors Office regarding a townhouse he owns. There was confusion over some unpaid property taxes, the bills for which were mistakenly sent to an unidentified third party somewhere in Nevada. As a result, a complete stranger had petitioned to pay those taxes on our behalf, and was now suing us to collect. You can imagine our shock, not to mention our fury. I guess sobriety and conscientiousness dont always paywe sometimes need influential friends.

The purchase or sale of self-storage, though a business transaction, can still involve a great deal of emotionas most real estate deals do. This is natural. All parties stand to lose something in the process, and stress can run high. There are time tables to which to adhere, and money on the table. But with the proper research and preparation, heartache can be kept to a minimum.

This months magazine is our annual real estate issue, and its no coincidence it also happens to be our big Show Edition. The Inside Self-Storage Las Vegas Expo, held each February, is the largest conference and tradeshow in the self-storage industry. In addition to attracting seasoned professionals from all facets of the business, one of the largest segments of attendees includes those investigating the sale or purchase of self-storage sites: public and private investors and owners from all over the world. I hope you find this publication useful in your real estate endeavors. May all your is be dotted. May all your ts be crossed.

See you on the show floor,

Teri L. Lanza
Editorial Director
[email protected]

Ron Raboud has always been an avid outdoorsman. When he came across a charity fulfilling outdoor-adventure wishes for ill and dying children, it seemed natural for him to get involved.

Raboud, president of The Rabco Corp., an Ocoee, Fla.-based supplier of pre-engineered metal buildings, discovered Hunt of a Lifetime in a magazine article. The Pennsylvania-based nonprofit was started in 1999 by Tina Pattison, whose 18-year-old stepson, Matthew, had terminal cancer.

Matthews dream was to go on a moose-hunting adventure. Because the Pattisons were unable to afford such a trip, they turned to nonprofit organizations that grant wishes to terminally ill children. At the time, these organizations Make-A-Wish includedwere under attack by animal-rights groups and would no longer sponsor hunting trips.

But the Pattisons would not give up on Matthews dream. They began the search for other sponsors, calling sportsmens organizations and outfitters. Soon several sponsors came forward, including an outfitter, to provide Matthew and his father an all-expense paid moose hunt. Pattison then founded Hunt of a Lifetime to fulfill the hunting and fishing wishes of other terminally ill children. The benefit is open to boys or girls ages 12 to 21. The trips are paid through donations of money and services.

Raboud contacted the organization and offered to accompany a boy or girl on a deer, wild boar or bear hunt. About a year ago, he received a call from Pattison. She had a 21-year-old young man with spina bifida, Heath Loveless, who wanted to go on a bear hunt in British Columbia. After six months of planning, Raboud and his crew, which included his own 15-year-old son, Bryan, and one of Bryans friends, set out to make Loveless dream come true. The young mans youth minister, Rev. Stacy Reed, also accompanied the hunters.

Outfitter Dave Wabnegger of Otter Lake Guide Outfitters in Keremeos, British Columbia, guided the 10-day hunting trip. Because Loveless is confined to a wheelchair, the group traveled by truck until it found an area populated by bears. They then descended into the wooden area for the hunt, where Loveless harvested a black bear.

For Raboud, the hunt was successful on many levels. Ive been involved in outdoor activities all my life. At some point, I tended to take it for granted, became almost complacent in the enjoyment of it, he says. The trip reinvigorated me for the outdoors because of seeing the enthusiasm and excitement this young guy had. Everything was a new experience for himseeing snow, riding in an airplane, catching trout. It was pretty fulfilling.

He believes the trip also gave his son a different perspective on life. I could see at the beginning of the trip there was a little uneasiness being around a physically challenged person, he recalls. Ten days later, it was almost like the wheelchair didnt exist. They were catering to him in the beginning and picking on him like a brother in the end.

The experience was so rewarding, Raboud will lead another youth, who has leukemia, on a bear-hunting trip this May. Not only was Loveless a great kid, the trip was exciting; and it was nice for me for the experience it gave my son, he says. For more information on Hunt for a Lifetime, visit www.huntofalifetime.org.

Self-storage is possibly the most unique sector of commercial real estate. Unlike office, retail, industrial or multifamily investments, it primarily operates by occupants leasing space on a month-to- month tenancy. The lack of tenant improvements needed to lease space and the diversity of facility ownership further separate self-storage from the other asset classes in commercial real estate.

A successful broker who specializes in self-storage understands the nuances of this industry and how they relate to buying and selling self-storage properties. Using the services of a broker will maximize the exposure your property receives, which correlates with more interest and, ultimately, higher sale prices. For these and many other reasons, an experienced owner will seek out an accomplished broker who has successfully specialized in this unique field.

When you have determined you are ready to sell and will be using the services of a real estate broker, you will need to locate the best person for your specific needs. When deciding which broker with whom to contract, you must first determine each candidates:

• Track record in terms of sales
• Ability to produce an accurate valuation
• Marketing plan
• Experience in the overall transaction process

You must be able to determine the overall reputation of the broker you are considering. If he specializes in self-storage and has numerous references from satisfied sellers, it is likely he has successfully met the above criteria. You must also ask yourself: If you were a buyer, would you feel comfortable consummating a transaction with this individual? Finally, if the prospective broker meets the criteria to your satisfaction and you feel you will work well with this person, he is probably a very good choice.

Tax Items

After you have selected a broker and have set a listing price, I strongly suggest you consult with your tax advisor to determine your total tax liability. The impact of depreciation recapture at 25 percent, plus the combined federal and state tax owed, can result in a sizable tax bill.

Participating in a tax-deferred exchange can be a very attractive method of deferring your entire tax obligation. This is accomplished through Section 1031 of the Internal Revenue Code, commonly referred to as a 1031 Exchange. You will need a qualified intermediary to assist you with the entire process. Your real estate broker isnt permitted to act as your intermediary, but he should be able to explain the general concept and refer you to several qualified candidates.

A 1031 Exchange is a great way to defer taxes and leverage into a more valuable property. But even if you dont intend on reinvesting your equity in real estate, the good news is the long-term capital-gain tax rates for investors in the top tax brackets have been reduced to 15 percent from 20 percent effective May 28, 2003. Again, a consultation with your tax advisor should clarify exactly what your plan will be after you sell your facility.

The Sales Package

One of the very first things you and your broker will work on is your facilitys sales package. You will need to supply much of the information, and your broker will compile it in a logical and informative format. A good sales package will highlight the strengths of the facility, how it ranks with competing facilities in the immediate trade area, its current performance, and the future potential during new ownership.

Areas that are universally considered strengths in the industry are: road frontage and/or good exposure, a wide variety of unit sizes, climate control and outside parking spaces (depending on geographic location), wide aisles between buildings, and up-to-date security and entry systems. A rent survey and occupancy report of competing properties in the trade area will highlight your propertys position in the market.

The current performance of the facility can be documented with the previous years and current year-to-date income and expense statements, along with a current occupancy report listing the number of vacant and occupied units of each size. Future performance can be shown via a pro forma income and expense statement. This statement may reflect a continuation of the current occupancy trend, combined with historical rental-rate increases. It may also address a possible expansion of the facility if there is vacant land that will transfer with the sale.

Marketing

Once a sales package is finalized, it will be your brokers responsibility to begin marketing your facility in earnest. He will highlight it on multiple listing services, through trade magazines, and through direct mailings to self-storage and business owners in the market area.

Probably the most important factor in marketing your facility will be your brokers ability to directly contact the greatest number of potential buyers via phone, fax, e-mail, etc. A seasoned broker will have an extensive database of potential buyers for every type and location of self-storage property. A broker earns his money by securing interest from the greatest number of prospects, thereby enhancing the possibility of obtaining your target price.

During the marketing process, you will need to continually update your broker with monthly income and expense reports, up-to-date occupancy reports, and any significant changes to expenses such as taxes, insurance, etc. This will give your broker the ability to promote your facility with complete accuracy. It will also greatly reduce the probability of a buyer attempting to pare down the agreed price after a purchase agreement has been signed. The more information you can provide throughout the sales process will expedite the sale and reduce surprises on both sides of the transaction.

The Offer and the Sale

When you do receive a letter of intent to purchase from a prospective buyer or an actual purchase agreement, your broker will review it with you line by line so the offer can be accurately assessed. There are a number of areas in a contract besides the purchase price that can affect how much money you earn at the closing table. If you receive two offers, it is quite possible the offer with the highest purchase price may not be the best. By working with an experienced self-storage broker, you will have the ability to discern which offer is the best for you and your specific circumstance.

After an offer is accepted, your broker will continue to work through the entire due-diligence period, which can typically take between 60 and 90 days. Your broker will assist you in dealing with any adverse inspection issues, physical and financial. Your goal should always be to get to the closing table with little or no concessions to the buyer for any issues associated with the inspections. Again, with this goal in mind, it is imperative you keep your broker informed of any material changes to the operations of your facility.

A brokers primary job is to obtain the highest possible price for your self-storage facility. He is also responsible for guiding you through the entire process and to provide his knowledge and experience to help the transaction stay on course. When you work with a good self-storage broker, you will have the benefit of someone looking out for your best interests every step of the way. There are usually a considerable number of issues that will come up during the sales process after an actual purchase agreement has been signed. A good broker will be able to assist you with whatever obstacles arise.

Keeping your broker informed and monitoring the sales process will help you achieve your goals and produce a smooth transaction. A smooth transaction is a successful transaction!

Rob Schick is senior vice president of Revel & Underwood Inc., which was established in 1973 and specializes in the disposition and acquisition of self-storage facilities. Mr. Schick has more than 14 years experience in investment real estate sales and represents self-storage buyers and sellers throughout the United States. For more information, call 800.875.5439, ext. 166, or e-mail [email protected]