The very first Italian self-storage facility opened in 2000. Since then, a considerable number of stores have arrived on the scene, and public awareness of the service has increased accordingly. Back when the self-storage market was an undiscovered country of unknown potential and risk, Casaforte Self Storage S.p.A. forged ahead and offered the product in Italy. Today, the company has 10 active facilities in the country, another four slated to open, and two already operating in Switzerland.

Cesare Carcano, a Casaforte director, was among those first explorers who witnessed the birth and growth of the European industry. He shared his insights and experiences on the industry frontier with Inside Self-Storage.

Is self-storage a product or a service?

We think of self-storage as a public-utility service. In the future, we expect every town will have at least one facility, just as today they all have nurseries, schools, hospitals and so forth.

What is it about this sector that attracted and motivated you to become involved?

From a business point of view, the most interesting thing is certainly the novelty factorthe presence of a fresh market waiting to be conquered. There is a lot to be done, which is stimulating and motivating. Our group decided to try out a move into self-storage because we felt that with the sturdy competences we had already built up in the logistics sectorand given the useful synergies it could potentially providewe were in a really good position to establish a self-storage company with a strong national presence.

Which factors would you say have the greatest relevance to self-storage success: space, people, possessions or security?

Without a doubt, we put most of our efforts into ensuring the quality of the space and the efficiency of the security systems. But we cant afford to ignore people and things. Its essential to be hospitable and considerate toward our customers and their possessions, especially in the case of private individuals. Things often take on an enormous emotional significance for their owners, and we have to demonstrate respect and care for objects.

What is the state of the self-storage market in Italy, and what are its long-term prospects?

The Italian market is not moving as fast as the other markets in Europe, even though every day we see evidence of a growing public awareness and appreciation of the service. The prospects are interesting, but I think Italian players are going to have to keep pouring their energy into public education if they want to catch up with European growth rates.

In any case, it is certain the Italians tend to appreciate branding and networking; they respond to the ubiquitous presence of a visible logo and consistently high-quality service associated with it. These are all things in which we firmly believe, and in which we invest.

What starting point do you recommend for those wishing to start a self-storage company in Italy?

Begin with a business plan that is broad and well-structured. The players succeeding at the moment are all large companies that already possess a lot of facilities. It is unlikely, given the level of awareness of the service on the part of the general public, that anyone can have any success just by setting up a single facility. In Italy, the brand and the network count for a lot more than they do in other European countries as symbolic guarantees of quality.

How does the average Italian customer rank the following aspects of self-storage: efficiency of the structure; pleasant and attractive atmosphere; customer care; security; price; and flexibility?

All of these are equally important, with the possible exception of price, which might be said to be the least important. All of the others definitely come at the top.

How has the Italian publics perception and understanding of self-storage evolved?

Public awareness of the service only increases in very small steps. Lets keep in mind, though, that the very first self-storage facilities in Italy are only 4 years old, and there are only about 30 facilities in the whole country. In order for the service to be understood and exploited to the fullestwhich would obviously benefit the providers but would benefit the consumers even morethere needs to be an ongoing investment in promotion of self-service and public information about it.

What, in your experience, is the most effective medium for conveying the self-service message to the Italian market?

Every place in Italy is different with regard to the variety of channels and media available and how attractive these are to the public. You have to look around and observe what people do, watch, listen to and like. The one thing that has to remain constant and coherent, even if it is realized through a different mixture of media, is the aim of the promotionthat is, to invite and persuade the public to visit the facilities.

Self-storage is a new idea, and we are not yet accustomed to it in this country. Before the Italians can fully understand it, they need to be helped in getting familiar with the service. But all it takes to really understand the usefulness and convenience of self-storage is to see one of the facilities at close quarters, and to talk to someone who can explain in detail what kind of spaces are offered and how the service works.

What ideas do you think should be emphasized in telling the Italian market about self-storage?

Perhaps two ideas should stand out: flexible space that you can take up for as long as you need it, and space just like at home, where your privacy is respected and the surroundings are comfortable.

How would you explain self-storage to a 5-year-old child?

Id present it as an adventure. Id take him to one of the facilities and let him explore it and look all around it. There wouldnt be any point in trying to explain it until hed had a chance to look around. Self-storage is a service that needs to be tried out.

Sabrina Tordo is the marketing and communication manager for Casaforte Self Storage S.p.A. For more information, visit www.selfstorage.it.

R. CHRISTIAN SONNE sure hoped the famed Kinsella line If you build it, they will come was true, because if they didnt come, not much would be built. Last fall, Sonne committed his business, Self Storage Economics (SSE), to lead an ambitious charitable project in Mexico. In a partnership with Corazón for Christmas, the California-based real-estate consulting company would erect an entire house in a single day for a family in need.

SSEs formidable task was to raise $5,500 and enlist the help of 50 volunteers to travel to Nuevo Milenio, Mexico, for 12 hours of hard labor on Dec. 11, as directed by organizers of the familia Corazón program. Sonne strongly believed in the project. But would his enthusiasm be contagious?

One thing that really appealed to us about Corazón is the people who receive the benefit really work hard for itthey prepare for it and are on the site working with us. Its really a hand up, not a hand out, he says. We saw this as an opportunity to do something tangible, meaningful and lasting for a reasonable amount of time and money.

In September, SSE launched its campaign with a letter to clients across the United States, asking for help. Details about the project were posted on the company website and e-mailed to registered users. At the companys Huntington Beach home office, staff quickly rallied behind the program. We have four appraisers, along with myself, a database manager and one administrative-support person, Sonne says. There was no requirement or anything, but everybody decided to participate.

And staff members werent alone. Something about Corazón for Christmas, or Heart for Christmas, resonated with SSE customers. Within six weeks, $4,000 had been donated and dozens of people had committed to the trip. Bank clients called to say theyd bring four or five people to volunteer. Its just been overwhelming to see the response to the program, Sonne says. Even people whove known us only through the Internet, with whom weve exchanged data and other things over the years, are contacting us to say they just like the sound and feel of this project.

House Proud

Corazón for Christmas is an all-volunteer, longstanding nonprofit organization formed in 1978 to serve the poor in Mexico. Corazón helps the poor by allowing them to earn their way out of poverty. Through working on neighborhood projects, family members earn hours they can exchange for food, clothing, tools and other supplies.

House building has become a cornerstone of the organization. One day isnt much time to build a house, but Corazón has perfected the process over the years. Each structure is 16 by 20 feet, built on a concrete slab poured ahead of time by village residents as a community project. The house has no plumbing or electricity, but includes four windows, a tiled kitchen counter, stove, sleeping loft and provisions for a future toilet. Such a design lends itself to the program because families can later earn assistance in improving the home with drywall and bathroom upgrades.

Corazón is similar to Habitat for Humanity, acknowledges Sonne, who was drawn to the idea of helping the poorest of the poor in Mexico, where social services are scarce. He discovered the home-building project while actively seeking a worthwhile charity. The self-storage industry and business in general has been very good for Self-Storage Economics, he says. I subscribe to the idea of corporate philanthropy, of giving something back and sharing the good things we have. Corazón brought to mind our personal values of relieving suffering wherever there is need.

Alive in 2005

This past Christmas season was the first time SSE participated in the Corazón program, but it wont be the last. Already Sonne is planning for next year and inviting everyone in the industry to join the effort. Information regarding donations and volunteering in 2005 is on the companys website.

This project is new for us, but I hope its only one of many in years to come, Sonne says. People are so generous in the selfstorage industry, and its fun getting to know them. I really enjoy serving as an appraiser to the industry, and this takes it a step further: Its great conversation with people about how life is good, and how its good to give something back.

As of press time, more than enough volunteers had committed to the Dec. 11 home-build date, and Self Storage Economics was well on track to reach its monetary target. For photographs and a summary of how the project unfolded, visit www.selfstorageeconomics.com.

Take a moment and logically consider the process: As buyer, you must carefully draft a sales agreement, review the documentation, conduct a site visit, consult the lending institution, and enlist the help of professionals to properly perform due diligence.

Sales Agreement

It all starts with the sales agreement, in which the buyer must outline the documentation needed to properly determine the value and suitability of the purchase. The sales agreement should also outline the time frames in which this process will take place.

Experts highly recommend including a list of necessary documents in the agreement (see sidebar). This will give the seller upfront notice that you are going to be thorough in your due diligence. It also gives him time to start gathering the information. If a knowledgeable self-storage broker represents the seller, this information should already be prepared and ready for delivery soon after an agreement is signed.

Time Frames

Time frames are important to establish at the beginning of the process. Most agreements allow for a due-diligence period of 30 to 60 days from the time all documents are delivered to the buyer. The countdown should begin after delivery. This gives the seller incentive to produce the documents in a timely fashion, and prevents the buyer from receiving the paperwork piecemeal.

Delivery of duediligence materials should be documented with a letter from the seller to the buyer, acknowledged by both parties, proclaiming the period has begun as well as its length and final date. During this time, a deposit is tendered to be placed in the broker or attorneys escrow account. This deposit is typically fully refundable during the due-diligence period and only becomes nonrefundable once the process is complete and the buyer is satisfied with the information.

Documents Needed

Lets start with the revenue side of the financial documents. Most self-storage facilities are run with the assistance of a software program designed specifically for the industry. If thats the scenario with the facility being purchased, financial reports are fairly easy to generate. If the seller is using a manual accounting system, gathering the information may take longer.

The first report needed is a summary of unit types, the number of each, how many are rented, and what revenue is generated from those rentals on a monthly basis. Many popular software programs refer to this as the Potential Revenue or Rental Activity Report. A buyer also needs a complete rent roll, including tenant names (or a note that a unit is vacant), unit numbers, sizes, actual rent, account balance (to show rent owed or prepaid), deposit amount, and date of last rent increase. An explanation of any rent specials is necessary to determine actual rent collected. A list of delinquent tenants with an accounts-aging report should accompany the rent roll. Many software programs will produce a monthly management-summary report, which can be helpful to validate the revenue stream. Profit-and-loss statements are needed for the past two years and the year-to-date for the current years operations; these can be provided by the sellers accountant or internally generated. The revenue numbers should match those shown in the management-summary report.

Your lending institution will require certain documentation about the property. Its a good idea to get the list upfront so you can include it in your due-diligence request in the sales agreement. First and foremost are the past three years of tax returns on the property. If a sole proprietor owns the property, the Schedule C portion of the return is all you need. If the ownership entity is a partnership, corporation or limited liability company (LLC), the returns for that entity is sufficient.

A note about tax returns: Small businesses are afforded a myriad of deductions relating to their business operations, but not all of these deductions are considered when valuing a self-storage facility. For example, take autorelated expenses. Although fully deductible as a business-related expense, its not typically deemed necessary for the operation of a facility and is not taken into consideration in the determination of net operating income.

To confirm the expense numbers provided by the tax returns and profit-and-loss statements, a buyer can look at the invoices for operating expenses, tax bills, insurance binders, service contracts and employment contracts. Typically, a buyer may request backup documentation on a few expenses if any discrepancies are uncovered. From the profit-and-loss statements and tax returns, a buyer should be able to validate the net operating income represented in the offering memorandum provided by the broker or seller.

Professional Reports

The seller can provide several documents to assist the buyer in saving money and time in preparation for the closing. An example is the title-insurance policy issued when the property was last transferred. The old policy serves as a head start for the buyers attorney or title company in researching the chain of title, possibly reducing the new policys cost. The same can be said for the fire and liabilityinsurance policy. A buyer will need a new binder on the day of settlement; furnishing insurance agents with a past policy assists them in figuring a bid.

Two other areas of great potential savings are environmental studies and ALTA Surveys. A Phase I environmental study can cost $1,500 to $2,500 and take up to 60 days to complete. However, if the seller can provide a past report less than two years old, most lenders will accept it. In cases where the report is older, only an update letter may be required, which is far less expensive. In cases where there isnt sufficient time to complete a Phase I, environmental insurance policies also are available.

ALTA (American Land Title Association) Surveys are typically required when obtaining institutional or conduit financing. These detailed surveys assure a lender and buyer the property description is correct with no boundary discrepancies. ALTA Surveys range in cost from $2,500 to $6,000, depending on the size and complexity of the property. Most local banks will not require an ALTA Survey, and most buyers are satisfied with a legal description or standard survey.

Physical Inspections

During the due-diligence process, a day is scheduled for the buyer to inspect the physical property and review on-site books and records not provided with the copied materials. A buyer may hire an engineer or property-inspection service to assist in evaluating improvements and their ability to sustain cash flow over time. This assessment also will help determine what your reserve for capital improvements should be. Typical inspections will include roofs, gates, vacant unit doors, office space, apartment, blacktop, fencing, structure of the buildings, company units, utility rooms, HVAC systems, plumbing, electrical systems, storm-water management systems, and other improvements.

On-site inspections include an examination of a sample number of leases. The seller does not customarily provide copies of every tenant lease. Instead, the buyer is afforded the opportunity to inspect the leases during the due-diligence period. Usually, he will randomly pull 3 percent to 5 percent of the leases and make sure they match the information on the rent roll.

Professional Assistance

If due diligence seems a little overwhelming, you can and should enlist the help of professionals. First and foremost is your self-storage broker. Part of his job is to guide you through the process. Second, your attorney can review documents, provide the title policy, and work with the other sides counsel to bring the transaction to a close. Title-insurance companies provide good and marketable title, while escrow companies facilitate closing. Environmental engineers perform Phase I studies and other continuing services.

Surveyors and civil engineers conduct surveys. Accountants assist in the review of financial statements and verify cashflow projections. Finally, the insurance agent makes sure the property is insured to cover general risks as well as those specific to the self-storage industry. Professional help can save you considerable time to get the process done right the first time. You will find it is money well spent.

Avoid Buyers Regret

Taking the time and effort to perform a thorough due-diligence study on a self-storage acquisition is critical to a successful term of ownership. Any issues that may hinder a sale should be discovered early in the process, giving the parties time to work out an agreeable solution. The information you acquire will prove invaluable in the smooth transition and operation of the property. Due diligence is the key to ensuring you will be pleased with the acquisition once closing occurs.

John H. Gilliland is president of Investment Real Estate LLC, Investment Real Estate Construction LLC, and Investment Real Estate Management LLC, which provide brokerage, construction and management services to self-storage owners throughout the mid-Atlantic and northeast states. A member of the board of directors of the national Self Storage Association, Mr. Gilliland is also president of the Pennsylvania Self Storage Association. For more information, call 717.779.0804; e-mail[email protected]; visit www. investmentrealestatellc.com .

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Due Diligence Document List

• Profit-and-loss statements for the past two years
• Year-to-date profit-and-loss statement
• Last three years of tax returns
• Copy of the latest insurance binder
• Copy of a past title-insurance binder
• Property-tax bills for the past two years
• Rent roll with unit numbers, rent amounts, dates of last increase, unit sizes and move-in dates
• List of delinquent tenants with an aging report
• List of personal property to be included in the sale
• Sample copy of the lease
• Copies of all contracts relating to the facility, including Yellow Pages, pest control, trash, snow plowing, landscaping, etc.
• Latest utility bills
• Managers employment contract
• A full-size site plan/survey
• A copy of building plans
• Copies of letters and permits showing the municipalitys approval of use

This trite but true real estate notion of location, location, location could never be more important than in consideration of self-storage ownership. A mature firstgeneration store can easily compete with a state-of-the art property if its location is superior. Conversely, a poorly located store, such as one in an industrial park or at the end of a cul-de-sac, can be buried by a development project in a locale with higher traffic and better visibility. No sacrifice should be made when it comes to location quality.

Most investors would argue the choice to develop or acquire is driven by one of the purest of economic theories: risk vs. return. The following juxtaposition outlines the benefits and drawbacks involved in acquisition and development. A case could easily be built for either strategy.

Return

Buy. There are few deals in the current market. In fact, its a sellers market. Capitalization rates have never been lower (or prices higher), and thus returns for most projects are weak. Should a buyer elect to buy at a very low cap rate (7 percent?), all will be wellas long as cap rates remain low and continue to decrease. If cap rates rise, as some investors predict, buyers could face problems. The increase may outrun any gains in income from rental-rate increases.

Anticipated returns for an existing property may be down 10 percent to 12 percent cash-on-cash, and internal rates of return may be in single digits. It should be noted that the ability to leverage existing properties at a higher initial level than development sites affects this analysis.

Build. All-time highs in vacant-land costs coupled with unprecedented increases in raw materials and supplies have eroded developers yields. Despite this diminution in profits, the pay day in self-storage lies in new builds. The increase in value from vacant land to an operating business is substantial and almost always outperforms acquisition targets.

Pro forma returns for development projects (including the difference in leverage) are considerably higher than for acquisition. In fact, good development projects offer an infinite level of return at retirement if construction financing is in place, allowing the project to develop mature cash flows. Even with conservative pro forma incomes, most development projects will offer cash-on-cash returns in excess of 20 percent and internal rates of return at least in the mid-teens.

Risk

Buy. Typically, acquisition occurs after a project has reached stabilization. Given this assumption, the buy target has a proven market. Historically, unless there are extenuating circumstances, physical occupancies do not significantly erode over time. In fact, rental-rate growth provides for increased gross potential income and, ultimately, greater profit and value.

The lack of available properties means the location risk is typically fixed for buy targets. Since most markets do not offer a selection of acquisitions in various locations, what you see is what you get sites make this a static analysis. Great concern should be given to projects in sub par locations.

Product type, including amenities, may be fixed or limited by the physical attributes of the existing site. Demand for features that are not practical or possible at an existing property may put the site at risk. For example, if a facility cannot provide climate-controlled space, it may be unable to meet the needs of the market. A buyer should forecast the need for amenities that might increase costs, for example, the addition of individual door alarms.

Build. The inherent risk in development projects is the length of rent-up. The projected time to achieve stabilized occupancy is nothing more than a guess, hopefully an educated one. Pro forma lease-ups vary from market to market, depending on project size and type. They can range from 12 months, which is rare, to 48 months.

One of the beauties of the development opportunity is the ability to select the right site. While this is tempered by availability, if the risk is too great, the developer has the option of looking for an alternate location.

A clean sheet of paper in the development process allows new projects to meet current demand. It can also produce designs adaptable enough to meet future market needs and shifts at relatively low cost. Flexibility in the development plan may allow for the addition of amenities at less expense.

Deployment of Capital

Buy. Aside from risk adversity, the capital component is the largest advantage of existing projects. Typical leverage of up to 80 percent of the purchase price is available in acquisition financing. This lower capital requirement may allow the investor to spread risks over a wider variety of projects and locations. Sponsor quality and experience is not typically the driving influence for acquisition lending.

Build. One of the most significant barriers to entry in the development of self-storage projects is capital intensity. While every situation is unique, typical leverage requirements for a development project range from 65 percent of cost to 75 percent of appraised value at completion of construction. The level of leverage and comfort with the developer is typically dependent on the proven abilities and experience of the sponsors.

Personal Guarantees

Buy. It is customary for acquisition loans to offer long-term, nonrecourse financing in which the strength of the property and proven cash flows are the primary strength of the loan. This may mean less stringent requirements on the borrower with regard to credit worthiness, financial strength and experience.

Build. While the value of a project must substantiate the lending decision, the primary criteria for construction lending are often based on the strength of the developer. This requires the sponsors to possess financial strength, development and/or construction expertise and experience, as well as a strong self-storage background. While not all-inclusive, this summary of salient differences in the buy vs. build decision can help. It is simply a matter of risk vs. reward.

RK Kliebenstein is the president and CEO of Coast-to-Coast Storage, a self-storage consultancy firm. From feasibility studies to financing, Mr. Kliebenstein has a wide range of experience and expertise in development and acquisitions. He can be reached at 877.622.5508, ext. 81.

In December, the Federal Reserve raised interest rates for the fifth time since June 30, when the Open Market Committee began a trend that would increase the federal funds ratethe interest rate at which banks needing overnight loans borrow surplus reserves from other banksa quarter point at every scheduled meeting. This last increase put the rate at 2.25 percent, the highest its been in three years, and the committee is expected to raise it again on Feb. 2. In fact, Fed policymakers plan to keep elevating rates at a measured pace for the foreseeable future.

The boost is the central banks way of tightening credit after a period of historically low interest rates (this past summer saw the lowest in 46 years). In response, commercial banks aim to increase their prime lending rates, which will affect consumer and business loans alikeincluding those for self-storage. The point youll see many of this months writers driving home is ours is a real estate business. Therefore, the forces that steer its success are similar to those of other investment sectors: apartments, multifamily, retail, etc.

But theres more behind the scenes than the cost of money. While the onset of storage development may be initially affected by the price and availability of land and funding, the long-term profitability of each project will be determined by tried and true foundations of real estate: location, due diligence, competition and, of course, customer service. With rates on the rise, individual facility performance has never been more critical.

Industry experts tell us that even with changes in interest rates, 2005 still appears rich for the purchase and sale of self-storage, though current owners may want to lock in low, fixed interest rates while the getting is good. Sellers can continue to build value into their facilities through sound business practices, and buyers can avoid losses by pursuing honest, thorough market and operational analyses before a purchase.

If youre interested in learning more about the overall health of the self-storage market and the nuts and bolts of the businessincluding real estate basics such as site selection, feasibility and financingconsider attending the ISS Expo in Las Vegas, Feb. 23-25. Youll have access to seminars on everything from Getting Started in Self-Storage and potential pitfalls of development, to insurance, legal issues and technology. In addition, youll meet hundreds of suppliersbrokers, lenders, designers, builders, marketers, retailers, trainers and many otherswith the expertise you need to succeed.

In a time when policymakers strive to return the economy to normal, nothing is more dangerous for business owners than the status quo. Rate hikes mean storage operators must raise the bar to build and sustain value. So newcomers should invest in education and research, while seasoned operators secure themselves with service and vigilance. In all transactions of real estate, purchase or sale, take your time and do it right. To match the Feds measured pace, slow and steady will win this race.

See you on the show floor,

Teri L. Lanza
Editorial Director
[email protected]

Now you think about your business affects your business, and your thought processes are reflected in the words you use. Maybe thats why so many side businesses remain that way, while start-up businesses tend to grow. The self-storage industry has its own language that can help or hurt profitability and growth, too.

One word that comes to mind is office, which owners and managers commonly use to refer to the lobby area customers see when they visit a facility. True, its where prices are quoted, contracts are signed and money changes hands, but is it just an office? The reception areas of a hotel or bank are used for these same functions, and yet they arent referred to as offices. Those businesses work at making their lobbies inviting.

An office atmosphere tends to be serious, almost cold. To soften their image and put customers at ease, many service businesses dispose of that look and go with something more personable. You dont need to use marble flooring, fountains and chandeliers, but take another look at your lobby. Accentuate its positives and play down its negatives. For instance, many selfstorage facilities use clean, colorful slat walls to brighten their lobbies and provide space for merchandise. The result is so retail, youd almost expect to meet the Ace Helpful Hardware Man. Now, thats friendly.

Self-Storage Store

Lets go back to our first point: Your business is shaped by your vision and how you give voice to it through language. If lobby summons a better wordpicture than office, store is even better. Once you see your office as a store, it will become more profitable. In addition to putting new customers at ease, it can trigger a new thought process that views tenants as prospects for a whole variety of products.

For example, every self-storage operation offers keyed-alike locks to renters of multiple units, but how many think to offer them to singleunit renters? Consider selling them for use on a customers storage unit, garden shed, gym locker, RV trailer, etc. What brings you to this new approach? Beginning to think of and see your office as a store. Youll be amazed at the variety of products you can selleverything from packaging, shipping and storage supplies to seasonal gift wrap and decorative boxes. Home, business and school supplies can fly off the shelves. Your store can be a planned shopping destination for residential and commercial customers.

Target Smart

Are commercial customers a sizeable part of your clientele? Do they make frequent visits and regularly interact with your employees? If so, learn more about them, their businesses and needs. Then stock your inventory accordingly. Electrical- and plumbing-supply stores know that every contractor and worker who stops in to buy materials for a job is likely to make impulse buys. You should explore the potential of this similar market.

To turn your office into a store that sells more than just boxes and locks, where do you begin? Ask your current retail suppliers if they have experience in setting up, stocking and promoting in-store sales. Many will offer brand-name products, displays, plan-o-grams and professional signage. They should be happy to provide anything you need. After all, if your store is successful, they will be too.

Roy Katz is president of Supply Side, which distributes packaging as well as moving and storage supplies. The company has developed merchandising programs for many leading companies including Storage USA, the U.S. Postal Service, Kinkos, Mail Boxes Etc. and The UPS Stores. For more information, visit www.suplyside.com.

An effective rule of selling is: Sell your worst feature first. If there is something about your facility you feel could negatively affect a rental, bring it the forefront early in the sales process. And dont just reveal it to the customersell it to him. A mere mention might kill the deal, but a creative salesperson can always turn a negative into a positive.

For example, if you were selling a Hummer, you wouldnt simply tell the customer he might have trouble fitting the vehicle in his garage. You would say something to communicate the same information, but include a positive spin: You might have trouble fitting this baby in your garage but, man, are you going to look good riding around town! And since the heat and A/C produce comfortable temperatures within 2.6 seconds, youll never even miss your garage.

Similarly, if you were selling health insurance that had high copays, you would want to find a benefit to offset the disadvantage. Your presentation might go something like this: Now our co-pays are generally higher than you may be used to, but our company has one of the fastest turnaround times for payments in the industry. You wont be waiting for months, wondering if your provider has been paid. Also, our phone-support reps have one of the best speed-to-answer rates in the business, which means you wont be on hold half the day. Were very responsive to our customers.

Applying the Art to Storage

How can this technique be applied in our industry? What are some of the most unfavorable features of storage facilities? Lets take a look at how you can sell some of your sites least attractive characteristics.

Your facility is older. First explain how your facility meets the basic storage requirements of dryness and security. Then back it up by pointing out that because your facility is older, you have fewer operational expenses and can keep rates down. Turn any discussion about your place being old into praise for economic pricing and longevity. It also helps if you can emphasize the cleanliness and care of the site.

Your facility is hard to find. You can sell your off-the-beaten track location by emphasizing that its easier to keep your place secure. Also point out that you experience less traffic and it costs less to have a location off the main street, which translates to better rates.

Your facility has walk-up units. Its easy to sell those interior, second- or third-floor units. Simply say, One of the nice things about our store is you can save a bunch of money by choosing an upstairs unit. And because these units have no exterior access, there is no chance for passersby to tamper with your lock. You also wont ever be exposed to the elements while accessing your unit.

Your facility lacks 24-hour access. In this instance, explain that no one is allowed on the property after the gates are locked, so tenants belongings are completely secure overnight.

You require tenant insurance. You may think this is a negative feature, but customers are usually glad to know they can buy insurance for a few dollars a month to add an extra level of protection. Say something like, We do require you to insure your belongings when you store with us. You can buy the insurance through our facility for as little as $8 or $12 per month. Not that weve ever had a problem here, but if anything should occur, we would want you to be protected.

Your facility lacks climate control. In this case, explain that the absence of this feature allows you to maintain low rental rates. You can always say your decision not to offer it was a result of tenant feedback: We find most of our customers dont care to pay for the additional cost of climate control, or Most of our tenants have not found climate control to be necessary in this area.

Competition

Even if your store doesnt have what you would consider to be negative features, you may lack a few things your competitors offer. You want to remove your competitors advantage by telling prospects first. Again, you can downplay one feature by commending another: We dont offer feature X, which most of our renters dont miss, because we offer feature Y, which our customers love because

Of course, you want to be careful. Be realistic and sensitive to customers requirements. Generally, if you try to tell people what they should want or need, they will have a negative reaction. The safest strategy is to share with prospects what other customers have said about certain features. People are best persuaded by others in their same predicament, i.e., other storage customers, than they are by a sales representative. Pay attention to customers wishes and offer options whenever possible. When you cant offer an alternative, do your best to shed positive light on the features your facility does possess.

Learn to think differently about the less-than-desirable features of your facility. Find creative ways to sell them. You may discover they arent so bad after all.

Tron Jordheim is the director of PhoneSmart, which serves the self-storage industry as an off-site sales force that turns missed calls into rentals. This rollover-call service serves as a backup to store managers. Mr. Jordheim has started several successful businesses as well as assisted with acquisitions as general manager of the Mid-Missouri Culligan Bottled Water franchise. For more information call 866.639.1715; e-mail [email protected].

Some storage operators use coupon ads to promote their facilities. A popular example is the Val-Pak mailer, but most communities have a coupon pack they mail out to local residents. These ads are a great idea—if used correctly. In most cases, there are two problems: First, the ads aren’t well-designed. Second, they aren’t tracked. To make coupon ads work, you must have a good visual concept and measure your results.

Before I go into detail, let me warn you about the folks who sell these coupon-type ads. Every last one of them will claim repetition is the key to success. They’re right—the key to their success, not yours. If your ad doesn’t work, it isn’t because it hasn’t been seen with enough frequency, it’s because it stinks! Following are some keys to building a successful coupon ad.

A Few Quick Tips

• We all sort our mail over a trash can. Your first goal is to get people to take your coupon out of the stack and put it in the “let me look at these before I throw them out” pile, or the “A-pile.” You cannot accomplish your goal if the ad is simply trashed.
• At any given time, less than three out of 100 people will have a pressing need for storage. Don’t try to appeal to those who don’t need it, simply address those who do. They are the ones who will set your coupon aside.
• The less the coupon looks like an ad the better.
• If all the other ads in the mailer use color, go with black and white. If other companies are using a lot of graphics, make yours heavier on copy.

Design a Great Headline

The coupon headline serves as the “ad for the ad.” It should contain an offer or promise that will cause the casual browser to stop and look at your coupon. What should you offer? It depends on you and your facility. It could be something as mundane as $X off, or as elaborate as a chance to win a free cruise. Test your market to see what works best. Once you’ve gotten your prospect’s attention, you’ve dramatically increased your chances of getting him to read further.

Whatever you choose for your headline, make sure it’s genuine. The worst thing for your credibility is to make a promise you can’t or won’t keep, or use something that is titillating but misleading. Make a bold statement on which you can follow through—for example, “Storage Rentals for as Low as $9.95 a Month.” The units in question might only be locker size, but they do make the offer valid, and the offer will grab people’s attention. In short, use your headline to highlight your greatest benefit or unique selling position.

Highlight Benefits and Features

Similar to your Yellow Pages ad, your coupon ad needs to highlight your facility’s benefits, not just its features. Because storage operators work in the industry every day and are so familiar with the product, they have a tendency to assume people reading their ads will connect all the dots; but many will not. That being the case, pair every feature you list with its corresponding benefit.

For example, when you say you have 12 different size units, you need to point out what that means: Customers will only pay for as much space as they need. People will not necessarily know and understand this if you do not tell them. Even if they do, you must remind them why this particular feature is valuable. Providing a simple list of features is worthless. You must show how each translates into a benefit to the customer.

Use a Hotline

A coupon ad, generally the third of the size of a standard sheet of paper, doesn’t leave a lot of space in which to tell people everything you want them to know about your facility. That’s where a storage hotline comes in, a separate phone line with an informational recorded message. Print the hotline number in your ad, and readers can call for more details.

Make sure you identify the hotline as a 24-hour free recorded message so people know they won’t be pressured to buy anything when they call. You also need to give the hotline a compelling title, for example, “Seven Things You Must Know Before Renting a Storage Unit.” The hotline message itself should provide solid, general information about self-storage to gain prospects’ trust and, hopefully, entice callers to visit your facility.

Highlight Your Web Address

Your web address should be printed along the bottom of both sides of the coupon, as many prospects these days will want to research you online. That being the case, make sure your website is set up to sell. Regardless how pretty the pictures are and how well you educate visitors to your site, the ultimate goal is to get them to rent from you. Always use a .com (not a .net or .org), and try to incorporate the name of your city and the words “self storage” into your URL. You can always direct different domains to forward to a single location.

Using Incentives and Deadlines

You should record and tabulate how many renters you get from each form of marketing you use. To track your marketing expenditures and measure the results of your coupon, provide an incentive for customers to bring the ad with them to your facility. This way, you’ll be able to see how much business you’re garnering from your efforts. Without a means of tracking, you are lost in a marketing wilderness. The best way to measure results is to insist people present the actual ad to receive whatever “deal” you offer.

Another important tactic is to use a timesensitive offer. If you don’t, people will usually put the coupon away without taking action. Make your ad compelling and include a deadline that will incite prospects to contact you sooner than later. Your ad rep should be able to give you a close approximation of when the ad will “hit” the public, which will help you choose the proper date. If someone comes in after the deadline, ad in hand, you can always make exceptions based on current occupancy.

Marketing Value

If your ad doesn’t draw business after the first run, tweak it and try it again. To determine whether the cost of running the ad is worthwhile, figure out the value of your average renter. Take the standard price of your average-size unit and multiply it by your customers’ typical length of stay (if you don’t have these numbers, you should). Let’s say the cost of your average unit is $100 per month and your customers’ normal length of stay is eight months. If you know your net profit after expenses is about half the total, your average rental is worth $400. If it cost $700 to run the ad, you only need to attract two new customers with the coupon to break even.

As long as this or any method of promotion or advertising you use is paying for itself, stick with it. If your coupon ad doesn’t work the first time, test it again with a new headline—that’s usually the most important item to adjust. Make coupon ads a piece of your marketing mix, and make them work for you.

Fred Gleeck is a profit-maximization consultant who helps self-storage owners/operators during all phases of the business, from the feasibility study to the creation of an ongoing marketing plan. He is the author of Secrets of Self Storage Marketing Success—Revealed!, available for purchase at www.selfstoragesuccess.com. He is also the producer of professional training videos on self-storage marketing. To receive his regular insights via e-mail, send a blank message to tips@seminarexpert. com. For more information, call 800. FGLEECK; e-mail [email protected]; visit www.fredgleeck.com.

We've come quite a way since our first article in January. It's now pay-off time! Set the rates. Then, multiply by the number of units and feel good about being in business. We've all done it, but there's more. Our discussion will show that pricing is more than what it first seems.

Pricing

Price establishes one of the terms of purchase. But pricing is more than that to the marketer. It is as much a feature of a product as the size, color, etc. Also, it is a sure-fire attention-getter.

There are several aspects of prices that are at work. The interplay of these is a part of our product-design strategy. Remember that the utility price is the one the prospect believes the unit is worth outright without any other considerations. The market price is the one suppliers are forced to offer in a competitive situation. Elasticity (a new element) is the volume sensitivity a product has to changes in price.

In a perfect sellers' world, the interplay of the utility price and elasticity would control the prices. This is exactly what happens with a patent holder. The moment the market price or competition gets into the act, the seller must deal with a wild hair. To contend with that, we must continually strategize using packaging and innovation, which are designed to maintain a distinctive product preference and eradicate the competitive influences.

Price conveys things other than just setting the terms of the rental. It communicates a sense of the degree quality. A high price demands an explanation. A low price must be accompanied by reassurance that it truly is economical, not just cheap. So prices invite curiosity and discussion--a good thing.

Implicit in this is the ability of pricing to produce curiosity. Most ads don't include pricing. That gives the marketer some flexibility, but more importantly, if the seller can hit the mark with his ad, he can generate more interest and induce the viewer or reader to further action. The clever marketer will use that to maintain attention as he seeks to lay in his product story.

The usual ploy is to delay the revelation as long as possible. Often the seller feigns inability to provide price until certain questions are answered by the prospect. That encourages a discussion centering on the needs of the prospect, which provides the seller with more opportunity to engage the buyer. It also means that the offering must be set up initially with options or steps that support the seller's request for more information. Thus, the administration of price becomes an important part of the market strategy.

Before we go too much farther, we should shoot down a common assumption about price and costs. Product cost is not a consideration in setting prices--not because I say so, but because it just can't be. The only thing that drives pricing is the customer perception of value, nothing else. The customer doesn't know what your costs are and doesn't care. He is only concerned with the value of the product to him. To be sure, you are concerned about the relationship between price and costs, but cost plays no part in the setting (and getting) of prices.

Often, studies are used to assure the supplier that a certain number of units can be sold at a given price. Actually, attempts are made to test responses at various price points to establish general acceptability and, equally important, elasticity. Only after that story is developed does the profitability enter the picture. The supplier then can determine his costs at those various volumes, but one doesn't cause the other. They are unrelated. The supplier's only choice is whether to offer the good or not. He totally controls his supply. He tries to affect, but has no actual control, over the demand.

A Price Tactic

Often the sales function (sales people, advertising, promotional material, etc.) hopes that after the presentation of all the benefits, the prospect will just ask for the product. That rarely happens. At the time a buyer is considering a purchase, there is a tussle going on. The buyer is anticipating the gratification of possession of the product or service, but this is offset by the accompanying feeling of hurt or pain from the contemplation of price. The savvy marketer will attempt to assuage that feeling by granting the prospect the gratification immediately and delay, in some manner, the "pain." Now the emotions are inverted. The prospect has possession and the gratification it grants, and faces its loss if the purchase is not completed.

Marketing-oriented organizations will design these kinds of options for their sales group to use. Many arrangements are used such as a very low (or no) initial payment followed by later payments. These schemes are correctly grounded in the emotions of the purchase process and are often not connected with any buyer economic disability.

Whose Job

One important thing to note is that it not the job of the sales/advertising people to approve of these approaches. There are serious credit and, at times, ethical questions that need be examined. The people who compose the marketing/sales programs must be under the training and/or close reign of owners. Those kinds of questions and their resolution are at the core of an owner's marketing responsibility. He must keep his facility filled; he must stay on the right side of the line. That's why he makes the big bucks.

Is Creative Pricing for You?

I can hear you now saying that you can't conceive of using the kind of pricing approach described. When involved in the sale of one or two units at a time, I agree. That's a retail-style operation, and these approaches won't have much application. But when you begin dealing with a wholesale opportunity (selling multiples of say 50 units at a crack) you may well find yourself getting creative in your pricing approach.

Going back to my lodging industry days, our expression was, "Lay in the base with groups and come over the top with individuals." In that situation, there was value in knowing that we had locked up 30 percent to 40 percent of our capacity months in advance of our summer high season with committed groups, and could get the rest of the way on local, seasonal, transient demand. The groups were annual volume generators and provided assurance that whatever happened (gas shortages, airline strikes, economic downturn) that we were covered. We thought those guarantees made it worthwhile.

This all brings up another aspect of marketing: Is it really necessary to use these kinds of approaches to get our product sold? I think you know the answer: It depends on the market situation. It is good to know that these kinds of hard-nosed tools are out there.

More Pricing Goodies

While this next remark goes to a more involved pricing strategy, be aware that the same unit may have different values to different uses or segments. Part of the marketer's job is to determine how much a unit is worth to each different segment and price it accordingly. Part of the purpose of packages (which we discussed under "differentiation" in previous articles) is to disguise the price being paid for each of the components of the package.

From my life before self-storage, I can tell you that on any airline flight there are at least 10 different fares being paid for identical seats on the same flight. Lodging is the same, with a dozen different room rates being charged for the same style room the same night. It works for one reason: All the guests in a hotel or on a flight are strangers, and with packages at work, many don't realize the pricing situation. (Clever, these marketers.) As a self-storage operator moves toward a marketing way of life, he will begin to more fully use the many dimensions of price.

Justification for Marketing

In the next article, we're going to get into the use of media. We will need to get our message out to our target groups. That's another way of saying that we're going to start spending serious money on marketing. The choice of media is limited to those whose benefits are commensurate with the scale of the marketing opportunity. That may seem like a statement of the obvious, but you'll see that the nature of self-storage places some restrictions on our choices.

The facility needs to think about what philosophy they will use in justifying media expense. There are two ways, and they lead to considerably different conclusions.

The most common situation is an organization that is not used to marketing costs. If it hasn't spent much on promotion previously, then anything may seem like too much. There aren't industry norms to help. The operating assumption is that a high proportion of business volume is safe or invulnerable from the incursions of changing market conditions. Also associated with that view is the attitude that the facility will get many new tenants without doing anything new. That is an especially pernicious view as it hobbles the sense of urgency or opportunity upon which these kind of activities rest.

The situation is further affected by the subdivision that occurs when using segment thinking. When the at-risk portion of business volume is broken down into the various segments, the marketing expense that can be accorded to each may become too small to operate a program.

The other approach assumes that all the volume is at risk. To maintain it and earn the market right for the owner to set his own rates, a thorough marketing effort must be made. That isn't a willy-nilly or carte blanche option to spend a bundle, for we will soon see that even that approach imposes some serious limitations on media choices. It is, however, the only way that a marketer can have the tools to make a difference. When you begin to see the degree of effort and expense associated with mounting an effective on-going program, the need to settle on a supportive philosophy will become apparent.

Need This Conceptual Stuff?

What should be developing by now is the feeling that there is some decent thinking behind the glitzy trappings of marketing work. My hope is that you will have sufficient familiarity with marketing concepts to operate creatively on your own. I admit that much of what I've presented is conceptual. The reason: If you have a sense of the theory, it is more likely that the practice or application will fly. Proven theory and concepts are what let us predict likely outcomes. Since most marketing activities are related to doing (often costly) things with hopes of seeing a good outcome, attention to some theory is worthwhile.

It surprises me how many people have reacted to my writing by saying that they just want me to tell them what to do. Without studying a particular area and operation, that's impossible to do--honestly. Yet, these same people hold equity positions in facilities worth several million dollars. I never understand that attitude. Their choice is to either get dependent on consultants or just more or less wing it. Given the cost and stakes involved, neither of those is the greatest choice. So, I hope you find interest in a little theory.

Now what? We are at the nub. What use? What product? What price? What customer? And next time, how do we tell them? The remainder of the articles in this series deal with "getting the word out" to the marketplace. Up until now, our discussion has all been preparation. Now is the moment of truth as we figure out our best choices for getting our planning out to prospects.

Missed some previous issues? Check the Web at www.hardnosed.com.

Harley Rolfe is a semi-retired marketing specialist whose career included 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.

Nearly all states have a self-storage statute that gives an operator the right to claim a lien against a delinquent tenants stored property. If he properly follows all the steps, hell eventually get the space back and sell the goods contained to help defray the outstanding rent and related expenses. But sometimes a lien sale is not your best option.

No matter which state youre in, there is some type of eviction statute (sometimes called a Forcible Entry and Detainer) that permits landlords to turn out tenants for reasons including nonpayment of rent. Selfstorage operators often lose sight of the fact that they are landlords. They do not provide the service of storagethey rent space to be used for storage. At the end of the day, there is always an eviction option available in a nonpayment of rent or other leasedefault situation.

General Principles of Eviction

While every state has a different procedure, there are general principles that hold true in every eviction action:

• There is generally some sort of preliminary notice to commence the procedure.
• The court or clerk of courts handles service of the complaint on your tenant.
• There is some sort of trial or adjudication on your right to remove the tenant from the premises, thus giving some legitimacy to the eventual removal of the property from your facility.
• The court often supervises or has some sort of procedure whereby court-appointed officials supervise removal of the property.
• In many states, you can file a claim for money damages as a supplement to the eviction complaint or immediately after the eviction is granted. If you find something of value in the unit, you can often lay claim to it.

Eviction vs. Lien Sale

Why would you consider an eviction over a lien sale? There are five scenarios in which it makes sense:

1. You believe your tenant is particularly cantankerous or litigious and will sue you for selling his property, even if you were in the right to do so.

This is particularly true if you are renting, for example, to a lawyer or politician. If you have a tenant likely to sue you even if he defaulted 10 different ways, the eviction route will cause a court to conduct a hearing that will determine your right to remove the property. It is then difficult (if not barred by statute) for the tenant to come back and sue you over the eviction. This action eliminates the potential claim that you did not follow every requirement in your states selfstorage statute.

It also potentially bars any claim for wrongful dispossession of the space and disposal of the property. By the time of the hearing, the tenant will have been properly served a summons by the court. If the court rules in your favor, youll receive an order allowing you to remove the tenants property from your unit.

I have seen too many cases in which a tenant sued an operator after a lien sale and the operator made one small mistake that gave the court reason to award damages to the tenant. But with an eviction, the court has heard the case and granted the order for removal itself. It sends out a bailiff, constable or other official to supervise the removal of the property. In some states, this is accomplished by a prepaid, approved moving and storage company and, in some cases, the property is simply removed to the street or another place for storage.

If you work under court authority and supervision, in accordance with court procedures, it will be difficult for a tenant to level allegations against you. An eviction can greatly reduce your risk of a tenant claiming you mishandled or improperly disposed of his property.

2. You have concerns about or have had past failures in serving notices to the last known address for the tenant, and you have been unsuccessful in finding a new address.

This is less of an issue in states where the self-storage statute requires you to only serve the tenant at his last known address. Many self-storage statutes are ambiguous about what to do if a tenant is difficult to serve, for example, his certified mail is returned as undeliverable. The advantage in filing an eviction is every state has what are called Civil Rules, or Rules of Civil Procedure, which set forth legal methods of obtaining service against a party in litigation. These are often much broader than the guidelines outlined in self-storage statutes.

Depending on your state, a tenant can be served by standard mail, certified mail, posting, bailiff, a process server, or even by such legal fictions as publication in a newspaper of general circulation, by what is called a Warning Order Attorney. He can sometimes be served via other methods by which the court attempts to warn the tenant of a pending lawsuit.

In many states, even if these efforts fail, the rules are written to say that by trying these methods, the service of the complaint is deemed to have occurred, and the court will proceed with the eviction. This is much different than sending out a certified notice, getting it back as undeliverable, and proceeding with a lien sale with your fingers crossed. There have been many cases in which a tenant claimed he provided an updated address, and the facility claimed to know nothing about it. The final advantage to eviction in this case is the clerk of the court handles the issues of service and maintains a record for court review.

3. You have a tenant in default for a reason other than nonpayment.

This is especially important if your state statute is not clear about whether you have lien rights for any type of default other than delinquency. There are times when you just want to get rid of a tenant, even though he pays rentfor example, the tenant leaves a lot of garbage around the facility, or you suspect he is causing building damage or engaging in criminal activity.

What do you do if you notify the tenant that you wish to terminate the lease and he tenders rent anyway? Can you overlock the unit, lien the property and sell it? Perhaps. But you can always evict for holding the unit after expiration of the lease term.

4. Youre storing a vehicle, particularly if the vehicle has a lien on the title, and especially in states that do not provide a remedy for vehicle disposal.

You need not give up hope that, by performing an eviction, you have relinquished all rights to make claim against property stored on the premises. Operators often file for a money judgment, either with the eviction or as soon after as possible. If you go to perform a set out and find property of value in a unit, you can file for what is called an Execution Against Property or Live Execution. This asks the court to seize the property and sell it on your behalf to satisfy or partially satisfy your judgment.

Except for a few states that have a provision about how to re-title a vehicle in a self-storage default situation, most are left with a patchwork of lawsfrom mechanic, warehouse, towing, parking and artisan businessesto fashion a remedy. One of the best ways to actually remove a vehicle from your unit is to evict it and simultaneously include a claim for financial reparation. Arrange the eviction so you know where the vehicle is (on another part of your property or in an impound lot), then obtain a judgment on your claim. You simply ask the court to attach the vehicle and sell it at a sheriffs or constables sale.

The advantage is that rather than trying to patch together various laws in compliance with your states title requirements and Department of Motor Vehicle rules and regulations, a sheriff or constable gets the vehicle re-titled and sold. The court official is liable for any mistakes he makes in the retitling of the vehicle, removing liability from the self-storage operator.

5. Your state statute requires the tenant be in default for a long, continuous period.

For example, Indiana requires 90 days of continuous default before you can exercise your lien rights. In states with similar delays, an eviction action may be quicker than a lien sale. Every jurisdiction varies in the amount of time it takes to secure an eviction, however, so check with your local legal counsel.

When you consider the liability involved in missed statute deadlines, incorrect sale of tenant property, failure to notify a tenant of pending sale and claims for wrongful disposal, it pays to consider eviction. If a tenant is difficult or there is an asset of value in his unit, an eviction may not only be an answer to your problem, it may be your best possible solution.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151