It can be argued that personal storage began in England more than two centuries ago, when banking institutions were asked to safeguard valuables for customers traveling overseas. Soon bank vaults became overcrowded, and the lofts of moving companies were used for the overflow. By the middle of the 19th century, the first warehouse for household/personal items was built. Warehousing remained the main supplier of storage for more than 100 years.

While you may dispute this little piece of history, last year the Federation of European Self Storage Associations (FEDESSA) signed affiliation agreements with its colleague associations in the United States and Australasia. This was an important acknowledgement that self-storage in Europe (including the United Kingdom) was definitely “on the map.” So what’s happened to the industry in the past year?

The Role of FEDESSA

FEDESSA supports and provides advice to national associations in 13 European countries: Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Spain, Sweden, Switzerland, The Netherlands and The United Kingdom. The latest to join is the newly formed association of Ireland, which recently separated from its mentor, the Self Storage Association of the United Kingdom.

There is a firm commitment from Norway to launch its own association in the near future. Meanwhile, FEDESSA has built relationships with operators in Austria, Hungary, Latvia, Poland, Portugal, Romania and Russia. It will continue to encourage and assist each nation to set up its own organization once it has a sound base of operators and operational facilities. With its member associations, FEDESSA now represents the majority of players in the European market.

FEDESSA has made its mark, providing the European industry with a common voice and coordinated message to legislative bodies such as the European Commission, European Parliament and Council, as well as standardization bodies such as CEN and ISO. With the support of its communications company, Weber Shandwick, FEDESSA is able to follow regulatory developments, analyze their business impact and, where appropriate, influence policy outcomes so the expansion of the European industry continues under favorable conditions. It also provides a forum for the exchange of relevant national developments with possible cross-border implications.

Wherever possible, common values, policies, definitions, messages and guidelines are encouraged. In fact, FEDESSA is in the process of establishing a customer standard on self-storage services through CEN, the European Committee for Standardization. The process will take up to another year or so, but the intention is to look forward to the provision of a standard for the next eight to 10 years—quite a tall order in light of the current immaturity of the industry.

Size of the Industry

While overall statistics for the European self-storage industry are not readily available, a review made this past summer resulted in a conservative estimate of approximately 1,270 facilities. The breakdown of growth over the past 17 years is noted in Figure 1. (Note: The majority of these figures are only estimates.)

Continental Europe

As seen in Figure 1, the industry is continuing to expand throughout Europe. Of course, it takes time for the public to understand the product and then take to it. Nevertheless, the available rentable storage on Continental Europe has grown to 22.6 million square feet, only 2.4 million square feet less than the slightly more mature U.K. industry.

Self-storage was introduced to Norway at an early stage, in 1993. The lead was taken by Carl August Ameln and Lasse Høydal, who formed City Self-Storage. They sold the company in 2004, when it was already operating in Barcelona, Copenhagen, Oslo, Prague and Stockholm. City Self-Storage has continued to spread its wings and now has 37 facilities in Czech Republic, Denmark, Italy, Norway, Poland, Spain and Sweden.

Shurgard Europe remains the big player, with 149 facilities in six European countries—Belgium, Denmark, France, Germany, Sweden and The Netherlands—as well as 18 facilities in the United Kingdom. However, its attempt earlier this year to float itself on the Belgian stock market was aborted, at least for the time being, and one wonders what’s going to happen next. Shurgard was instrumental in the early growth of the industry in France, Sweden and The Netherlands, and it is still the major player in these countries. It also dominates in Belgium.

France and The Netherlands were previously the countries that had seen the largest self-storage development in Mainland Europe, but the most spectacular recent advancement has been in Spain. The Spanish organization, Asociación Española de Self Storage (AESS), has been influential in bringing its members together, having hosted a successful first conference in Barcelona in May 2007.

The various speakers for AESS agreed the industry’s main catalysts include the high population density of the large metropolitan areas and high real estate costs, variables that are reaching extreme levels in Spain. Operators were, however, warned against excessive optimism. For example, after initial years of strong growth in France, a slowdown period followed, and many operators disappeared in some kind of natural quality selection. Today, the French market is again expanding, heading toward solid penetration in time.

The United Kingdom has also seen periods of strong advancement followed by periods of consolidation. And there have been several indicators pointing toward a slowdown of the Spanish economy, which might frustrate the more ambitious business plans there.

Meanwhile, Italy has an overall lower population density, which may explain why the growth of its self-storage market, though significant, has not been as spectacular as in some other countries. The same is probably true for the Nordic countries, where development has been steady and often determined by the availability of suitable land and locations.

This leaves us with the central areas of Europe, particularly Germany, where growth has not been as dramatic as one might expect. Germany has the largest population of any country in Europe. Yet it can only muster a handful of facilities so far, and rumor has it that setting up and operating a facility in Germany remains difficult.

While it seems unlikely that the European market will ever reach the level of penetration achieved by U.S. operators, there is clearly significant growth potential. Even a level of penetration comparable to that achieved in the much less densely populated Australasia, or just a quarter of the U.S. penetration, would forecast an excess of 10,000 facilities in Europe in the coming years (based on an average store size of 40,000 to 50,000 square feet).

United Kingdom

The U.K. self-storage industry continues to grow apace—in terms of space available for rental—at 10 percent to 15 percent per year (estimated at 14 percent in the last year). There are still more facilities in the United Kingdom (680) than in the rest of Europe combined (590). The average rentable square footage per person is .42 as compared with more than 6.8 in the United States and 1.1 in Australasia. The U.K. industry now generates revenue of about £360M. A typical facility has an average size of approximately 38,500 rentable square feet.

There are now approximately 250 separate companies operating self-storage in the United Kingdom. However, almost 45 percent of the rentable space is in the hands of the larger operating companies: Safestore Self Storage (100), Access Self Storage (45), Big Yellow Self Storage (44), Lok’nStore Self Storage (21), Storage King (19), Shurgard Self Storage (18), Personal Storage (14), Space Maker Self Storage (10) and Keepsafe Self Storage (9).

Other operators are smaller and typically have fewer than nine facilities, often only one. On an annual basis, this independent element of the market is increasing significantly as new operators, some of which appear to have significant financial backing, enter the arena. Meanwhile, the larger companies have a number of facilities in the pipeline too.

While the main concentration of facilities is still in London and Southeast England, there are now sites in all the significant U.K. conurbations. This year alone, there has been a major increase in the number of facilities opening in Northern England. The main barriers to growth are the limited availability of first-class locations in London and Southeast England; finding financing for the business; and the time and effort required to obtain the necessary planning and environmental consents. Forecast growth, based on the same assumptions as for Continental Europe, would see between 1,700 and 2,600 facilities across the United Kingdom in the next few years.

Some of most interesting developments in the market this year have been the high-profile status changes. In the spring, Safestore was listed on the London Stock Exchange for the first time, and Big Yellow became the United Kingdom’s first—and so far only—self-storage real estate investment trust. In addition, HSBC, one of the largest banking and financial-services organizations in the world, acquired Scottish-based Armadillo, which is now being managed by Personal Storage.

The Australian financial institutions have also “arrived,” with a long-term management agreement between Macquarie Real Estate and Storage King announced this summer. Latterly Babcock & Brown, an Australian investment bank, acquired Space Maker, which was previously American-backed. Are we seeing an Australian takeover bid? Or perhaps of more significance, what has happened to U.S. support of the self-storage market in the United Kingdom or, for that matter, Europe?

The Future

There’s no doubt this is an exciting time to be in self-storage in Europe. Growth is clearly possible, and with it comes an increasing interest by the public in the product and legislators in the operational aspects of the business. FEDESSA and its member associations are ready to play a part. We look forward to seeing as many European operators as possible at our annual conference in Rome in May 2008. 

Rodney Walker is the secretary general for the Federation of European Self Storage Associations and the CEO of Self Storage Association Ltd. in Nantwich, Cheshire, England. For more information, visit www.fedessa.org. 

A few years ago, when New Jersey and Connecticut were attempting to enact laws requiring that sales tax be charged on self-storage rentals, I feared this might become a trend. Unfortunately, I was right, and now several states are in the same predicament.

With this sales-tax trend now established, I thought I should revisit the topic and renew my call to arms to state self-storage associations to fight the issue. I encourage everyone involved in the industry to become better informed and advocate for the rights of our business. Otherwise, we could all suffer from big hits in the name of sales tax.

Whats the Worry?

The most obvious impact of sales tax on self-storage is the price of the product just went up by X percent. At least your competitors are equally affected, but this is as close to good news as we get in this little missive.

The first negative result is facility value just went down by the amount of sales tax, which you cant pass along without reducing your rental rates or occupancy. Lets take a look at an example and see what a sales-tax law can do to property value. For the sake of argument, because our market is competitive, lets assume we cant pass along the sales tax. (Based on what economists say, this is the right assumption in the long run.)

In our example, the 6 percent decrease in revenue from the sales tax translates to an $18,000 decrease in net operating income. When valued at an 8 percent cap rate, the property decreases in value by $225,000, or 9 percent. This is truly an impressive number, exceeding our intuitive notion by 50 percent.

Clearly, higher prices (and that is ultimately what sales taxes are) reduce the total demand in the market. If the demand had been there at the higher rates, you would have already raised them! Its hard to measure this impact, which economists call the slope of the demand curve. Still, it wouldnt surprise me to find almost 1 percent of lost demand for each 1 percent of price increase.

To put this in perspective, ask yourself how many customers youd have if you doubled your rates. This reflects the same suggested ratio. Thus, in competitive markets, total occupancy could be reduced in addition to revenue per unit.

Unfair Leverage

The reason states such as Connecticut, Michigan and New Jersey attempt to enact sales-tax laws is twofold. First, the state needs the money (states and cities always need money). Second, politicians know there arent many self-storage owners in the state (many are from out of state), and they wont face a revolt at the polls. In contrast, if they imposed sales tax on apartments, armies of landlords and tenants would be screaming at their elected representatives.

Other real estate landlords are also better campaign contributors than self-storage owners and, thus, politicians may not suffer as much from a self-storage backlash. Additionally, lawmakers in states facing fiscal trouble may see neighboring states instituting a sales tax on self-storage and think working the system is an attractive money-making option.

Unspoken Truths

Although the direct economic consequences are harsh enough, a more severe impact still looms: the attitude of planning commissions and city councils. In the past, weve seen planners and cities reluctant to approve new self-storage facilities just because they were ugly. However, my experience (and that of my private-sector planning friends) indicates an unspoken bias against self-storage because it doesnt pay sales tax. Hush is the word because to consider sales tax as revenue is politically incorrect and, in some cases, against the law.

Combine the need for revenue by local government and the fact that self-storage could pay a sales tax and you get a clearer vision of what the future may hold. Obviously, this could have an impact on potential overbuilding in many markets that have long been considered politically off limits.

I recently heard a story in which a developers project was considered inappropriate by city planners. He resolved the citys reluctance by agreeing to pay a use fee for infrastructure in the amount of 5 percent of gross revenue (sales tax by another name). Apparently, aesthetics became less important after the planners better understood the project. This unintended consequence may well be the most significant to many owners.

The time has come to gather the force and fight sales taxes. If you want to get involved, contact your local and national self-storage associations. These organizations should spare no effort in this battle. 

Michael L. McCune is the president of Argus Self Storage Sales Network, a real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for industry owners. For more information, call 800.55.STORE.

When the topic of budget comes up, many self-storage owners lament the amount of money spent on advertising and promotions. Inevitably, the discussion turns to e-mail marketing, because at first blush, it looks inexpensive and attractive.

Almost everyone has an e-mail address, and e-mail costs next to nothing to send. You can add links to podcasts, videos and websites. You can track who opens your e-mails and the links they click. You can get instant response to promotions and surveys. It sounds too good to be true which means it is. Theres a dark side to e-mail marketing that must be understood before you go any further.

E-mail marketing is no different than owning a fast car. If youre too easily impressed with its power and speed, youll run off the road at the next curve and flip end over endnot a pretty scene.

Warning Signs

The first thing to do before proceeding into the realm of e-mail marketing is talk to professionals who help people use it. I spoke with Kamyar Shahmohammadi, the president of World Consulting Group, an international firm that guides clients through the use of marketing mediums. Though there is no doubt about the effectiveness and efficiency of e-mail marketing, the legal ramifications of potential mistakes may exceed its benefits, he says.

Just because a car can run faster than the wind and handles like a dream does not mean you have any business behind the wheel. In the case of e-mail marketing, you need to find a summary of the CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act) and read it carefully. If you use e-mail recklessly, you can be liable for stiff fines and penalties.

And thats the good news. Fines are easy: You cut a check and apologize for not following guidelines (although your operation may not weather a $10,000 fine very well).

The bad news is a poorly planned and executed e-mail campaign could get your Web domain and servers blacklisted as a spam source by all Internet and e-mail service providers. This can cause all sorts of trouble.

If your e-mail domain is blacklisted as spam, any company or organization attempting to be spam-free will block anything you send. Any recipient of one of your e-mails can place your message in his spam folder, and associations of Internet providers will be notified that you are a potential spam source. This would mean that major e-mail services like Google, Yahoo!, MSN, AOL, etc., will not allow anything you send to get to their users. This isnt the worst news though.

The most regrettable consequence is your website will also be identified as a source of spam, and youll be de-listed by the search engines. This means all the money, time and effort you spent to make your website findable for customers and prospects is out the window. Youll have to fight to get re-listed, and youll have to start from step one to regain your prominence in search-engine results. This costs money, too.

Proceed With Caution

If e-mail marketing is so risky and has the potential to interrupt your business, why do so many companies use it, and how do they manage the risk? As a storage operator, you certainly know a thing or two about managing risk. In the case of e-mail marketing, the easiest solution is to use a third party e-mail marketing provider.

Large companies like Marriott, American Airlines and Avis manage much of their e-mail risk in-house. But since you probably dont have the resources to manage the risk yourself, consider using a service like Constant Contact, Swift Page or any of the many providers you find by searching the Internet for e-mail marketing. These companies have everything in place to manage compliance issues and ensure your campaigns are effective.

CAN-SPAM Laws of 2003 have certainly created an environment that, intentionally or unintentionally, guides e-mail marketers to deploy third-party services, Shahmohammadi says. The selection of a third-party e-mail service provider should include factors such as track record, compliance factors as outlined in CAN-SPAM laws, as well as cost and statistical tracking functions offered by the service providers.

Using a third-party provider not only takes care of compliance issues such as opt-out capabilities, but brings you optimal delivery. The icing on the cake is the reporting functions that allow you to see how people use your e-mails. These can be very helpful in designing campaigns, testing offers and following up with prospects.

This is not to say using a service provider guarantees you wont run into compliance problems or a de-listing nightmare. But your risk will be substantially reduced.

Designing Your Campaign

A third-party e-mail marketing service is not very expensive, so theres little to stop you from executing your e-mail campaign correctly. The trick is to design one that brings results and does not annoy recipients. Between junk e-mail and the abundance of offers people receive from companies they actually dont mind hearing from, it can be hard to get your message read.

Pay particular attention to your subject line. Will it cause someone to open the e-mail or delete it? Keep your message short and sweet. Make your offer obvious and compelling. If you use visuals, dont overdo it. The eyes love some stimulation, but too much will put your message in the recycle bin. Make it easy for people to receive your message, and they will accept it.

Take a closer look at the e-mails you receive and think about what appeals to you and turns you off. You could study advertising design for years and never know exactly how to get it right. My best advice is to try something you feel comfortable with and examine the results. Theres an old German saying that translates to something like, Trying something beats studying it.

Let me know how e-mail marketing works out for you and what you learn along the way. Send me an email at [email protected]. Include my address in your next campaign and, you never know I might open your message and click through to your offering! 

Tron Jordheim is the director of PhoneSmart, an offsite sales force that helps storage owners rent to more people through its call center, secret-shopping service, sales-training and Internet lead-generation services. Mr. Jordheim is also a member of the National Speakers Association. You can read what he is up to at www.selfstorageblog.com. For more information, e-mail [email protected]. 

Convincing self-storage owners to grasp the value of facility marketing can be tough. Too often, they view it strictly as an expense and are reluctant to give it the attention it deserves. They prefer to concentrate on the profit centers of their business, such as leasing rates and the products they can offer to contribute to the bottom line.

This may have been an acceptable strategy a few years ago, but the storage business has changed. To be successful today, owners must do more than simply invest a portion of the facilitys operating budget to marketing; they need to develop a plan specific to their marketplace. Why the change in strategy from a decade ago? The answer is competition.

Industry statistics reveal the average self-storage market (normally a 5-mile radius) contains eight facilities. You heard right, and this is only an average. Some markets have more, some less. But the point is, unless your facility offers the same products and services as its competitors, at a minimum, you stand to lose the share of market you do own.

Shedding New Light on Marketing

Most owners have become familiar with common marketing strategies. Certainly, Yellow Pages come to mind as an industry staple. Since most customers rank convenience as their No. 1 priority, they go the Yellow Pages to find a facility near their home or workplace. Direct mail within a facilitys ZIP code can be a successful way to promote a new service or a promotion to a specific market segment. Fliers, coupons, referrals, banners and signage are also tried and true marketing ploys. Any facility in a highly competitive environment will use these strategies as a matter of course. They should be no-brainers.

But there are other marketing opportunities right under your feet, if you care to take advantage of them. To see them, you must look at your facility through a different set of lenses. Your site can be more than a place to store customers valuables; it can be transformed into a community center, where special local events take place all through the year, involving hundreds of citizens (prospects).

Just use your imagination and be aware of all the ways your store can be a center for community activities. Not only will it be good public relations for you and your staff; it will draw attention to your facility and position your business as a vital member of your neighborhood, willing to participate in events that help others. These occasions can also result in positive exposure to potential customers who may not be familiar with self-storage or your particular store.

Hosting Special Events

Below are several good opportunities for using your facility as a base for partnerships with community organizations:

The Toys for Tots toy drive is a long-standing, successful charity program. Volunteer your facility as a drop-off point during the holiday season to collect gifts for children.

Speaking of winter holidays, who says Santa Claus can only be found in department stores during Christmastime? Volunteer your location for a photo-taking event with Santa. Believe me, the crowds will come. You can even have Santa give all the kids a free gift from your facility, like a coloring book or stuffed animal with your name or logo on it.

Other holidays such as Thanksgiving also provide opportunities to participate in community functions. A self-storage facility works well as a drop-off spot for food donations. Check with local church groups and civic organizations that will welcome a place to collect turkeys for needy families. Or host a holiday raffle for area residents, who can register to win a free turkey or a month of free rent. What better way to familiarize the prospects in your market with the advantages of self-storage?

At Easter time, hold an egg hunt at your facility. Kids and parents love to participate in such events, where the kids can rummage around the grounds looking for eggs hidden in a downspout or tucked behind a remote building.

Boy Scouts and Girls Scouts functions are excellent ways for your site to be perceived as one of the good guys in your neighborhood. Scouts often get involved in charitable events and could use space to have a car wash or any kind of fundraiser. Troops may also be looking for space to conduct merit-badge competitions. Get in touch with the organizations in your area and volunteer some space.

Antique-car enthusiasts are always looking for space to show off their vehicles. Contact related clubs, and they will happily use your site to exhibit their prized collections.

Contact the Red Cross and offer to let the organization use your facility for blood drives. Its mobile units make it convenient for local residents to donate. There will also be opportunities during disaster periods, such as hurricanes, fires or floods, when your facility can house and distribute supplies for those who have been affected.

The local police are always interested in finding a place to hold safety-day training sessions. This could involve demonstrating proper infant-seat safety in autos or explaining ways to avoid identity theft to citizens.

These are but a few of the events you can use to build confidence and trust with your community. There are many others you could investigate, like Halloween coloring contests, or a carnival day for kids including clowns, face-painting and refreshments. Every opportunity you have to connect with your immediate neighborhood will build goodwill that cant be measured in dollars and cents. If you support your neighbors, they will support you in turn. 

Susan Head is the vice president of operations, sales and marketing, for The S&W Group, which provides management and consulting services to self-storage facility owners. She is also the vice president of sales and marketing for Phone Advantage, a division of S&W Property Management, which offers an off-site rental source for facility owners. For more information, call 704.768.8402; e-mail [email protected]; visit www.sandwgroup.com. 

In any given self-storage facilitys market, there is a limited number of customers who will be in need of storage each month. To capture your fair share of this group, you must properly promote your facility. Marketing creatively will offer you the opportunity to gain a few additional rentals. But before you dip into your budget, there are a few key things to keep in mind.

Smart Sales Equals Great Marketing

First, make sure your staff has been very well-trained in telephone service. Provide them with a list of items that make your facility stand out in its market, questions that should be asked of each caller, and a closing statement inviting the potential customer to your site. Once you establish a format that works, post a copy by every phone in the office. This will give managers a guideline regarding what should be asked and which benefits of your store should be shared with prospects.

The goal behind each phone transaction should be to get the caller to visit your location. Once he has arrived at your facility, its the job of the manager to sell the unit and convert the prospect into a tenant. The managers attitude and personality is very important, as it is often a deciding factor behind whether the customer rents from you.

One of the easiest ways to guarantee a prospect does not leave without renting from you is to close the sale while touring the property. While walking through the facility, point out key features in which he may be interested. For example, if he mentioned a concern for security, show him your surveillance cameras, fencing and access gates.

Stock your golf cart with your resale locks. When you feel the prospect has made a decision on the size unit he needs, offer to include a lock with his rental. This way, you can lock his unit on the spot and hand him the key. By the time you return to the office, the sale is complete, and all that is left to be done is a little paperwork.

Aesthetic Appeal

Curb appeal is also an important part of marketing, so examine the drive-up and overall appearance of your facility. A clean, well-landscaped property will make a great first impression even before the customer walks into your office. You may want to consider upgrades to surveillance systems, gates or landscaping to provide a location where people would be comfortable storing their possessions.

Also evaluate your signage and entry to the facility. Make it stand out by using American flags, wind socks or banners if your municipality will allow it. A reader-board sign can be your best marketing tool if used correctly and changed often. Many of the same people drive by your facility daily; if you give them something new to read every couple of days, youll be the first company that comes to mind when they need storage.

Making the Most of Your Budget

With these items in place, you can now examine your marketing plan and the most effective way to use your budget. A Yellow Pages ad is necessary, though its not the most productive way to use the majority of your dollars. A smaller ad that stands out and identifies your location, phone number and Web address will be as valuable as any full-page advertisement. Use the remainder of your budget to focus on the immediate market area. Direct-mail pieces can be effective, but making personal contact with prospects in the area will produce better results.

Be creative and try to think of things that are not already being done by competitors. For example, approach the manager of a nearby restaurant with the offer of free drink koozies he can give to his customers, imprinted with your facility name and information. Or set up a booth at a local fair or market and hand out magnets or key chains with your name and logo on them. In some areas, working with your local chamber of commerce can be beneficial.

A website can also be a great marketing tool. It should be easily searchable, simple to navigate and uniquely your own. You dont want your website to look like your competitors and risk losing customers to them. Include unit-sizing information, helpful storage tips, a map, phone number and enough other information to entice people to call or visit your location. Visitors should also be able to contact you through your site and make payments there once they have become customers.

Whatever marketing avenues you pursue, dont get discouraged if the first few things you try arent successful. It will take some time to figure out what works for your individual location. And if you have more than one facility, what works at one site may not work at another. Think about what makes your store unique. While you cannot create a need for storage, by creatively promoting your facility, you can capture the majority of customers in your market. 

Tammy Ross is the president of Salt Lake City-based Cutting Edge Self Storage Management & Consulting, which provides third-party management, feasibility studies and consulting services to the self-storage industry. She has contributed numerous articles to industry publications and has been a featured speaker at self-storage tradeshows and seminars. For more information, call 801.273.1267; e-mail [email protected]. 

For the past year, this bi-monthly column has provided readers with an outlook on real estate and financing developments and how they can affect the self-storage business. Now that its a new year, lets look ahead to see what 2008 may bring for our industry.

Before we launch ahead, though, we need to take one last peek at what occurred on one day in 2007 because it had a profound effect on the self-storage industry, and will continue to do so in 2008.

A Day to Remember

The year 2007 started out well enough for the self-storage real estate and financing sectors. We cruised through the first quarter, enjoying strong construction, acquisition and lending activity. And the industry continued along its five-year growth trajectory, thanks, in part, to unprecedented access to cheap and aggressive capital that allowed property owners and investors to fund their investments.

Residential sub-prime mortgage problems started to come to light in the first quarter; at that point, they were not yet affecting commercial real estate. But with the passing of April 11 came a pendulum swing in the capital markets that has created a bumpier ride for self-storage real estate investors and owners ever since. On that day we witnessed how a single event can completely reshape the future.

What happened? Rating agency Moodys Investors Service declared that lax underwriting on commercial mortgage backed securities (CMBS) loans had increased investors risk, and it vowed to increase subordination levels on future transactions. Other rating agencies immediately followed suit. Increased subordination levels raise a lenders cost of capital because a higher percentage of its mortgage pools must be sold to bondholders, requiring a higher investment return.

As rating agencies intended, CMBS lenders reacted almost overnight by tightening underwriting standards, scaling back or eliminating interest-only loan periods, boosting equity requirements, and effectively reducing proceeds available on self-storage loans.

The capita-market storm gained ferocity in July as buyers of the riskier investment bond tranches, known as B-piece buyers, nearly all retreated from the market and stopped purchasing CMBS investments. This snowball effect created significant obstacles for CMBS lenders because it caused a huge gap in the demand side of the equation.

Because of this, bond investors now require a higher return on securitized debt pools, which, in turn, increases the cost of capital and decreases the amount investors can pay for self-storage properties. As a result, spreads in the conduit market have spiked to 195 to 225 basis points over the 10-year Treasury; debt-service coverage ratios (DSCRs) have jumped to 1.25; the collateralized debt obligation (CDO) market has essentially collapsed; and cap rates are rising for properties, requiring a new debt structure.

The immediate and real effect of this correction ultimately affects the bottom line of any commercial real estate enterprise. In the case of our industry, we saw a dramatic slowdown in real estate transactions in the fourth quarter of 2007.

Opportunity Knocks

While it may seem as if the past year has been dominated by doom and gloom, rest assured it hasnt. Corrections like these are an inevitable part of a free-market economy and are actually healthy for the long-term viability of the finance sector.

Many positive signs have been posted that should hold your view in the coming months and work to your advantage:

1. The underlying fundamentals of the self-storage asset class remain strong. Self-storage is still at the top of any commercial real estate class when measured by its very low default rates (less than .5 percent for CMBS). That alone will help support investor interest in self-storage properties this year.

2. The money and demand for well-maintained self-storage properties remain strong. Its not the amount of acquisition dollars that has changed in recent months, but rather the property debt these dollars can acquire. The underlying problem is the gap between buyers and sellers in terms of value. Once this gap is better aligned, we can expect to see more real estate movement.

3. Occupancy rates remain high nationwide. Correspondingly, facility revenues are increasing. Further, as more homeowners affected by the sub-prime-market collapse search for new living arrangements, the demand for self-storage facilities will continue to grow.

4. Property owners who capitalized on the low fixed-interest debt market and have a high loan-to-value ratio in their financing have actually created value with their property debt. An investor can assume this low interest rate and still make the numbers work, in turn paying a more aggressive cap rate. By doing so, investors gain the advantage of achieving a debt structure that is no longer available due to recent lending-program changes.

5. Property owners who owned self-storage before the boom can still sell their properties for a significant return on their original investment.

6. Institutional investors continue to be interested in high-quality self-storage assets. They recognize the value of the asset class compared to other commercial property types.

7. The capital markets will continue to adjust over time and find new levels of equilibrium and profitability. CMBS lenders in particular are adjusting deal terms relating to interest-rate and loan provisions to meet new levels of acceptable credit risk and profit return. We have seen buyers of CMBS pools return to the market and begin to provide additional liquidity, which has caused spreads to tighten relative to the market peak experienced in August.

8. Because B-piece buyers continue to demand higher yields, you shouldnt expect spreads to return to the low 100s seen in 2007s first quarter. However, current spreads are close to historical averages and reflect the risk reward associated with commercial mortgage debt.

9. During the peak of the credit crunch, several lenders retreated to the sidelines, with others completely shaken out of the market. We expect sidelined lenders to be ready and willing to deploy their capital in 2008. However, origination volumes will decrease significantly for CMBS lenders, with the expectation that insurance companies and traditional banks will absorb this volume.

10. We will not see loan structures in 2008 equal those experienced in early 2007; however, deals are still closing with attractive terms. We expect to see LTV ratios up to 80 percent, DSCRs as low as 1.20, and loans featuring 30-year amortization and interest-only periods for a few years.

On the negative side, as buyers continue to return to the CMBS market, interest rates are not guaranteed to decrease from todays level. The stock markets continued ascent, Fed debate on whether to reduce interest rates, and the weak U.S. dollar all point toward an increase in U.S. Treasury rates. Adding to this is a recession risk, which would negatively affect all commercial paper.

Sit Tight

We predict the first six months of this year will focus our industrys direction from a value perspective. Once their confidence is restored and credit-market volatility settles, investors will continue to buy CMBS deals. We anticipate self-storage, because of its proven stability, will continue to be a desirable asset. However, until investor confidence is restored, we will see cap rates increase similar to interest rates.

Dont unbuckle your seat belts just yet; the capital-market-volatility ride is not over. But there are positive signs that should help the real estate and financing markets regain some of their traction and momentum from previous years. 

Devin Huber is a vice president with Beacon Realty Capital. He can be reached at 312.207.8232 or [email protected]. Doug McCarron is a partner at Storage Investment Advisors. He can be contacted at 310.908.4728 or [email protected]. 

To be effective as a marketing medium, your facility signage must be seen by the passing public. This means it must compete successfully with its environment and stand out from its surroundings. The sign must be conspicuous to complete the next stage in communication: It must be read!

Sign companies and business owners often collaborate in designing signs that look good on paper 18 inches from your nose, but this is not how most consumers see your signage. They see it in the street while fighting traffic, putting on mascara, having lively conversation with their spouses and children, and gabbing on their cell phones.

Failure to consider these human factors will result in a sign that under performs; and under performance can be directly linked to lost capture rate, sales and dollars. The highway department maintains safety standards by tracking the performance of its sign programs, by studying human factors and crash rates. If crash rates are high in a particular area, the solution most often applied is more or larger signs.

Government and corporate research has produced a very specific method of sign design that makes signs interactive with the environment in which they are placed. This environmental approach allows for the creation of signs that give businesses a strong competitive advantage.

One business owner recently reported that after applying this proven design method to his signage after 20 years of marginal performance, he experienced an increase in revenue between 50 percent and 60 percent. While these results may not be typical, they certainly point to the importance of sign design.

The complete science of signage cant be adequately conveyed in a single article; but lets address some of the common questions asked by business owners.

Why must my business have a sign?

A sign is your introduction to passing motorists, your hand shake with the public. Without it, there is no announcement to potential customers that you are ready, willing and able to serve their needs. Theres an old saying in the sign industry: A business with no sign is a sign of no business!

Signs are necessary to institute branding. Unlike products that can be distributed through multiple outlets, such as soft drinks or candy, storage space must be rented at a specific site where the units are located. Failure to brand that specific location with bold, beautiful, informative signage will negatively affect your ability to capture drive-by traffic and reduce the penetration of your other advertising.

Is my sign visible, or does it blend into its environment?

Recently, while driving through Louisiana, I almost missed the exit where I knew a Starbucks was located. The companys green and white sign, nestled in a stand of pine trees, was camouflaged. I was at the exits divided line before I saw the sign, and had to make a bold maneuver to exit.

This practical example shows that you must consider the readers vision and perspective to effectively communicate your message. Failing to design a sign that stands out in its environment and is clear from obstruction will cost you business dollars every day.

Does my sign convey my business model and value propositions?

Every business has a particular model it needs to convey to the public. The best approach is to develop value propositions that creatively communicate the way your business is different from competitors in the market. For example, if your storage facility offers free truck rental or boat/RV storage, these services should be included in your street and building signage. Its important that the public be able to discern your business model quickly.

Good design will allow your business to communicate effectively without crowding the sign. Including too many items such as phone numbers, addresses or other non-advertising information makes the sign look cluttered. First and foremost, keep it simple!

Also, use terms the general public is likely to understand. When determining content, pretend youre not familiar with self-storage. Industry thinking can be myopic, and we begin to communicate in ways outsiders, our customers, fail to understand. Our signs and employees need to speak the commonly understood language of non-informed consumers.

Can the sign be read at an appropriate distance to allow safe entry into the business?

Sign copy must be one standing inch of letter height for each 25 feet of distance to be read. The formula for determining the reading distance is:

Velocity (Number of Words or Symbols to Be Read x Time It Takes to Read One Word + Decision Time + Basic Maneuver Time) = Minimum Required Legibility Distance 

To determine your speed of travel (velocity) in feet per second, multiply miles per hour by 1.47. For example, at 30 MPH, the speed of travel is 44 feet per second (30 x 1.47 = 44.1). The average time it takes to read one word is .033 seconds; a persons average decision time is 4.02 seconds; and basic maneuver time is 4 seconds. Now lets put it all together, assuming our sign contains 13 words to be read:

44 [(13 x .033) + 4.02 + 4] = 371.756 

According to the above calculation, our minimum required legibility distance is 372 feet. Divide that by 25 feet per standing inch, and this sign requires a minimum copy height of 14.88 inches to be read and safely responded to by drivers. This is not the only consideration in determining the copy size, but it gives you an idea of how big the text and sign cabinet should be.

Do my local regulations prevent me from properly communicating with the public?

In this day of ever increasing sign codes, its important to capitalize on every opportunity available. A thorough examination by a sign expert can sometimes yield new ways for overcoming a prevailing sign code. But science should be the foundation of the design. Neither the code nor the art employed should replace the science dictated by the site where the sign will stand.

Sign codes may force creative use of signage. When signs are reduced to sizes too small to be read effectively, there are a number of ways to compensate. First, consider presenting a hardship, supported by scientific evidence, to the local board of adjustment. After one skirmish with a local board in which I explained the technical reason why we needed our sign illuminated internally, the board hired me to rewrite its sign code. Pleading for a larger sign is no match for using known scientific data to accomplish the mission.

When all else fails, changing the sign shape to a shorter or longer ratio will allow for larger copy size in a smaller area. Vertical and horizontal placement along the street to avoid obstruction is also a critical part of the proper sign design.

Setbacks imposed by the city may also reduce sign effectiveness and must be appropriately considered. The setback from the drivers center of vision measured to the leading edge of the sign may reduce readability and should be accounted for in the design.

One of the most creative ways to overcome restrictive sign codes is to use architecture to create larger signs than the codes allow. Recently, a car-wash owner was denied a permit to have a street sign because a billboard already existed on the property. After considering the options, we added a new architectural feature: a wing wall projecting from the building toward the street. We then applied for a new permit to use building signs on the addition.

The strategy worked, and the fantastic new signs made up for what was denied by the code. In fact, adding a large, colorful feature to a building and strategically placing signs on it can give the impression of a larger sign than what might otherwise be allowed.

Careful and thoughtful consideration of your signage is a necessary part of business success. Whether youre designing a new or replacement sign, use all of the strategies necessary to create the sign that best matches your site and business model. 

Perry Powell is a sign consultant who specializes in fitting businesses with appropriate signage specific to their sites. For more information, call 817.307.6484; e-mail [email protected]; visit www.perrypowell.com. 

If records storage has gotten your attention but you just dont know if it fits into your facility, there are several things you can do to facilitate the decision-making process. First and foremost, you need to gather the facts about this profitable add-on service.

Self-storage companies everywhere provide records storage for customers without even knowing it. In some cases, a facility only provides storage while others actually offer records management. Whats the difference?

Records storage, at its most basic, involves tenants simply storing their boxes in a storage unit. In addition to space, you can provide shelving for a higher rate and possibly even use of a database for tenants to keep track of their records via a kiosk.

Records storage shifts to management when you control the access to the records and clients must use your custodial services. Full-service records management can include many services supported by people, processes and technology. There is almost no limit to the services you can provide, or you can provide records management in its simplest format with all outsourced labor.

As you see, there are many dimensions to the service, ranging from simple to complex. Only you can decide how you want it to operate in your facility.

Want to Learn More?

A new year is a great time to launch a new venture. Where do you begin learning about records storage and management?

One place to start is the Inside Self Storage Expo in Las Vegas, Feb. 5-8, the industrys largest conference and tradeshow. The event will feature at least two knowledgeable speakers presenting seminars that relate to records storage.

These sessions should answer most basic questions as well as address more advanced concepts regarding how the service works in a self-storage environment. You can also attend roundtable discussions for question-and-answer encounters with records-storage experts.

In the expo hall, youll find numerous records-storage vendors demonstrating their wares and offering guidance in the field. Look for companies such as DHS Worldwide, Docu Data Software, FileMan, ONeil Software and REB Storage Systems.

If you dont have the time or money to travel to a convention, you can always visit the ISS website at www.insideselfstorage.com to access a free archive of articles on a wide range of self-storage topics, including records storage and management. Simply type your key words into the search box in the upper right corner of the web page. You should get more than 100 hits and can take your pick.

Heres yet another option: Access free audio recordings available at the ISS website (click on Webinars in the top menu) or at www.fileman.com and www.oneilsoft.com. These allow you to listen to presentations from past conferences or online seminars. You can attend these at any time via your computer.

Free Consultation

Companies like the vendors mentioned above offer free consultations to help you determine if records storage is right for your business. Most have dozens of documents available to educate you during the decision-making process. I also recommend contacting PRISM International, the industry association, which has an amazing amount of information available on its website at www.prismintl.org. 

Using a little ingenuity, youll find a wealth of information for this exciting niche business. For a crash course in records storage/management, do the following:

• Peruse the websites mentioned in this article.
• Read a dozen or more articles that strike your fancy.
• Listen to a webinar or other recorded presentation.
• Call the vendors listed above and inquire about their free consultations and other available materials. 

Finally, come to the ISS Expo and speak with the professionals available to help you make a qualified decision. Then you can join the thousands of other self-storage operators who are reaping the benefits of offering records-related services. 

Cary F. McGovern is the principal of FileMan Records Management, which offers full-service assistance for commercial records-storage startups and sales training in commercial records-management operations. For help with feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail [email protected]; visit www.fileman.com.