California self-storage operator A-1 Self Storage recently donated money to Noah Homes, a Spring Valley, Calif., nonprofit that provides residential homes and services for adults with development disabilities. Started in 1983, Noah Homes operates eight homes on 11 acres on the outskirts of San Diego. There are currently 65 men and women in residence.

One of the organizations goals is to maximize each residents independence by encouraging self-determination within a nurturing environment. The residents work in the community in a variety of roles including positions in restaurants, book stores and department stores, and in landscaping and janitorial. Noah Homes also encourages participation in sports, the Special Olympics, and entertainment activities such as bowling and ice-skating.

A-1 Self Storage has 17 locations in the San Diego County area and more than 40 locations statewide. It is the self-storage division of the Caster Cos., a third-generation, family-owned company headquartered in Southern California since 1959. Caster Cos. develops and manages A-1 Self Storage, A-1 Car Storage and other commercial properties in California. Its portfolio includes more than 4 million square feet of real estate.

From reality television to the big screen, self-storage takes the stage once again in a British horror flick set in a self-storage facility in London. Storage 24 stars British film actor Noel Clarke, who also produced the film and wrote the script, as well as Antonia Campbell-Hughes and Colin O'Donoghue. The story begins with a young couple (Clarke and Campbell-Hughes) dividing their possessions in their storage unit after a recent breakup. Tensions are high when the power unexpectedly shuts off, trapping the couple and their friends in the facility.

What the storage patrons don't know is London has entered a state of lockdown after a military cargo plane crashed, leaving its highly classified contents strewn across the city. Looking for a way out, they soon realize theyre not alone in the facility. An alien creature is soon discovered, picking off members from the distraught crew one by one.

First appearing in the United Kingdom in June 2012, the film was released in the United States  via On Demand in December and will hit theatres on Jan. 18. 

Decatur Self Storage in Decatur, Ga., has added enough solar panels to its facility to provide more than 100 percent of its electricity needs. Radiance Solar, an Atlanta-based contractor specializing in the design, installation and maintenance of solar-energy systems, completed the 100 kW solar-photovoltaic installation last week. The system includes 396 panels that will produce 134,000 kWh of power annually.

The economic advantages of solar for my businesses were irresistible, said Mike Easterwood, owner of Decatur Self Storage. The system will pay for itself in a few years, and I am essentially eliminating my power bill for the long term.

Easterwood also believes adding solar-power capability to the facility will significantly increase the value of the self-storage property.

As an appraiser and investor, I made the decision to go solar because its a 25-plus year asset that produces significant income/savings in property operation, and ultimately adds about $250,000 in value to my building, he said.

The addition of solar panels to the facilitys roof is the latest alteration to a property with a colorful history. The building was built in 1947 and originally owned by the DeKalb Chamber of Commerce. Decatur Self Storage purchased the building in 1997 from Lennox Industries and converted the distribution warehouse to self-storage in 1999. The building also features a mural on the front of the building that was painted by one of the facilitys early tenants, artist Angela Bond. The mural has become a local landmark, according to the companys website.

Decatur Self Storage is exactly the kind of facility that is able to take advantage of solar and experience a considerable drop in their energy costs, said James Marlow, CEO of Radiance Solar. With the cost of commercial solar continuing to drop, were seeing a lot of interest from business owners like Mike Easterwood who are very excited about the idea of lowering or eliminating their power bill.

By Candace Watson

Although the Canadian self-storage market has grown steadily over the past decade, investors and operators continue to face a number of challenges, including site selection, rising land and construction costs, and taxes. This article takes a closer look at the real estate market in British Columbia, examining supply and demand, rental and occupancy rates, acquisitions, and new construction.

Supply and Demand

The self-storage market in Vancouver Lower Mainland just experienced four years of very limited new supply, and it appears 2013 will continue this trend. With the exception of a 100,000-square-foot conversion in South Vancouver and the April 2012 completion of a 90,000-square-foot facility in Abbotsford, new facilities have been developed with first phases of only 40,000 square feet or less. Several existing facilities have completed small expansions.

The outlook for 2013 includes the completion of a 42,500-square-foot final phase to a facility in Langley. Other projects that may be under way include the expansion of a facility in New Westminster, a possible new facility in Mission, and potential new facilities near the Canada/U.S border crossings in Surrey and Abbotsford.

The supply in the Lower Mainland, including Abbotsford and Chilliwack, is estimated at just over 6.3 million square feet in 112 facilities with an average size of 55,000 square feet, or approximately 2.37 square feet per capita. The range in the various submarkets ranges from a low of 1.2 square feet to a high of 3.5 square feet per capita.

The Capital Regional District (Victoria) lost one facility to redevelopment, reducing the supply to 672,000 square feet in 23 facilities, with an average size of 29,233 square feet. The estimated supply per capita is just under 2 square feet per capita.

Rental Rates

Its difficult to generalize about rents because of market variations. In areas where the supply is in balance and occupancies are stable, new tenants have received regular rent increases. Increases appear to average 3 percent annually in these markets. Several markets in the Lower Mainland have become very competitive over the past few years due to new supply and, in one particular submarket, no rent increases have been possible for four years.

The harmonized sales tax (HST), which combined the provincial sales tax and the federal Goods and Services Tax (GST), is to be removed in British Columbia in April 2013. Before the combination of the two taxes, self-storage was exempt from provincial sales tax, which means if this exemption is retained, as the government has assured industry representatives, storage rents will once again be exempt from the 7 percent sales tax. Operators will have the option of passing this savings on to tenants or leaving rents as they are.

The Lower Mainland facility with the highest rents lowered rates on select unit sizes in 2011 due to a dip in occupancy. But it raised rents again this year and is reflecting an overall average rent per square foot of $3.29 per month.

Rents in the urban municipalities range from $1.78 to $3.29 per square foot per month, with smaller average unit sizes of 56 to 75 square feet. The current rent range in suburban Lower Mainland locations is $1.33 to $2.02 per square foot per month, with larger average unit sizes of 92 to 124 square feet. These are estimated average rental rates based on current list rents and actual unit mix.

Occupancies

Occupancy levels in the stable Lower Mainland markets have improved significantly, to the high 80s and low 90s, almost back to pre-recession levels. The strengthening is believed to be the result of limited new supply and increased confidence in the economy. However, the housing market has softened significantly in the past few months, with an immediate impact reported in the self-storage industry. The effect appears to be in the lack of activity rather than falling occupancies.

The Victoria market is more volatile than those of the Lower Mainland. Occupancies dropped in 2010 but have since strengthened. The Nanaimo market has recovered from the addition of a large new facility in 2010. Established facilities are reporting occupancies in the high 80s to low 90s. The newest facility is leasing at just under 2 percent per month.

However, some larger facilities that were built close to competitors between 2004 and 2008 are still struggling to lease up. These are in Vancouver, Port Coquitlam and the North Shore. In two instances, lease-up has flat-lined in the 50 percent to 60 percent range. Some lease-up is being achieved through significant discounting, which has caused as much as a 17 percent difference between physical and economic occupancy.

With a few exceptions, the lease-up of new facilities has slowed significantly. Facilities are now requiring at least three years to reach stabilization; five to six years is not uncommon for large sites.

Acquisitions and Sales

This year two smaller facilities were sold in the B.C. interior, one in Salmon arm, at an approximate 8 percent capitalization (cap) rate, and the other in Kamloops at an estimated 8.5 percent cap rate. A portfolio of three Lower Mainland properties was sold in February.

The two stabilized properties in the Lower Mainland portfolio sold for cap rates in the range of 6 percent to 6.6 percent on actual income, and 6.5 percent to 6.6 percent based on stabilized net income. The third property was approximately 60 percent leased at the time of sale. Based on actual income of the three properties, the overall rate of return was in the 5.4 percent range. The sale prices ranged from $173 to $221 per square foot of net rentable area.

To my knowledge, there has been one recent land transaction, the April 2012 sale of land and a building intended for conversion. The price for just over one acre of land and a building with a reported gross area of 25,000 to 27,000 square feet was $3.5 million. The site, in New Westminster, was purchased by the owner of the adjacent self-storage facility to accommodate expansion.

The most recent pure land sale was the resale of a site in Abbotsford in April 2011 at $3 million. It was a 2.25-acre site including plans and permits. A 90,000-square-foot facility was completed and opened in April 2012.

Industry Outlook

While the industry remains sensitive to the ups and downs of the housing market, occupancies have strengthened largely as a result of very limited new supply. The outlook for 2013 is cautiously optimistic, with stable occupancies in most markets, stable or rising rents, limited additions to the supply, and no change in cap rates unless interest rates start to rise.

Candace Watson is the principal of Canadian Self-Storage Valuation Services Inc., which offers appraisals and feasibility analyses to owners and developers in Canada. She has more than 30 years of experience as a professional appraiser and has appraised more than 40 percent of the current supply in the Lower Mainland. To reach her, call 604.681.2929; e-mail [email protected] ; visit www.cssvs.ca .

What a difference a couple of years can make. In December 2010, the capital markets were reeling in the post-recession environment. Financial headlines were dominated by phrases like "credit crisis," "auto-industry bailouts," "bankruptcies," "foreclosures," "credit card defaults" and "sovereign debt."

Fast forward to present day. Although we have macroeconomic risks (e.g., the fiscal cliff), the capital markets have returned to health, partially as a result of the stability in the commercial mortgage-backed securities (CMBS) market during 2012. All signs point to a strong 2013.

CMBS

After inching back to life in 2010 and an up-and-down 2011, the CMBS market appears to be in full recovery. Based on the volume of CMBS issuance over the trailing 13-month period (ending September 2012, volume has clearly been steady since March 2012. Total estimated CMBS origination for 2012 was $47 billion, up from roughly $35 billion in 2011, and is estimated to be $50 billion to $75 billion in 2013.

 

The market continues to expand as competition for deals increases. With more than 20 originators competing, we have seen loan-to value (LTV) increase, debt yields drop, minimum loan size decrease, and the list of eligible metropolitan statistical areas (MSAs) increaseall positive news for self-storage owners, as more operators are eligible for CMBS financing.

CMBS lenders are aggressively seeking quality self-storage deals with spreads at 200 to 250 over the 10-year swap rate for lower leverage deals (less than 65 percent), and 230 to 280 over full leveraged deals (70 percent to 75 percent). Current 10-year swap rates are at 1.8 percent (as of Dec. 31, 2012), so borrowers are securing 10-year, fixed-rate, non-recourse loans at interest rates in the 3.8 percent to 4.75 percent range.

Here are some things you can expect when securing a CMBS loan:

• Up to 75 percent LTV
• Up to 30-year amortization
• Debt yields as low as 9.5 percent
• Non-recourse
• Insurance and tax reserves
• Defeasance or yield maintenance prepayment

CMBS lenders continue to include more self-storage facilities. In 2011, most active CMBS programs had restrictions that did not favor self-storage economics. Many lenders enforced loan minimums ($5 million and up), which limited storage potential to portfolios of assets or single assets in larger markets controlled by institutional quality sponsors. Today, many lenders are considering smaller loans (less than $5 million) in secondary markets, and at least three lenders have a stated loan program that will go below $2 million.

Insurance Companies

Liquidity in the CMBS market has provided an outlet for transactions on insurance company and regional/local bank balance sheets, so these lenders have the need to make new loans. Insurance companies, which are balance-sheet lenders, focus on large transactions with institutional sponsorship. They cherry-pick deals. The old adage is if you qualify for an insurance-company execution, no other lender can compete.

Insurance companies originated an estimated $60 billion in 2012, with a similar volume expected in 2013. Insurance companies have consistently provided capital for commercial real estate owners for over half a century. Through the last recession the insurance companies were one of the few active lenders. Theyll continue to be active in 2013 for the few self-storage transactions that fit their criteria.

Characteristics of insurance-company loans in today's market include:

• Lower leverage (60 percent or less)
• Institutional quality assets and markets
• Larger loans ($5 million and up), with a few lenders willing to look at loans less than $5 million
• Loans over $10 million considered "the sweet spot"
• 25- to 30-year amortizations
• Fixed-rate loans up to 25 years (fully amortizing options available)
• Rates similar to CMBS (10-year money around 4 percent)
• Non-recourse (loans less than $5 million might have some recourse)
• Flexible prepayment options (yield maintenance or step-down)
• Greater flexibility than CMBS after closing for expansion or other significant changes
• Significant net worth, liquidity and sponsorship required

Small Business Administration (SBA)

SBA loans provided significant liquidity in 2012 to the self-storage finance market, especially for smaller transactions in secondary markets. Storage became an eligible property type for SBA lending in August 2009, and the products have evolved. It was difficult to find a lender willing to exceed 75 percent leverage at the onset of the program for a self-storage asset, even though the stated limits were 85 percent and 90 percent for the 7a and 504 programs. Today, we see leverage between 80 percent and 90 percent.

An SBA loan is a great fit for a storage owner who needs higher leverage, has a smaller loan balance and may not be in a top market. The 7a program is available for acquisition and refinance. As of September 2012, the 504 program is not available for refinance. In early 2013, Congress may consider allowing refinancing through the 504 program.

SBA programs offer the highest advance rates available among major loan programs, but these loans are not meant for all owners. As the name indicates, they focus on active business owners and operators, not passive investors. The liquidity the SBA programs have brought to the self-storage market has filled a clear need and has increased the industrys stability, especially in secondary markets.

Banks and Credit Unions

Borrowers have more options today than they have the last four years, so banks and credit unions wanting to replace maturing balance sheet loans have had to open their doors to new borrowers. But not all banks are healthy; some are still in distress. Its important to know the financial condition of a prospective lender because the banks health may be a determining factor in its lending decision, even more so than the merits of the proposed project.

Banks continue to primarily focus on repeat customers in their geographic footprints, preferring short to mid-term loans, and either floating or fixed rates for three, five or seven years. Most banks offer 20- to 25-year amortizations, shorter than CMBS or insurance companies. Interest rates range between 175 base points to 400 base points over London Interbank Offered Rate (LIBOR) for floating-rate loans and 3 percent to 5.5 percent for fixed-rate loans.

Local and regional banks are the prominent construction lenders. Construction lending came to a halt four years ago, but we expect the re-emergence of the construction loan in 2013. A signal is a handful of construction loans made in 2012 as lenders looked to get money out the door and the improving economy justified some new development. As competition increases for mature loans, we anticipate lenders to consider making more construction loans. The selection process will be stringent, as only the most seasoned, well-capitalized developers will obtain financing.

Its a Great Time to Borrow!

Interest rates are at an all-time low. The 10-year treasury is hovering around 1.7 percent. Capitalization rates are low and continue to compress as new equity enters the self-storage market. With credit, there are higher LTVs, lower interest rates, more competition, healthier banks and looser credit standards. At the property level, you have improved operations, higher values and lower debt levels. The result is more deals than weve seen for years.

We dont know how long these conditions will last, but we know the window is open now. Take advantage of it if you can. This should be a great year to borrow.

Devin Huber is a principal at The BSC Group, which offers financial and loan advisory, mortgage-brokerage and loan-workout solutions to commercial real estate property owners and investors, with a special emphasis on the self-storage market. Prior to helping found The BSC Group, Huber was a senior vice president at Beacon Realty Capital and a key member of the firms Self Storage Group. To reach him, call 800.605.7880; e-mail [email protected]; visit www.thebscgroup.com .

A former self-storage manager and two ex-employees will face trial for allegedly stealing rental payments and customer property from units at 4 Storage in Bristol Township, Pa. A Bristol Township district judge forwarded all charges against Benjamin Vargas Sr., 42, and his wife, Marilyn Lopez, 40, to Bucks County Court during a preliminary hearing on Wednesday. Vargas is accused of stealing more than $44,000 in cash rental payments, among other charges.

A third co-defendant, Marisol Ramos, 34, was already set for trial because she waived her preliminary hearing. Lopez and Ramos are charged with conspiracy, theft and receiving stolen property, among other offenses.

Vargas was arrested in September on suspicion of deceitful business practices, access device fraud, theft of services, receiving stolen property and related offenses, according to the source. The alleged rent theft was discovered during a business audit.

Vargas managed the self-storage facility for more than six years. He is also accused of secretly using 14 units for personal items and renting outside space to work trucks and other vehicles without the companys knowledge. The loss of storage fees to 4 Storage is estimated at more than $2,000, investigators said.

Property reported missing by customers also has turned up in units allegedly used by Vargas. In once instance in November, property was discovered by the facilitys current manager belonging to a tenant who said he had been denied access to his unit by Vargas and later told the contents were sold during an auction.

All three defendants are free on bail.

An anonymous tip led to the discovery Dec. 29 of 168 pounds of marijuana inside a self-storage unit in Sausalito, Calif. The tenant was also apparently living in the unit at Marinship Self Storage, according to investigators. The unit had an electrical source, bed and cable television.

The self-storage tenant, Nicholas Pappas, 54, was arrested on suspicion of various drug violations and released on bail pending further review. Police told the source they didnt release the information until this week because the investigation was ongoing.

Police found about 40 pounds of marijuana inside the unit and another 120 pounds behind a false wall, Sausalito Police Lt. Kurtis Skoog told the source. The drugs are valued at $419,000. Police also seized suspected drug paraphernalia, 3.7 grams of suspected cocaine and 15 grams of concentrated cannabis. According to the source, Pappas told police he grew the marijuana in Mendocino County then transported it to the self-storage facility.

The self-storage manager, Mike Johnson, told the source he didnt know Pappas was living in the unit or storing marijuana. 

StorageBattles.com, an online-auction website serving self-storage businesses, has merged with another storage-auction website, Salt Lake City-based SealedOnlineBids.com. Together the sites have more than 1,000 registered facilities and 25,000 registered bidders. The combined company will be branded as StorageBattles.com with operations based in Scottsdale, Ariz.

Combining our experienced staff and advanced technology platforms will undoubtedly strengthen the level of support to our growing customer base, said James Grant, president and CEO of StorageBattles.com. Ever since reality television brought self-storage auctions into the limelight, we have seen growing frustration about auctions held at facilities. Our online auctions allow facility operators to maximize their loss recovery without the inconvenience of holding sales on site.

StorageBattles uses an eBay-style format in which self-storage operators post pictures and videos of units up for auction, along with descriptions of unit contents. Potential buyers can bid on units after they sign up for a free website account. The system allows bidders to participate in auctions outside of their immediate area and pick up the items in the days following the lien sale.

For operators, online auctions take all of the extra work out of the process and give them more time to handle the daily operations, Grant said. It also eliminates the chance of any type of liability like someone slipping and falling at the facility or the potential of a robbery occurring with all of that money at the on-site auction.

StorageBattles was created by storage-industry veterans with more than 30 years of experience who were frustrated by the inadequacies of onsite auctions, according to a press release. The site was designed to increase auction efficiency and alleviate frustrations experienced by operators and bidders.

BETCO Inc., a manufacturer of metal buildings and components for the self-storage industry, hired Brian Graves to its sales team. He will be responsible for sales in Colorado.

Graves, a native Virginian who was raised in North Carolina, owned and operated a boat/RV-storage business prior to joining BETCO. He has also worked as an estimator for a water and sewer infrastructure company as well as an administrator for the Wyoming National Guard Construction and Facilities Management Co.

Graves was educated at East Carolina University and Colorado State University, where he received a bachelor's in construction management.

Based in Statesville, N.C., BETCO produces self-storage roll-up doors and hallway systems and also provides refurbishing for existing buildings.