Todays self-storage environment is a lot like chess. Owners and investors move along a constantly changing battlefield checkered with opportunity and potential danger. They have to be nimble and patient in their movements, balancing agility with long-term strategy. Understanding this can be the key to continued success and ultimate victory.

Buchanan Storage Capital (BSC) has been helping storage owners create the necessary balance by providing sound advice on short- and long-term financial strategies, and supplying access to all forms of debt and equity in every phase of the investment cycle. The company is exclusively dedicated to self-storage financing nationwide, providing permanent, bridge and construction loans in addition to mezzanine debt and equity.

BSC is backed by parent company Buchanan Street Partners (BSP), a real estate investment bank that provides capital for owners and developers of commercial real estate. In addition to specializing in self-storage finance, the firm makes principal equity investments, arranges debt and structured finance, serves as an investment manager to institutional and private investors, and offers investment brokerage services.

Its no surprise that BSCs principals have called checkmate on more than $2 billion in self-storage debt and equity transactions since 1994. Last year, the team closed more than $330 million in self-storage financing, and is on pace to close more than $400 million in 2005. The parent company is expected to exceed $3 billion in transactional activity this year.

Success Strategies: Relationships, Philosophy, Professionalism

Why is BSC so successful at arranging debt and equity financing for self-storage owners nationwide? One reason is the companys powerful network of lender and borrower relationships. Another is its overriding philosophy: Always do the best job possible for the client. Whether its providing intense, highly structured debt solutions or canvassing the capital markets for the most favorable fixed-rate loan terms, BSC always provides customers with the most advantageous capital and advisory services. Finally, its the people. The Buchanan team is a unique blend of high-performing, well-recognized, ethical professionals who have a wealth of experience.

We are committed to the long-term goals of our clients, and pride ourselves on our ability to add real value and measurable results to their overall business strategy, says Jim Davies, principal. Examples of Buchanans focus and commitment to customers are continual. Here are just a few:

• When one owner wanted to purchase nearly 2 million square feet of storage across multiple southwest states, BSC successfully advised and arranged more than $100 million in highly structured financing for the purchase of 24 Storage USA properties across Arizona, California, Nevada, New Mexico and Texas.
• Over the past 12 months, the company secured more than $45 million on behalf of United Stor-All Centers for eight properties in Delaware, Florida, New Jersey, Pennsylvania and Virginia.
• BSC recently structured five joint ventures for ground-up self-storage developments in Connecticut and New York, and arranged many fixed-rate loans for properties still in lease-up.

Creative problem solving, responsiveness to inquiries, deep relationships with capital sources Buchanans knowledge of the self-storage industry helps guide us to more profitable financing decisions, says Ken Nitzberg, chief executive officer of Devon Self-Storage, one of BSCs many clients.

Meet the Masters

Principals Jim Davies and Eric Snyder work with self-storage owners nationwide to optimize the structure and execution of their financing needs. Over the past decade, while at BSC and its predecessor firms, Belgravia and FINOVA, they have collectively completed more than $2 billion in self-storage financing. They are shareholders in BSP and have a combined 30-year background in commercial real estate, with experience as direct lenders, advisors and property-acquisition specialists.

The BSC team is rounded out by a group of highly experienced and knowledgeable real estate professionals:

• Dave Zorich, vice president, is responsible for the origination of permanent and bridge-loan financing at the firms San Francisco office. He has a 20-year background in finance, sales management.
• Scott Sweeney, vice president, is responsible for the origination of permanent and bridge-loan financing at the companys Atlanta office. He has 20 years of experience in commercial real estate, sales and operations.
• Josh Greer, veteran closing manager, has been with BSC for more than five years. He oversees a closing volume of approximately $40 million in storage loans per month. He has overcome every possible closing challenge and believes in going the extra mile for customers. He has a deep commitment to delivering a borrower-friendly process thorough effective communication.
• Joe Maehler, senior underwriter, came to the company three years ago from CalPERS (California Public Employees Retirement System) Investments. His exclusive focus on self-storage has helped BSC earn a reputation as the most experienced underwriter and originator of storage loans.
• Krystyn Van Ness, marketing coordinator, joined the company in 2004. Her primary duties include the development of marketing materials, coordination and execution of advertising campaigns, and management of public relations with industry media. She also handles client correspondence and coordinates arrangements for industry tradeshows and events.

BSC, headquartered in Newport Beach, Calif., has offices in Atlanta, Chicago, Los Angeles and San Francisco. For more information, visit www.buchananstoragecapital.com.

August, Wells Fargo settled a $34 million lawsuit in which the company was accused of billing service-merchant clients without proper notice. When it comes to your merchant credit-card account, any number of complications can arise. However, you might not know theres a problem if you dont understand the information in your monthly statement.

In the July issue, I addressed the basic components of your statement: the plan summary, transaction activity, downgrades, fees and the net settlement. This month, Ill discuss 10 critical questions to ask when reviewing your credit-card report.

1. Is it the right statement?

Every time you receive a statement, verify the merchant identification number (MID) as well as the physical address. In an operation like self-storage in which a company can have several sites, its important to ensure you tie the correct statement to each facility and specific function. For example, you might have two MIDs at a single siteone for over-the-counter traffic and a second for Internet or MOTO (mail order/telephone order) use.

2. Does the number of transactions look correct?

Its important to have a sense of the transaction volume you process in a given reporting period. A change in the expected number can often indicate a problem. For instance, if theres a significant increase or sudden change in pattern, it could point to fraud. If theres a decrease, it could represent an error in crediting the account. There are a host of possibilities, but the key is to know what the transaction count should be from month to month, season to season.

3. Does the qualified rate on the statement match the one in your contract?

When you enter a merchant-service agreement, you are given a qualified (also known as best) rate under the terms of the contract. This is the rate the merchant will charge for processing a transaction if all appropriate conditions are met. In many cases, the contract refers to several rates that apply under different circumstances. Its important to be aware of these charges and confirm the rate being billed matches the one in your contract. If it doesnt, the statement should identify a specific reason for the inconsistency.

4. Does the statement contain notification of a price increase?

Check your statement to see if it contains any notification regarding price increases. An increase can occur for several reasons, such as a change in risk category or transaction volume. But its customary for a service provider to announce an increase at least one billing cycle before it takes effect. Keep watch for this and address any questions or issues immediately.

5. Do you understand what each charge represents?

Question every charge you dont understand. There are hundreds of possible charge categories and terms, and you cant possibly know them all. So when you enter a merchant-service agreement, demand a written list of fees. If your agent will not or cannot provide one, find another provider. If you find a charge on your statement that isnt in your contract, request a full explanation of its purpose and a refund. A failure to properly notify clients of changes in terms is what got Wells Fargo into hot water.

6. Are the charges correct?

Once you have determined that each charge type is valid, you must determine if the pricing is correct. Does the number of items charged to each category agree with the total number of transactions processed? Has a single transaction been charged in multiple categories? Do downgraded or nonqualified items add up? Mistakes do occur, so you must know what youre looking for. Check each charge for accuracy.

7. Does your statement show unusual patterns?

When it comes to your merchant statement, knowledge is power and consistency is key. You must know your charge patterns, including the percentage of downgrades, credits or charge-backs, and the types and amounts of fees and charges. You should be able to create a reasonable model based on the operational specifics of your company (taking into account seasonal variation). If you notice a distinct change in pattern, it should send up a red flag. Identify the cause, whether it is fraud, error or an anomaly

8. Have you been billed for leased or rented equipment?

As a merchant, you might rent or lease equipment necessary for the acceptance of credit cards, such as terminals, leased lines, software and other extraneous items. First, know if youre renting or leasing. If youre leasing, be familiar with the terms and when they end. Make sure you arent paying on the lease beyond the expiration date.

9. Did you verify random batches against your reports?

Always compare several of the daily batches listed on the statement against your own records and make sure they match. If they dont, first check to see if batches were rolled over due to a holiday or weekend when the processor was not in servicethis is valid. Otherwise, a discrepancy can indicate a problem. Demand a full, written explanation.

10. Do you know what other self-storage businesses are paying as a benchmark?

If possible, find out what similar businesses are paying for their merchant services. You can look at companies in the same Merchant Category Code or those in your geographic region.

This is a lot of information to monitor, but its the only way to gain an understanding of your merchant-service relationship. If you dont feel comfortable interpreting the data yourself, consider using a credit-card analysis system, a service designed to assist merchants with these important issues.

Ross Federgreen is a co-founder of CSRSI, which provides an integrated approach to the analysis, design, implementation, deployment and management of electronic transaction services and systems. Since 1999, the company has helped more than 350 public and private institutions reduce the cost of acquiring money and minimize the liability exposure related to payment transactions and customer data. For more information, e-mail [email protected]; call 866.462.7774, ext. 1; visit www.csrsi.com.

In-this column, I write a lot about the basics of self-storage sales. This is because you need to constantly practice the fundamentals. If you dont, you may get soft. Its no different than getting physical exercise. You always do your warm-ups and simple routines first, even if youre trying to build strength and endurance.

But if youre getting bored with the basics, lets take things to the next level. You may not be too impressed. You might think Im cheating you or just blowing smoke. But heres the secret, just as it was in the childrens fairy tales we all love: Everything you need, you already possessthe knowledge and the skills are within you. You just have to be trained to use these advantages and be prepared to use them.

Just Do It

Look at the masters of any pursuit. Youll see the advanced work is in the doing, not the knowing. That is to say, you can study and train all you like, but success is the result of how you act in the moment.

• Lance Armstrong may do a lot of training and have a lot of skill. But when it comes to race day, victory is about peddling and pacing himself.
• I doubt Tiger Woods begins a tournament without playing lots of practice rounds and working on all the aspects of his game. But on the green, its every stroke that counts.
• Some of you may like martial-arts flicks, like the old Bruce Lee movies. Lee studied several disciplines and perfected their basics. But when it came time to fight, he improvised based on his opponents approach.
• Most jazz musicians have years of training in theory and performance. Some go through classical study and could perform with any orchestra. But when it comes to a solo or spontaneous piece, it all boils down to the musicians mood and the performance of his peers.

So it is in selling self-storage. Once you know the essentials, you can throw yourself into the sales arena with abandon. Your goal is to make a new friend, anticipate obstacles that might prohibit the sale, and politely, professionally and persistently make the deal.

Because You Never Know

You dont know what sort of a prospect youre dealing with until you start to ask some good questions. You dont know where the advantage in your offering lies until you listen to the customers answers. You wont know how to help him talk himself into the sale unless you can address his concerns. You wont know if you can seal the deal until you ask for a decision.

For all these reasons, you cant jump into a sale willy-nilly. Without a firm grasp of the fundamentals, you could be a detriment to your business. So dont forget to warm up before you go selling. Stretch your sales muscle and review your best strategies. Then you can yell Whoaaa! and jump into the fracas.

Tron Jordheim is the director of PhoneSmart, an off-site sales force that helps storage owners rent to more people through its call center, secret-shopping service, sales-training programs and Want2Store.com facility locator. You can read what he is up to at www.self-storageblog.com. For more information, e-mail [email protected].

The devastation resulting from Hurricane Katrina should act as a wake-up call for every business owner. Acts of God such as hurricanes, tornadoes, fire, flood or earthquakes, and man-made devastations like break-ins, acts of terrorism or vandalism, represent just some of the potential crises self-storage operators face. What would you do if a catastrophe hit at your facility? Do you have a plan of action to deal with disasterbefore, during and after?

Every facility should have a formal manual of policies and procedures that outlines steps for employees to take during an emergency. Discuss this plan with your staff at least once a year, and make sure everyone understands their specific roles. Talk through hypothetical scenarios, discussing possibilities and raising questions. Update the plan regularly as new threats or procedures are discovered.

Outside Training and Supplies

Does your staff know how to administer basic first aid or CPR? This could be critical in the event of an accident. Consider sending employees to one of several emergency programs hosted by the American Red Cross (for more information, visit www.redcross.org/services/hss/courses). The organization also posts useful information about emergency preparedness on its website.

Being ready for any urgent situation involves having the right supplies. These might include several key items:

• A basic first-aid kit
• Nonprescription drugs such as aspirin and antacid
• Fire extinguishers
• Flash lights, matches and candles
• Batteries
• Bottled water
• Blankets and towels
• Nonperishable food items
• A portable radio
• A gas-powered generator

A disaster is usually accompanied by little or no warning, so keep critical provisions on hand at all times and refresh them regularly. In addition to planning with staff in mind, remember tenants might also be on site at the time of an incident.

Insurance

Check your insurance policies to ensure you are adequately covered for rebuilding or replacement. After a disaster is not the time to discover your coverage is wanting. Consult with your agent at least annually and upgrade your policy when appropriate. This will help you rest easy in the long run.

Also make sure tenants know their goods are not insured by your facility. You can offer tenant insurance through one of several programs available to the industry, or customers can check with their own insurance companies to see if their goods are covered while in storage. When a tenant signs his rental agreement, have him also sign a statement that he understands his goods are not protected by your business insurance and it is his responsibility to secure coverage. Keep this form in the tenants file and give him a copy. This will be important if the customer ever attempts to sue for damages.

When the Dust Settles

In addition to having a disaster plan, you need a strategy for coping with the aftermath. You must decide how you will handle tenant concerns and inquiries regarding their goods. You must also know who will handle facility clean-up, if you will hire temporary support staff, how current employees will be compensated for additional or lost hours, etc.

Most people are ill-prepared for calamity. Dont be caught unawares. Now is the time to make your plan of action, gather supplies, and be ready for disaster if it strikes.

Pamela Alton-Truitt is the owner of Mini-Management, a nationwide manager-placement service. Mini- Management also offers full-service and "operations only" facility management, training manuals, inspections and audits, feasibility studies, consulting and training seminars. For more information, call 800.646.4648.

Source: www.redcross.org

1.

Talk with staff about disasters that can occur in your location.

2. Agree on where to meet after a disaster, and consider possible escape routes from the facility.

3. Create a list of important contacts to be notified in the event of an emergency, and make sure each employee has a copy.

4. Every staff member should learn how and when to turn off utilities such as electricity, water and gas and how to use a fire extinguisher. He should also know the communitys disaster-warning signals.

5. Check and replace supplies every six months. Check batteries in items like flash lights, alarms and smoke detectors.

6. Conduct practice drills and review your plan at least twice a year.

First, lets consider the profile of a self-storage owner who can cash in on this opportunity. If you have one or more of the following, you are well-positioned:

• A variable-rate loan
• A construction loan coming due and a facility approaching stabilization
• A permanent loan coming due
• A permanent loan that has a high interest rate (7 percent or greater)
• Significant equity tied up in the business
• Another self-storage acquisition in mind

Crystal Clear

So what does this window look like? The background includes Greenspans measured approach toward increasing the Federal Funds rate. Never before has the Fed raised the rate in 10 straight meetings, taking it from 1 percent at the beginning of 2004 to 3.5 percent as of August 2005. By the time you read this article, it will be 11 meetings running. (See Graph 1.)

Graph 1: Fed Funds Rate Trend

Click here to view Graph 1.

Self-storage owners do not borrow based on the Fed Funds rate. Instead, they typically use the Prime rate and the 10-year Treasury yield. These follow the Fed Funds rate differently. If you were to compare graphs of the Prime and Fed Funds rates for the period of January 2004 to August 2005, youd see an identical trendthey increase commensurately. However, if you compare the 10-year Treasury yield to the Prime rate for the same period, youd see the former remaining relatively flat while the latter increased 63 percent. (See Graphs 2 and 3.)

Click here to view Graphs 2 and 3.

Short vs. Long Term

Another way to look at this same divergence in rates is to compare the two-and 10-year Treasury yields over the same time frame. This is known as the yield curve, which typically reflects lower borrowing rates at the short end of the note period. (See Graph 4.)

Click here to view Graph 4.

The gap of only 12 basis points between the rates of the two- and 10-year yield in August 2005 causes most people to think the yield on the 10-year note is poised for an increase. Even as far back as February 2005, Greenspan was clearly puzzled by the divergence between the short-term interest rates and 10-year Treasury yield, calling it a conundrum. In July 2005, he delivered his most pointed warning that the low level of long-term interest rates is probably unsustainable.

What caused this unusual relationship between short- and long-term interest rates? Theres no simple answer. There are many variables such as the domestic money supply, Treasury-note purchases by countries such as China, and relatively low inflation. For no other reason than to keep things simple, Im going to give credit to the Fed Funds management process. Greenspan has done two things that have positively contributed to record-low, long-term interest rates:

1. He raised the Fed Funds rate as part of an effort to control price inflation.
2. He has been very clear about his intent to raise rates in a measured manner, thereby preventing a panic about inflation.

How Long Will the Window Be Open?

The gap between short-term interest rates and the 10-year Treasury yield is the window of opportunity mentioned earlier. This is especially true for self-storage owners who are in a position to lock in long-term mortgage rates on their facilities. Of course, everyone wants to know what the rates are going to do, but no one really knows. There has been nothing in recent statements from policymakers to suggest the tightening cycle is over.

While theres no real consensus on how much further the Fed Funds rate will be raised, the average estimate is an increase of 1.5 percentage points. Since the Prime rate tracks the Fed Funds rate plus 3 percent, that would put Prime at 8 percent by the end of 2006. It may not actually go that high, but my bet is it wont be off the mark by more than .25 percent in either direction. The bottom line is, if you have a loan based on Prime, expect to see rapid increases in interest payments.

The more difficult questions are: What will happen to the 10-year Treasury yield in the coming moths? Will long-term rates continue to stay flat while short-term rates increase? The only reasonable conclusion is rates will soon start their move back to more normal levels.

But what is normal? Looking at the data provided in this article, you can attempt to surmise for yourself. The important thing to realize is we are in a unique phase in our economy with historically low, long-term interest rates. Moreover, this situation has created a real opportunity for self-storage owners to refinance their loans into 10-year fixed mortgages.

Bill Walton is a CPA and vice president of S&W Capital and Realty LLC, which specializes in arranging financing for self-storage owners nationwide. For more information or updates on interest-rate trends, call 704.371.4275; e-mail [email protected]; visit www.sandwgroup.com.

Finance Q & A

Q. My facility has not stabilized. Can I still convert my construction loan to a fixed-rate loan?

A.

Yes, if you think youll be stabilized in the next six months. Your lender can help you obtain a forward rate lock that would allow you to fix your rate today and close up to six months later.

Q. I have a fixed-rate loan with a rate of more than 7 percent and a prepayment penalty. Can I convert this to a lower-interest, fixed-rate loan?

A.

Just because you have a prepayment penalty, it doesnt mean you cant pay off the loan and refinance into a lower, fixed rate. Do the math. It may be worth paying a penalty if you can pull out some of your equity to invest in another opportunity.

Q. Will rising interest rates have an impact on self-storage values?

A.

The consensus is when it becomes more expensive to finance acquisitions, cap rates will start to increase, resulting in overall lower values for self-storage owners.

Lets talk about financeas it relates to the marketing of your self-storage business. First, you need to understand the concept of return on marketing dollars (ROMD). You want to spend the least amount possible on marketing while maximizing your return. Most owners go for Yellow Pages advertising before any other marketing technique, but surprisingly, there are six other methods that are far more profitable, dollar for dollar, and more efficient than Yellow Pages:

• Repeat CustomersTreat people right and provide them with great service, and they will come back and use you when the need for storage arises again. If you can, send past customers a postcard every quarter to remind them that youre still there or to tell a friend about your business.
• Referral CustomersEncourage existing customers to tell others about you and your facility. You can offer them any number of incentives to do so, but the most important thing is to ask them for the referral. The best time, obviously, is immediately after you have helped them with something or otherwise pleased them.
• Storage HotlineEvery facility should have an automated response (answering machine or voicemail) hooked up to a separate hotline number. The message should be educational, explaining storage use to customers and highlighting the benefits of your particular site. A hotline is a great way to publicize, because people are more apt to call when they know they wont get trapped on the phone with a salesperson.
• Centers of InfluenceFind people in your community who are in a position to influence the decisions of others, and convince them to recommend your business. Centers of influence include apartment-complex managers, real estate agents, chamber-of-commerce members and so on. You can use a variety of creative means to make yours their facility of choice.
• Direct MailA well-targeted direct-mail campaign can be very effective in the storage industry. Unfortunately, most owners use it incorrectly, sending a generic mailer to everyone in the community. This is unproductive and wasteful. Instead, focus on a particular market niche and tailor the mailing accordingly, i.e., local businesses that might need storage for inventory.
• Public RelationsAs often as possible, get news about your facility into the local media. It's always best if it ties into current events. For example, if your community suffers from a natural disaster, offer free storage to people in need, and then contact the local newspapers, radio stations, etc. The media loves this kind of story, and it'll get good coverage for your business.

Im not suggesting you drop your Yellow Pages ad, but if you use these other methods effectively, you may be able to reduce your advertising costs. The key is to know the source of your business and measure it effectively. Before embarking on any marketing campaign, know the answers to the following questions:

How many phone calls do you get each month?

The total number of calls you receive gives you an idea about the effectiveness of your marketing. it's a very rough barometer, but it's helpful for tracking a general trend. You can track this number by hand, use an automated device or hire a service to do it for you.

How many callers did you turn into visitors?

The first step in getting someone to rent a unit is to convince him to visit your facility. You need to keep an accurate count of how many callers later walked in your door.

How many visitors became renters?

Most operators claim to have a high conversion rate. In most cases, if a prospect visits your site, you will make the sale. If he doesn't rent from you, make sure you understand why and correct the problem, if there is one.

Where do you get your leads?

Without this information, it's very difficult to make intelligent decisions about your advertising and marketing. Identify the source of every lead and keep a record of it.

How much do you pay for each lead?

There is a cost associated with every marketing method you use. To evaluate a programs value, divide the total cost by the number of leads it produces. Then you can compare the cost of leads in each category to determine their overall effectiveness.

Where do you get your actual tenants?

This is different from knowing the source of your leadsleads are only potential customers. Once someone signs a rental agreement, record the source of that tenant in your data. This information will be extremely valuable in future marketing decisions.

How much is your average renter worth?

Take your average length of stay and multiply it by your average rental rate. For example, if the average customer stays for eight months and pays $80 per month, his value to your business is $640. Lets assume a 50 percent deduction for expenses and overhead. Now that customer is worth $320. Compare that with your cost per lead. The less you have to spend to get that $320, the better the marketing method.

Online Marketing

Online marketing is becoming increasingly popular. Most facilities have a website of some sort. The trick is to drive self-storage prospects to your website before they find those of your competition. There are several ways of doing this, which have been addressed in past columns. For now, you just need to know the following:

How many unique visitors hit your website each month?

A unique visitor refers to someone who has not visited your website ever before. This number is the most critical when it comes to web data.

How many of those unique visitors rented?

If you manage to drive a lot of traffic to your website but nobody rents, you're wasting valuable leads. If you actually paid to drive that traffic, you're also wasting money. There are two conclusions you can draw: People who were driven to your site were not qualified leads, or your website is somehow insufficient.

From where do you get your website visitors?

You need to know how people are finding you on the web. Which search engine did they use? Did they find you through an online directory? Record this information with your other marketing data.

When it comes to the finance of marketing, it's critical to track your numbers. Know the sources of your business and how much you pay for each one. This will allow you to make intelligent decisions and create an effective program.

Fred Gleeck is a self-storage coach and consultant who helps owners and operators maximize profits. He is an expert in the field of information and seminar marketing and the author of more than 10 books. For more information, call 800.345.3325; e-mail [email protected]; visit www.self-storagesuccess.com. To subscribe to his e-zine, send an e-mail to [email protected].

• Recourse vs. nonrecourseWith a nonrecourse loan, a lender can only go after the property, not the borrowers assets, in the event of default and foreclosure.
• Loan-to-valueThe maximum loan amount compared to a propertys appraised value.
• ImpoundsAn additional amount added to the monthly payment for taxes, insurance or capital improvements (replacement reserves).
• TermThe due date or maturity date of the loan.
• AmortizationThe period over which the payment is calculated.
• AssumabilityThe ability to take over an existing loan during the sale of a property.
• PrepaymentThe ability to pay off a loan before maturity or make additional payments to principal during the term of the loan, with or without penalty.
• Upfront rate locksThe ability to lock in an interest rate at application vs. approval or closing.
• Third-party reportsThe reports a lender requires to originate a loan, such as appraisal, environmental, inspection, survey, etc.
• Other loan costsThese include any number of fees, including loan, processing, document, underwriting and legal.

Banking Institutions

Included in the institutional category are banks, savings and loans and credit unions. These sources still provide the majority of self-storage financing due to relationships with borrowers, flexible prepayment-penalty options, quick closings and low costs.

Institutional lenders are not only lending in their local markets. Many are offering nationwide programs with fixed-rate options for three, five, seven, 10 and, occasionally, 15 to 20 years. They also offer amortizations up to 30 years, though 15 to 25 is more common. Loan-to-values can go to 80 percent but are usually between 65 percent and 75 percent. Typical institutional rate ranges vary by market and competition. The following fixed rates were obtainable as of Sept. 1:

The higher-end rates usually apply in small-population or rural areas in which competition is limited. Lower rates are more often provided by large regional or national institutions, which prefer to lend in highly populated areas and major metropolitan markets. Many of the nationwide lenders have minimum loan amounts of $500,000.

Most of these programs offer fixed rates over the first 10 years, and then roll to additional fixed or adjustable rates for the balance of the term. After the initial period, pricing is reconfigured at fixed margins over an index. However, there are some loans that run for a full 25-year term with amortization re-pricing every three to five years.

A recent development is the credit unions introduction of commercial lending programs in select markets, which offer very attractive fixed and adjustable rates and often no prepayment penalty. These can be a great alternative to banks, which are sometimes not competitive enough or cant offer long amortizations. A few credit unions are lending nationwide. Some will only lend to a borrower if he qualifies for membership by living, working, worshiping, etc., in a credit unions local, regional or state market area.

Conduits

Conduits (securitized lenders) are the predominant source of low, long-term, fixed-rate financing. They offer spreads that range from 1.1 percent to 1.4 percent (110 to 135 basis points) over the corresponding Treasury (usually the 10-year Treasury). At the time of this writing, the Treasury is at 4.2 percent, putting the overall interest rate between 5.3 percent and 5.5 percent for a fixed, 10-year term with a 25- to 30-year amortization. Maximum loan-to-values are 75 percent, with 80 percent on exception. Fully amortized 15- and 20-year fixed rates are also available.

Conduit loans carry much higher costs than bank loans. Expenses can range from $10,000 to $30,000 for appraisal, environmental, survey, legal and inspection reports. This does not include loan or survey costs and other fees, all of which can be built into the loan to reduce out-of-pocket expenditure. Prepayment penalties are usually tied to defeasance, but can also use yield maintenance or a fixed step-down percentage. (For greater explanation, visit www.defeasewithease.com.)

Minimum loan amounts for most conduits are $2 million or more, though a few conduits offer programs for amounts as low as $500,000 to $1.5 million. These loans require more paperwork and time to close (usually 60 to 75 days), but they offer upfront rate locks for a 2 percent refundable deposit. Conduit loans are mainly nonrecourse, but they require carve-out guarantees and prefer single-asset entities as borrowers. They also demand higher coverage limits for title and property insurance as well as endorsement requirements.

Originators of conduit loans are mainly commercial mortgage bankers, mortgage brokers and some banks. Their nationwide programs also apply to Canada.

Insurance Companies

Insurance companies are also strong providers of long-term, fixed-rate financing with terms of five to 25 years and amortizations up to 25 years. Their rates are typically 125 to 175 basis points over the Treasury, loans are nonrecourse, and costs are similar to those of conduits. However, when it comes to prepayment penalties, insurance companies tend to cherry-pick only the better-quality facilities, typically those constructed of wood frame or masonry, not metal, and located in major metropolitan areas. Insurance companies also tend to be more conservative on loan-to-value (60 percent to 75 percent), though theyre more flexible with regard to impounds.

Because insurance companies are portfolio lenders, they can be creative with term and amortization and really love self-amortizing product. Loans are typically obtained from correspondents (usually commercial mortgage bankers), not directly from the insurance companies themselves.

Overall, its still a great time to refinance. Despite the rise in short-term interest rates, long-term rates have remained relatively stable. Whether youre trying to take out a construction loan or replacing existing financing, its not too late to take advantage of great opportunities.

David Smyle, president of La Mesa, Calif.- based Benchmark Financial, is a mortgage banker and 20-year veteran of the commercial-banking industry. His company offers financing solutions for self-storage, apartment and commercial properties nationwide through its direct-lending relationship with bond street capital as well as other institutional financing sources. For more information, call 877.862.7916, ext. 201; e-mail [email protected]; visit www.benchmarkfin.com.

Traditional paper-check transactions in which merchants manually endorse and carry checks to the bank for deposit are still very common. In fact, checks are the most widely used payment method at many self-storage properties.

The Check Clearing for the 21st Century Act (Check 21), which went into effect in October 2004, allows an electronic image of a paper check to be substituted for the original at a bank or in a court of law. So when you deposit a paper check, the bank can process it electronically without needing the consent of the check-writer or originating bank. Your bank simply scans and then shreds the paper copy, converting it to an electronic check before distributing it to the originating institution.

Thanks to Check 21, consumers can no longer count on achieving float time with check payments, which is good news for merchants. Businesses that process large numbers of paper checks should take advantage of electronic processing and the benefits it provides. In fact, electronic checking creates such convenience for owners and consumers that all businesses should review their payment-processing options. The following alternatives work particularly well in a self-storage environment.

Point of Sale

Today, at most places of business, traditional cash, check or credit-card payments can be accepted in the form of a debit transaction, in which a customer enters his PIN into a keypad. The funds are withdrawn from the customers account and credited directly to the merchant within 24 to 48 hours. The point-of-sale (POS) transaction does not go through unless the funds are available at the time of purchase. No longer must merchants deal with the risk of registers full of cash or large cash deposits. Debit transactions also help them avoid the threat of bad checks and credit-card charge-backs.

Prearranged Payment and Deposit

In the case of a prearranged payment and deposit (PPD), a customer authorizes a merchant to regularly debit his account for a set amount. Every month, the customers account is debitedand the merchants account creditedfor a standard recurring payment, such as rent.

To initiate a PPD, the merchant scans one of the customers blank checks into management software via a magnetic-ink check reader (MICR), which captures the account and routing numbers. Then each time rent is due, the merchant submits the PDD to his bank or payment processor in a batch-mode file produced by the software. The bank or processor transmits the file to the Automated Clearing House (ACH), an association of Federal Reserve member banks. At the ACH, the debit transactions in the batch are sent electronically to their banks of origin, and each account is debited for the designated amount. Finally, the transactions are sent to merchants bank and the appropriate funds credited to his account.

PPDs are processed before paper checks at the Federal Reserve, which streamlines this type of payment processing. The turnaround time for an ACH batch transaction, from the file upload to the ultimate credit, is less than 48 hours. If a customers PPD is reversed for any reason, the merchant knows within 24 hours.

The processing fees charged by banks and processors for PPD transactions are very competitive with those charged for paper checks. However, PPD saves owners money in time and labor. In addition, because PPD is automatic and preauthorized, it doesnt carry the threat of charge-backs associated with credit-card payments. Once the customers account has been debited, the transaction is final.

Point of Purchase

A point-of-purchase (POP) payment is used for in-person sales. The customer presents a check to the merchant, who collects the account, routing and check numbers. These numbers are then used to generate a debit entry to the customers account for a single electronic transaction. The merchant submits the transaction to the bank or processor instead of the paper check, eliminating an unnecessary trip. The original check is now void and cannot be used again.

Accounts Receivable

An accounts receivable (ARC) transaction converts a check that arrives in the mail to an ACH transaction. The advantages to the business are similar to those of the POP paymentit takes less time to scan the check into software than to write out a physical deposit slip and visit the bank.

By integrating electronic payment options with other tools such as the Internet and self-serve kiosks, self-storage owners can provide customers with greater convenience and cut costs. As the industry matures, it continues to generate more alternatives for safe, convenient and customized rental space as well as streamlined funds management.

Alison Kiesa is the sales and marketing director of Syrasoft Management Software LLC, which has produced management-software solutions for the self-storage industry since 1991. For more information, call 800.817.7706; visit www.syrasoft.com.

Let’s start with the future. Almost all financing decisions are based on expectations. Do you expect to sell your property any time soon, or do you plan to hold it for the long term? Will your net operating income increase significantly, or have you reached stabilization? Will interest rates rise or fall? These are just some of the questions you need to ask yourself as you look at the financing alternatives available in today’s marketplace.

Loan types fall into four basic categories: construction, bridge (also known as interim), permanent and mezzanine. Let’s look at each loan type and the role it plays in self-storage.

Construction Loans

The easiest test to determine if you need a construction loan is to look at your self-storage site. If you don’t see any units, there’s a good chance you need a construction loan! There are no real viable options unless you have the money to build the project yourself. In simple terms, the construction loan provides you the debt capital to acquire a plot of land and develop a storage facility on it. While all construction loans accomplish the same thing, they’re not all the same. In fact, every loan is unique.

The great majority of construction loans are provided by commercial banks and thrifts. But in recent years, some of the Wall Street-based lenders and life-insurance companies have entered the loan market, often combining construction and permanent financing into a single transaction (usually for larger deals). Shop alternatives, and pay attention to detail. Items that appear trivial or meaningless during the loan process may prove to be important later in the project.

Bridge Loans

A bridge, or interim, loan is usually a floating-rate loan offered for a short term, usually one to three years, with very liberal prepayment terms. Bridge loans may require personal guarantees, but some are nonrecourse. The choice between bridge and permanent financing involves a careful analysis of where your project stands now, and how successful you believe it will be in the future. Let’s look at some scenarios in which bridge financing may be the smart choice:

Instability.

A bridge loan may be your best alternative if you are acquiring a property that has not yet reached the occupancy or income level you desire, or an older property with a volatile operating history. Why? The primary benefit of a bridge loan is flexibility. A bridge loan allows you to wait until a property has reached its highest possible net operating income before making the long-term commitment to permanent financing. This is especially important if you’re aiming to maximize the size of your loan.

To sell or not to sell?

Some owners have a very clear plan for the future of their property, while others do not. If you don’t have a clear plan, or if your plan involves the sale of the property, a bridge loan may be your best bet.

Many income properties are sold with permanent financing in place, with the buyer assuming the existing loan. But most experts will tell you that allowing a buyer the flexibility to make his own financing decisions is a real benefit when you’re trying to sell a facility. This can be especially true if your property has appreciated and your loan has a much lower loan-to-value ratio than it did when you made the purchase. In this case, the assumption of your existing loan may require a bigger down payment than a buyer is willing to make.

The interest rate on an assumed permanent loan will impact the sales price. If your rate is deemed to be above market at the time of the sale, you can expect at least a slight discount in the offering price because of it.

I just can’t get permanent fixed-rate financing!

There are many reasons a borrower may find it difficult to obtain a permanent loan. He may have had credit or bankruptcy problems. His financial strength may not be up to par when compared to the loan amount he is requesting. Or he may have had a bad experience with a lender in the past that resulted in a negative reference. In any case, the passage of time will most likely be to the borrower’s benefit, and a bridge loan is very good way to buy time. He will almost certainly have to provide personal recourse to his lender, but that’s palatable when the alternative is no financing at all.

The very broad category of bridge financing incorporates many types of loans and lenders. The most common providers are commercial banks and thrifts, but nearly every lender has a product aimed at satisfying the bridge-loan borrower.

Many life-insurance companies and Wall Street lenders have a strong appetite for large bridge loans, and offer them with the hope of eventually providing the permanent financing that will follow. “Hard money” lenders (usually private parties) provide high loan-to-cost or loan-to-value bridge loans at higher interest rates and sometimes also take an ownership interest. In purchase transactions, bridge financing is often provided by the seller of the property. If you decide a bridge loan may be your best choice, check with your mortgage banker to assess the alternatives in your market.

Permanent Loans

Permanent loans are traditional fixed-rate mortgages, with terms as short as five years or as long as 30 years. Over the past decade, the 10-year loan term has become the most prevalent.

Permanent loans differ from bridge loans in two primary areas. First, permanent loans generally have fixed interest rates—and, thus, fixed monthly payments—in effect for the entire loan term. This can be of tremendous benefit to a borrower, especially if the loan is obtained in a low-rate environment. A property owner is wise to fix his most significant expense item, as it essentially increases the performance of his property. Offsetting this benefit is the second primary difference between bridge and permanent loans: prepayment penalties. In most cases, a lender’s willingness to provide a long-term, fixed-rate loan is contingent upon a guarantee that it will receive interest for the entire loan term. To ensure this, lenders charge penalties if a loan is paid before its maturity.

These penalties can be structured in an infinite number of ways. They can be a stated fixed percentage of the loan amount, or they can be derived from a formula aimed at providing the lender the exact same return it would have received if the loan had gone to term. In most cases, any permanent loan paid two years or more before scheduled maturity is going to have significant penalties.

How do you know if the time is right for a permanent loan? You’ll ask yourself the same questions posed in regard to bridge loans, but this time, you’ll be looking for different answers.

Is the property stable?

If you’ve reached a occupancy level in keeping with the surrounding market, you can consider your property to be stable. This doesn’t mean your income won’t improve, it just means increases will be primarily driven by changes in rental rates, not occupancy. A stable property is a good candidate for permanent financing.

Are you a long-term holder or a potential seller?

What’s your game plan? If you expect to sell your property in the foreseeable future, you may be better served by a bridge loan. But if you plan to keep the property indefinitely, it’s a good idea to lock into a long-term interest rate that will fix your costs.

What if you just don’t know what the future holds? If you have a permanent loan and eventually decide to sell, a buyer can usually assume your existing loan, helping you avoid prepayment penalties. The terms, amount and interest rate of the loan will all be factors in whether a buyer is willing to do this.

Are interest rates going up, going down or remaining stable?

If you really knew the answer to this question, you’d be a billionaire. All we common folk have to help us predict interest-rate trends is history. And in the financial market, history doesn’t always repeat itself. In the end, it boils down to what you think will happen with rates and how they relate to your personal investment strategy.

If current fixed rates don’t allow for the return you desire, and you’re convinced they will drop in the future, a bridge loan with a floating rate might be the best choice. On the other hand, if fixed rates are favorable to your investment goals, you should probably lock in a rate as soon as possible. Your lender or mortgage banker can offer his opinions, but the final decision rests with you.

In almost every type of commercial real estate, the largest single expense of ownership is the debt service on financing. Owners may find it prudent to fix that expense, even if the interest rate isn’t the lowest ever offered.

Mezzanine Loans

So now that you’ve asked yourself all the important questions and chosen between bridge and permanent financing, the decision process is over, right? Maybe not. Would you like to borrow more money than your lender is willing to give you?

Over the past five years, a previously rare loan product has worked its way into mainstream commercial lending. A mezzanine loan allows you to borrow an extra 5 percent to 10 percent in excess of the amount a traditional mortgage lender will normally allow (based on property value). Sometimes these loans are secured by a second mortgage; other times, they’re secured by a pledge of ownership interest in the property.

In most cases, mezzanine loans have interest rates more than double those on first mortgages. For this reason, they are primarily used during acquisition, attached to loans of $4 million or higher. They are rarely used for refinancing.

When deciding on financing, keep in mind your ultimate goal. Are you looking to build a property? Are you trying to fix costs for a stabilized property or obtain permanent financing for long-term debt? Are you seeking short-term options to get you through to a sale? Whatever your aim, today’s low interest rates make it a good time to seek financing. Evaluate your alternatives, and make the best choice for your business and future.

Tom Walsh is a director for Collateral Mortgage Capital LLC and office manager of the company’s Atlanta commercial loan-origination office. He has worked in commercial real estate finance for 20 years. Collateral is a national mortgage-banking firm founded in 1933. It represents several national and local institutional loan sources that serve the self-storage industry. For more information, call 770.817.1600; visit www.collateral.com.

This year, U-Haul International Inc. teamed with Soldier Ride, a volunteer group that organizes a cycling event to support severely injured members of the U.S. armed forces. The company donated the use of its trucks and trailers to transport race equipment for nearly 100 disabled soldiers and other cyclists. It also kicked off its support with a special promotion at more than 1,300 of its U.S. stores. Participating locations sell fundraising wristbands, donated by DefendingFreedom.net.

In 2004, Soldier Ride member Chris Carney biked across the United States raising $2 million for a fellow nonprofit organization, Wounded Warrior Project (WWP). The charity was founded by John Melia, a former U.S. Marine who was hurt in a helicopter crash in 1992, to help a new generation of wounded service members. Support includes benefits, counseling, backpacks full of supplies to aid in recovery, advocacy, family assistance, and the organization of adaptive sports. Soldier Ride and WWP have helped thousands of military personnel re-enter civilian life.

Outfitting for Special Needs

Soldier Riders are outfitted with a bike and any necessary prosthetic adaptations, and bikes are modified according to disability. Organizers work with experts at Walter Reed Army Medical Center to ensure participants receive the appropriate equipment, which cyclists may keep for personal use after the event.

Across the Nation

The event launched on May 21, at Santa Monica Pier in Los Angeles. The groups first stop was a Dodgers baseball game at which amputee and Soldier Ride participant Heath Calhoun threw the first pitch. Riders then traveled 4,200 miles cross country through 13 major cities and hundreds of smaller communities. A benefit concert at the Martha Clara Vineyards in Riverhead, N.Y., celebrated the rides conclusion on July 24 with artists such as the Funk Brothers, Joan Osborne and others.

Before a crowd of 2,500 supporters, U-Haul presented Soldier Ride organizers with a check for $25,000 in donations collected from the sale of more than 8,800 wristbands. The Soldier Ride event recognizes and celebrates the incredible sacrifices these individuals have made, and we are honored to be part of this important effort, says John Taylor, U-Haul executive vice president. U-Haul is proud to continue its longstanding support of the courageous men and women in our armed services.

We at Wounded Warrior Project greatly appreciate U-Hauls support of this important undertaking. They are outstanding partners, says project founder and director Melia. This is an incredibly life-affirming effort, great fun and a great experience for the participants and all its supporters. Soldiers recovering across the country and overseas see this support, and it helps them to know the job they do is appreciated.

U-Haul continues to offer its wristband promotion at participating outlets. The bands sell for $3, with 100 percent of proceeds going to Soldier Ride and WWP. In July 2005 alone, the company raised more than $47,000 in bracelet sales.

For more information, visit www.woundedwarriorproject.com or www.soldierride.com.