For starters, 2005 is the last year to take advantage of the 50 percent bonus depreciation on improvements with a class life of more than 10 years, as well as the increased deduction allowed under Internal Revenue Code Section 179. In addition, you may be in a position to increase cash flow through cost segregation, which assists property owners through the deferment of taxes. Self-storage is a capital-intensive business. Understand the tax benefits at your disposal, and make the most of your business.

Bonus Depreciation

The bonus-depreciation provision introduced by the IRS in 2002 and expanded by the Jobs and Growth Tax Relief Reconciliation Act of 2003 is about to fade into history. For a limited time, it allows an additional first-year depreciation deduction equal to 50 percent of the basis for qualified property. While the proviso has lost some of its luster, there are still benefits available to owners who entered contracts prior to Jan. 1, 2005, and will complete construction by Dec. 31.

For example, on an improvement that would be recovered over a 15-year period, the first-year depreciation deduction would normally be 5 percent. However, by leveraging the bonus depreciation, this same asset would qualify for a total first-year deduction of 55 percent.

Section 179

A provision of Internal Revenue Code Section 179 temporarily allows small-business owners to deduct personal-property improvements in full instead of capitalizing and depreciating them over the appropriate recovery period. It also increased the dollar limitation for qualifying property from $24,000 to $100,000, providing the assets are placed into service by Jan.1, 2006.

These are significant benefits, so if youre considering projects such as upgrading your computer system, renovating your office or installing a surveillance system, act now. Expensing qualified property under Section 179 could lower your adjusted gross income and reduce your overall tax liability. But once 2006 rolls in, this benefit will revert back to a maximum of $25,000.

Cost Segregation

If youre depreciating your storage facility over 39 years, you could be sitting on a financial windfall. While the window of opportunity tends to close rapidly on most traditional methods of tax deferment, cost segregation is different because it puts the taxpayer in control of the change.

With cost segregation, you may be able to recoup a large portion of your estimated tax payments. Why? The IRS allows taxpayers who are currently depreciating land improvements over 39 years to change their method of accounting, using Form 3115, to recover those same improvements over a 15-year period instead. The new method results in a 481 adjustment, otherwise known as catch-up depreciation. The modified amount could significantly reduce your current-year tax liability and provide the necessary cash to improve your business.

An Ideal Candidate

Self-storage is an ideal candidate for cost segregation since as much as 30 percent of its costs can be classified for shorter recovery periods. A self-storage project has a vast amount of site work (paving, storm-water drainage, curbing, fencing, security lighting, underground utilities, etc.), which has been specifically identified by the IRS as a separate asset category with a reduced life of 15 years vs. the actual building or buildings, which have a life of up to 39 years. Furthermore, there are other systems that can be depreciated over five- to seven-year periods such as CCTV, gate access, alarm, etc.

A typical 50,000-square-foot, single-story facility with direct and indirect costs of $35 per square foot has a depreciable basis of $1.75 million. If 30 percent of that can be reclassified to shorter recovery periods of five, seven or 15 years instead of 39 years, the taxpayer will experience an additional $85,000 in cash flow over a 15-year hold. The additional money could be used to finance his next phase, increase the competitive features of the property or buy a new sports car!

Achieving Cost Seg

Youre probably wondering why your accountant hasnt told you about the benefits of cost segregation. Truth be told, it requires an engineering skill set and expertise most accounting firms dont have in-house, such as being able to read construction drawings as well as knowing mechanical systems, cost estimating and how various types of IRS asset classifications relate to existing construction and use. What does a successful study require?

• A detailed analysis of a facilitys direct and indirect construction costs
• An examination of drawings and specifications (if available)
• An inspection of the facility to observe and identify component utilization
• An expert understanding of specific building, mechanical and electrical systems
• Detailed knowledge of the tax code as it applies to the cost-segregation process
• Analytical abilities and organizational skills to conduct the economic and financial analysis

There are several firms that specialize in cost-segregation services. Considering that a study could double a facilitys after-tax cash flow, it may be worthwhile to investigate. A cost-segregation study does not replace the need for an accountant when it comes time to prepare tax documents and forms. It simply provides him with correct figures so forms are completed in line with allowable practices.

Whether you acquired a facility after 1986, are planning to purchase an existing site or embarking on a new build, you should take advantage of the tax benefits available. This year, make the most of bonus depreciation and enhancements to Section 179. Moving forward, use cost segregation as part of your strategy to reduce ongoing expenses and improve overall cash flow.

Mark de Stefanis is the president of White Plains, N.Y.-based Construction Cost Recovery Inc., which specializes in services such as cost segregation with a focus on self-storage. For more information, call 914.694.3800.

A Landmark Case

In 1997, the case of Hospital Corp. of America and Subsidiaries v. Commissioner opened the door to accelerated depreciation techniques. The tax court concluded that property qualifying as tangible personal property under former investment tax credit (ITC) rules would also qualify in the same manner for the purposes of tax depreciation. This was a major victory for taxpayers. Practitioners can now look to ITC rules when determining whether a property is depreciated as real property with a 39-year recovery period or personal property with a five- to 15-year recovery.

This IRS decision also allows you to claim catch-up depreciation. This is the amount you could have claimed in prior years, all the way back to 1987, over a subsequent four-year period. Since self-storage construction costs are heavily weighed toward site work, it is an ideal candidate for cost segregation.

• An abundance of liquidity from investors who are rushing to self-storage.
• Historically low interest rates.
• A large supply of money for debt from the institutions.

This slippery slope began a few years ago and was fueled by 9/11. The pundits tell us the economy has recovered, but every time I hear the radio commercial for that attorney who claims to recover money from stock losses by bringing suit against the brokerage houses, I realize just how much people lost in the market meltdown. If you have a 401k or investments in mutual funds, you know what Im talking about.

On a recent trip to Silicon Valley, I saw where the mammoths of the high-flying technology industry once stood. What the collapse in tech stocks and the general market has done is create an impetus for investors to look elsewhere to find a safe haven for their money. The investment landscape has changed from How do I grow my portfolio? to How do I hold on to my capital? It seems that in a race, the high-tech hares have been outpaced by the terrific REIT tortoises that have been steady earners even during the collapse.

The net result has been a renewed interest in placing capital in bricks and mortar, including self-storage. The best evidence is the emergence of two new self-storage REITs: Extra Space Storage and U-Store-It. In addition to stock-market investing in real estate-based firms, there has been a migration of capital from the stocks to the sticks. Investors are rushing to find property in which to put their money. This has been good for self-storage developers who can deploy cash from liquidated stocks as investors attempt to balance to their portfolios.

How Low Can It Go?

One of the key assumptions of a good feasibility study is the prediction of future interest rates. Wow, did I miss the mark on a few studies in which I projected 2005 construction loans in the 9 percent range! With the current low-rate structure, self-storage looks like a great investment. Even once marginal deals look like stellar performerstoday, with no bet on tomorrow.

The rush to refinance is staggering. Teaser rates in the 1.5 percent range create previously unheard of returns, offsetting longer lease-ups (the effect of greater competition), increased land and construction costs, and sloppy operations. What will happen when interest rates return to previous levels? Hold on to your hats, because it could be a rough ride for marginally capitalized developers or, worse yet, investors.

But thats enough speculation about rates. Lets get back to leverage. If you are fortunate enough to have a short-life conduit loan or well-seasoned loan coming to maturity, the time to get into the debt market seems to be now. Developers should replace their construction loans with permanent financing, locking in low rates and recapturing their equity.

If youre in the market to sell your facility, phenomenally low cap rates have created paper value that may allow you to take advantage of equity created not by your skills as an operator, but by being in the right place at the right time. On the other hand, seasoned properties in strong markets may have weathered the storms of competition and appreciated through high occupancies and good revenue management. For the aggressive leverage investor, this means liquidity for other projects. For the conservative, it equates to a strong balance sheet and higher taxable cash flows. Perhaps rather than sell, you might consider using OPM to net the highest return from your investment.

Developers can push the envelope to create leverage opportunities that will maximize low rates. In the 1970s, we called it creative financing, but today it just seems like an astute investing tactic: Recover all the initial capital from a project and create an immeasurable return on investment. This may create some stress on cash flow until rental rates increase, but with todays underwriting, there should still be a cushion of 20 percent (1.20 debt-service coverage) to as high as 33 percent.

Who Buys Lunch?

Many years ago, when I was a commercial banker, the client almost always paid for lunch. The general attitude was that the customer took hat in hand and pleaded for money to borrow. The early baby boomers will remember the respect people had for the esteemed banker. In fact, it was usually quite prestigious to be the branch manager of a bank, with a three-piece suit and fancy office.

Today its a whole different ball game. Just recently, I met with my banker at the grocery store. (Seriously, thats where the closest bank branch was.) The pimple-faced loan officer was dressed in a pair of khaki shorts and a collared tee shirt. When I asked about a commercial loan for self-storage, he offered no scrutinizing looks, no condescending attitude, and no request for a financial statement. Instead, I was handed a keyboard and asked if I wanted to apply online for $4 million. There was no wise counsel, no discussion of interest rates, no fox-and-hound chase for a great deal, only a database that held the fate of the project in its digits.

Commercial banks, investment bankers, finance companies and even savings-and-loan institutions have more money than we ever thought possible. In years gone by, low interest rates often equated to a shortage of capital. Banks were reluctant to tie up funds in long-term obligations, knowing full well the tides would change and they would be caught with ugly, low-interest loans when rates rose to normal levels. This seems to have changed with the securitization of loans.

Several years ago, many scoffed at the idea that there may never again be a shortage of capital, based on the ability of the bond market to create money for debt. The skeptics are now satisfied. Even when interest rates seemed to have bottomed out, the hunger to create bonds based on debt kept money in the marketplace. But many dont understand the long-term effect of this.

Think about money in 10-year Treasury bills. T-bills were once considered some of the most conservative, low-yielding investments. In January 2000, the rate was 6.7 percent. As of Aug. 15 of this year, it stood at a whopping 4.3 percent, and just six months prior, it was at 3.3 percent. Today, these bonds look pretty darn good. This trend compels us to believe interest rates will continue to increase, and the cost of borrowing will move commensurately.

There may be no time better than the present to make finance and investment decisions. The bankers vaults are fat. The financial community works with tireless effort to get money into the hands of capable borrowers. What does this mean for you?

• A compelling argument for refinance instead of a sale.
• A seemingly endless supply of capital.
• Bargain pricing on interest rates.
• Money committed for equity at rates of return that may seem genius in a few short years.
• Aggressive lenders vying for business.
• Potentially huge arbitrage that employs money at historically low costs and deploys cash in investments that may have significantly higher returns.

How to Invest in Self-Storage and an expert in self-storage finance, with underwriting of more than $250 million in self-storage loans. For more information, call 877.622.5508, ext. 81; e-mail [email protected].

Forseveral years, I stopped at the same gas station two to three times per week to gas up and grab coffee and a donut. I liked to use one particular pump, which put me in the best position to exit the site and get back on the street. But about two years ago, that pump broke. It was never fixed, and I stopped visiting the station as frequently.

On a recent visit, the manager asked why I stopped coming around as often. I told him to increase his sales, he should fix the pump. He explained the necessary part was $180, and the regional manager decided the cost to fix the problem outweighed the benefit. I countered by pointing out my weekly visits earned the store as much as $220 per year in coffee and donuts alone, let alone gasoline sales. If there were other customers like me, the store could be losing thousands of dollars in profit every year.

In the end, the manager communicated my figures to his supervisor, pointing out the cost to fix the pump was a small price to pay for well-earned business. The result? Lets just say I walked out of that gas station this morning with coffee, a donut and a little spring in my step. It was the third time this week.

Make Money, Not Donuts

The above experience demonstrates three concepts self-storage operators can put to use in their businesses:

1. Focus on earning as well as saving.

The gas stations regional manager focused only on the cost of the broken part, not the importance of the pump as a whole. He thought he was saving the company $180, but didnt realize the business he was losing. In self-storage, some operators work harder to reduce costs than increase sales. They delay renovations, fail to replace broken fixtures, and hire cheaper personnel. To no ones surprise, theyre usually the ones who complain about business being slow and needing to cut costs.

2. Dont underestimate the importance of convenience.

The storage industry is based on ease of use, and over the past few years, competition has been defined in terms of added convenience. New customers are being courted as never before with features such as climate control, home pick-up and delivery, and retail products.

Do a walk-through of your facility, trying to experience it as customers do. Examine everything from the parking area to the office to see what can be improved. Also include customer surveys with your invoices or other mailingsyou might get a suggestion that will be your next competitive edge.

3. Trust the input of employees.

No one interacts with customers more than your staff, so meet with them at least once a month to get their input and do some brainstorming. Ask about the kinds of compliments and complaints theyve heard lately. Use a blackboard, dry-erase board or note pad to record their ideas. This lets your team know their thoughts are important and keeps the discussion focused. Never shoot down any idea, even if it may not work in the short term. Finally, when a plan works, give your employee the credit and maybe a small reward.

The key to business success isnt just controlling costs. You must do everything you can to increase sales and satisfy customer needs. Even donuts add up after a while.

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

With interest rates still low and property values climbing toward the sky, industry experts agree self-storage is an excellent investment. When people want to enter the business or existing owners wish to expand, one of their first concerns is where to find the money.

Established in 1977, Wells Fargo Financial Leasing Inc. specializes in competitive financing programs. Having entered the self-storage arena in 1990, the company offers a variety of products to meet owner and investor needs, including real estate loans, notes, and tax-oriented leases for new site construction plus land and equipment. Financing is also available for existing facilities, sale-leasebacks and remodels.

Wells Fargo employs a national sales force and tenured management team. Its self-storage specialists are ready to use their industry expertise to help grow storage businesses.  One of the reasons we formed the self-storage group was to leverage our experience to the next level from an industry-wide perspective, says Ronald Pope, regional sales manager for the self-storage division. Our group has the industry connections and expertise to bring a lot of value to the first-time developer or seasoned self-storage owner.

Fulfilling a Market Niche

Over the years, Wells Fargo has seen many owners work with one lender on construction financing, another to get them through to stabilization, and yet another to provide permanent financing, Pope says. With two or three different loans, closing costs really add up.

In an effort to be unique in the marketplace and provide distinct value for developers, Wells Fargo provides for the short- and long-term needs of a new projectwith only one set of closing costs. Loans can be made for land acquisition, construction, and the purchase of existing facilities and commercial property. On a national scale, its unusual for an institute to offer a financing package that takes an owner from acquisition to permanent financing with only one set of closing costs, says Pope. That is our market niche, and it fits into our strategy of being a full-resource lender.

Wells Fargos real estate mortgage and commercial loan rates are fixed up to 15 years, with the potential for a 25-year amortization. Loans often have no prepayment penalty after the third year.Preparation is Key

Initially, a self-storage specialist talks with the client to understand his long-range goals. Then Wells Fargo tailors a finance package to complement the borrowers objectives. We are a relationship-style lender, so we want to know our customer and not just see numbers, Pope says.

Once a customer decides to finance with Wells Fargo, he is given a detailed outline of what the company would like to see for financials, feasibility studies, appraisals, etc. Then a credit analyst and field specialist works with the client toward a timely turnaround. The loan closes when its approved. If construction is involved, Wells Fargo will set up an interest-only construction loan, which is converted to permanent financing once building is complete. Usually, the permanent loan is interest-only for a specified period. All leases and loans are internally funded and administered.

Whats the key to successfully securing a loan? Careful and knowledgeable document preparation. The key is the completeness of the information we ask for and timeliness in receiving it, says Pope.

Financing the Future

With the thriving self-storage industry, finance options, too, have grown. I see more lenders becoming comfortable with financing self-storage, Pope says. As interest rates go up, and if the stock market performs better, we will see less private money.

However, financiers have become increasingly savvy about self-storage build-out. Good sites that make economic sense are tougher to find and lenders, in turn, require more due diligence to prove a projects viability. The key is to find a lender that understands the industry so the borrower does not have to educate him, says Pope.

For more information, call 800.451.3322; visit www.wffleasing.com .

A vacant builder’s supply yard was transformed into a multi-story self-storage facility with a pre-engineered interior-mezzanine system. The result was a space-efficient and profitable business for the owner and an asset to the community.

The United Stor-All project in Santa Fe, N.M., owned by San Mateo Storage Partners, is typical of a recent trend in the self-storage industry toward multistory facilities. As governments scrutinize proposals for new sites and land becomes scarce, a growing number of developers are finding that vacant warehouses, lumber yards and other commercial buildings make ideal prospects for conversion to self-storage.

San Mateo Principals Webb Wallace and Rob Lee have developed more than a dozen storage facilities around the country. In Sante Fe, they redeveloped the former Furrow Supply Yard building into a facility with 542 units, including 400 with climate control. The project took less than a year to complete, with a construction phase of less than five months. It opened in June 2005.

Martin Kuziel, an architect with Architectural Alliance of Santa Fe, N.M., handled the overall design of the project. On the exterior, he called for earth-tone paints and a green-patina metal roof to replace the building’s ‘70sera appearance. Inside, lumber warehouses were converted with the help of a design team from U.S. Door & Building Components of Orlando, Fla.

The company’s engineers were given the project’s parameters, including height clearance, unit mix and access points. From there, they planned the mezzanine level, storage units, hallways and stairs. Working from Kuziel’s schematic of the 54,097-square-foot interior, they were able to maximize the rentable space.

Streamlined Construction

Construction was expedited by using U.S. Door’s pre-engineered steel systems. A 10,450-square-foot mezzanine system added a second story to the project under the existing ceiling. A freight elevator at the rear of the building provides a drive-up access point, and prefabricated steel stairs were installed at the end of each hallway. The mezzanine used existing HVAC and lighting systems, minimizing the cost of the conversion; and the additional storage units it created significantly increased the floor-area ratio and value of the property.

The single-height hallways included the necessary components for the lower-level lighting and fire-suppression equipment. They were built around gloss-white, 20-gauge, nonstructural piers and headers that are easily designed for retrofits and strengthen the hallways. The owners chose optional chamfered corners and diamond-plate aluminum corner guards to protect the facility’s walls from being damaged by items being moved in and out of the building. “It’s a design detail that’s much appreciated,” says Wallace. “It keeps the place looking nice for longer.”

The facility’s commercial rollup doors were easily hung on existing buildings because they mount to wood, masonry or steel jambs. They move quietly and efficiently with light-lifting features such as wear-strips on the curtain edge; springs with easy-to-use, adjustable tension devices; and bearings. Each door has a double slide lock suitable for use with padlocks.

Finally, the site features covered parking bays for large vehicles such as RVs and construction equipment. “We have a large vintage car club we hope to rent to,” says Wallace.

U.S. Door is an international supplier of self-storage components, rolling steel doors, wind-load certified doors, interior hallway systems, garage-storage systems, stackable-storage and wine-locker systems, mezzanine systems, portable-building systems and structural pier and header systems. Services include engineering, design, bid take-off and unit-mix layout. For more information, visit www.usdoor.com.

Do you really need a bank to start a business? What role does a bank or other financial institution play in your ongoing success? How do you build a solid business and be in position to expand or exit at willprofitably?

In this column, Ill explore these questions and suggest ideas you might find helpful in financing your business, securing operating capital for those rainy days, and using basic financial tools. Ill also discuss options for small-business owners and provide a checklist of key startup strategies.

The Pitch

One of the first and most difficult steps is finding a financial institution that will listen to your proposition. This should be easy, right? After all, these institutions are in the business of lending money. But finding one with small-business savvy that is interested in acting on your behalf is a challenge. Bankers are very programmed and, as a result, find it pretty tough to think outside the box. So the trick is learning how to communicate your proposal to obtain the required funding while establishing a long-term, meaningful relationship with your lender.

If your financial needs are for a startup, the most important document youll create is a business plan, a blueprint of the who, what, where, when, why and how. Bankers and investors are numbers people, and they have seen hundreds of these plans. Therefore, yours must be factual and realistic to be accepted. Your profit-and-loss statement, cash flow and balance sheets have to be on target. If youre not an accountant or CPA, consider having a trusted professional help you prepare your documents and accompany you when you make your presentation.

Options for Small Business

Many new owners make use of Small Business Association (SBA) loan-guarantee programs to secure their financing. The SBA has had great success in funding car washes, and most urban areas have an SBA office. For more information, visit www.sba.org, where youll see details on the available programs. The two youll want to investigate are the 504 and 7a. The difference between them is subtle and has to do with terms, rates and amounts.

As you explore the website further, youll find a list for creating financial and business plans. Download this information, make a few calls, and set up a meeting with a local SBA official. This individual will help clear up any questions you have and provide further insight into the programs. Most people who have worked with the SBA find its guidance to be invaluable. When you have the backing of your representative and follow his direction, the odds are in your favor to obtain financing.

If youre feeling a little overwhelmed just now, consider taking advantage of another government service, the Small Business Development Center (SBDC). Most universities are affiliated with one. They offer a plethora of services, from psychological testing (to see if you are cut out to be an owner) to complete business planning. Theyll even put you in contact with other professionals who can address your specific needs. The fees are generally small, and the quality of input is terrific.

Addressing Future Needs

Once your business is up and running, do you finance future acquisitions and growth out of your cash flow or establish an ongoing line of credit with a bank? This is a tough question for all owners. The ability to finance ongoing needs based on the ebb and flow of your business may not be possible. Your option is to explore, and hopefully obtain, a bank line of credit (LOC).

Again, youll need to present a full set of financials. Theres a cost to having an LOC, but in most instances, its far less expensive than a lost business opportunity. Chances are, your need to tap this resource will be small and your fees minimal. But its comforting to know the money is available if a situation arises.

Working the Plan

All of this talk about financing is blue sky unless you have control and knowledge of all aspects of your business. Its impossible to be successful and grow without a plan. Fortunately, your business plan contains more than financial projections, it also includes strategies for implementation and basic financial tools, which youll put to use during operation.

The most basic tool is your budget, which establishes all parameters regarding sales, cost of goods, fixed expenses, profits and taxes. For your budget to be useful, you must review it monthly, comparing actual to forecasted information and adjusting operations as necessary.

Another critical tool is cash flow. I suggest using a rolling 13-week and 12-month statement. These project your cash receipts as well as expenses, so you can immediately see where you are and where you need to be.

Checklist for Success

• Prepare a thorough and accurate business plan.
• Have a professional prepare and work with you on your financials.
• Know what your needs are for acquisition, startup and cash-flow shortfall.
• Prepare and use budgets and cash-flow reports.
• Review and adjust your cash needs based on business flow.
• Maintain accurate financials. Report and track everything!
• Hold yourself and your staff responsible and accountable.

Running and operating a business is one of the great privileges of our society. Pat yourself on the back for having the guts to take a risk. Finally, remember that unless youre a nonprofit organization, your first priority is to be profitable!

Fred Grauer is president of Grauer Associates and vice president, investor services, for Mark VII Equipment LLC, a car-wash equipment manufacturer in Arvada, Colo. He has made a lifelong career of designing, selling, building and operating car washes. He can be reached at [email protected].

But the lifeblood of a storage business is its revenue stream. Expenses evolve year after year. If an operator fails to outpace operating costs with income, his facility falls behind financially. Many storage businesses are partnerships in which the operator is responsible for maximizing the asset for investors, which makes revenue even more critical. This article explains why everyone benefits from rent increasesowners, managers and even customers.

How Owners Benefit

One of the most telling examples of successful rent increase is the story of Public Storage Inc., the industrys largest REIT. Over the past few years, the company implemented a policy that dictated large rent increases in major markets. The results are notable for all self-storage operators: Occupancy rates dropped 3 percent to 10 percent, while gross income increased 10 percent to 25 percent. At one location, gross income was $ 50,000 per month and occupancy was 92 percent before the increase. Afterward, income rose to $60,000 per month and occupancy declined to 85 percent. The facilitys list rates were the highest in the market.

Lets look at how this kind of change could improve the average storage business. A revenue increase of $10,000 per month improves cash flow by $120,000 per year. Assuming the facility has a 7 percent cap rate, the property value increases by more than $1.7 million ($10,000 times 12 months divided by 7 percent). If the additional revenue is used to make site improvements or pay bonuses for high-caliber employees, the value could be even greater.

A byproduct of the Public Storage approach to rate increases is competitors got the message and also began raising rents, which strengthened the companys position for future boosts. Public Storage paved the way for astute operators to maximize revenue, thereby keeping investors happy. The lesson is simple but profound: Higher income is always a plus, and the slightly lower occupancy means more opportunity to rent spaces and make money.

How Staff Benefits

Facility managers and staff also benefit from rate increases, because smart owners share the new revenue with their employees. There are a multitude of programs that put well-earned money in the pockets of facility managers. Perhaps the easiest is simply sharing a percentage of the increase. This can be as little as 5 percent or as great as 50 percent of the first months added income. Remember, its the facility staff that initiates and works through the increase with tenants.

How Customers Benefit

How do customers benefit by paying more for their storage? Storage is a very competitive business. Customers using a commodity like self-storage are accustomed to encountering a range of prices that is usually dependent on the quality of the product or service provided. As storage operators, you are expected to deliver clean, dry and safe storage. When you execute rent increases, you need to deliver commensurate value. That means spaces are a little cleaner, a little safer, and a little better overall.

What are some things you can add to increase the worth of your offering? Here are some possible extras:

• Perform additional lock checks throughout the property.
• Take customer fingerprints at lease signing.
• Do extra sweeps of the drive and parking areas.
• Offer pre-pay discounts on the new rate.
• Increase referral fees to help offset the increase.
• Add a consultant service that will show tenants how to use their space more effectively.

The list can go on and on. When you notify tenants of a rate increase, pair it with an explanation of the increase in value. If you orchestrate the message properly, the products worth will be emphasized, and youll minimize opportunity for negative feedback.

So there it is: A short dissertation on why rent increases are good for storage owners, managers and tenants. Dont be shygive it a try! A healthy rent increase at an average-size facility can net $3,000 to $10,000 per month. If your investors knew this, you would certainly have some explaining to do. So go out there and raise some rates. But dont forget to share the benefits with customers and staff.

Greg Call is the president and CEO of Irvine, Calif.-based Self StorageWorks, a management, consulting and development firm that provides feasibility studies, startup services, design, unit-mix planning, staff hiring and training, facility management, marketing plans and brokerage. For more information, call 800.779.6797; e-mail [email protected]; visit www.self-storageworks.com.

Many self-storage owners are misinformed when it comes to the subject of replacement cost. This vital part of your insurance policy protects you in the event of catastrophe. Knowing the benefits and options makes for smart business.

Simply put, replacement-cost coverage ensures you can replace damaged property with comparable items. Actual-cash-value insurance, on the other hand, covers the replacement cost minus depreciation since the date of purchase. If premiums are reasonable and affordable, replacement-cost coverage is the wiser choice.

Unlike personal property that depreciates with time, business property appreciates. As a self-storage owner, you can expect a slight increase in your premium, generally 4 percent to 8 percent per year, which reflects the increased value of your facility. Your carrier is not trying to over insure you. The companys aim is to give you coverage that would allow you to comparably rebuild in the event of a loss.

Whats Covered?

Business-property coverage can include anything considered to be part of facility construction, from the foundation to the roof. Depending on your policy, covered structures can comprise fences, retaining walls, roadways, patios or other paved surfaces, underground pipes, flues or drains. Business-personal property includes anything used for daily operation, such as computers, maintenance equipment and office furniture. Items generally not covered are the land on which the facility sits, motor vehicles, and tenants stored goods.

Insurance policies and coverages vary from carrier to carrier, so ask how your insurer can best meet your needs. The supplier will base your premium on information you provide, using an estimator that draws on building-cost data and methodology to determine replacement costs and depreciation values. Other factors that might affect your premium are:

• Distance to the nearest fire station and hydrant
• Construction quality of the facility
• Sprinkler systems
• Site security
• Geographic location

Large buildings renovated or converted for self-storage usually carry a higher premium. This is because in the event of a calamitous incident, the probable loss on a single big building vs. several smaller buildings is 100 percent.

Fair Value

What is the best way to get a fair, correct number when determining 100 percent replacement value for your facility? An appraiser can best conclude actual property value on your behalf, or your insurance company can create an appraisal using commercial estimators such as Marshall & Swift or E.H. Boeckh. You should not attempt to appraise the buildings yourself, as the necessary knowledge is beyond the scope of the average facility owner.

While insurance companies encourage owners to insure their properties for full value, some policies may contain a coinsurance clause, a provision that only requires the policyholder to maintain coverage equal to at least 80 percent of the propertys actual replacement cost. Because partial losses are more common than total losses, some insureds take the gamble. Coinsurance can provide a reduction in premium, but penalties can apply, and a settlement will be merely a percentage of full contract reimbursement.

A qualified company that specializes in self-storage insurance is your best bet for obtaining the replacement coverage to satisfy your facilitys needs. It takes an agent familiar with the industry to truly help you protect your business.

John Roark is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, a free copy of your states lien laws, or a quick, no-obligation quote, call 800.844.2101; e-mail [email protected]; visit www.universalinsuranceltd.com.

Hispanic Marketplace is dedicated to educating self-storage professionals about the possibilities of the burgeoning Latino market. The U.S. Hispanic populationand its buying poweris growing at an astounding rate, making it an attractive target for businesses that appreciate Latinos loyalty to brands and reliance on word-of-mouth for making purchasing decisions.

Latinas Struggle and Soar

Latinas lag far behind Hispanic men and American women when it comes to confidence, knowledge and involvement in financial decision-making, according to a new study by NOP World, a market-research company. When asked about their financial savvy, 49 percent of Hispanic women cited limited knowledge about monetary matters as a personal problem, pointing to a lack of Spanish-language resources as the primary culprit. More than half of the women surveyed expressed a wish for financial agents, toll-free numbers, brochures and statements available in their native language.

Hispanic women did feel highly confident, however, in the field of cuisine. Puerto Rican cooking expert Daisy Martinez, host of the Daisy Cooks! how-to series on PBS, has become yet another Latina television personality. Her show has expanded to more than 200 stations in 20 of the networks top 25 markets. For her part, Martinez is happy to put an end to the unspoken belief that Latinos dont watch public television. Response to the bilingual website, www.daisycooks.com, has been tremendous, with an estimated 20,000 registered users who also receive a monthly newsletter.

Confidence in cooking aside, statistics show Latinas are engaged in the seemingly universal female struggle with body image. There is no ready translation into Spanish for the phrase extreme makeover, but this has not prevented a soaring number of Hispanic women from pursuing plastic surgery. Between 2000 and 2004, the number of cosmetic procedures performed on U.S. Hispanics jumped 49 percent, according to the American Society of Plastic Surgeons. Latinas account for 6 percent of the total surgeries performed annually. The most popular procedures they pursue are breast augmentation, nose reshaping and liposuction.

Cable Connection

Manu Mania may soon hit the U.S. Hispanic advertising market. NBA star Emmanuel Manu Ginobili from Argentina, a 6-foot, 6-inch forward for the San Antonio Spurs, is one of the most successful Latino basketball players. Last year, he signed a six-year contract for an estimated $55 million and led the Argentine national team to a gold medal in the Olympics.

Fluent in English, Italian and Spanish, Manu was hired by Time Warner Cable to pitch products to San Antonio subscribers. The company now says it will expand its Spanish-language television campaign throughout Texas by the end of 2005, and is thinking about taking the marketing effort national.

Cyber-Spanic

U.S. Hispanic consumers with Internet access are more likely than their general-market counterparts to use instant messaging and chat rooms, and are increasingly using the web to print out coupons for big-ticket items and basic household goods, according to the third annual U.S. Hispanic Cyber-study, commissioned by America Online and conducted by Roper Public Affairs. Of the Hispanics surveyed, 55 percent said they listen to music online, compared to 41 percent of the general population, and approximately 37 percent are downloading music, compared with 25 percent of the general market.

Opportunity on the Menu

Analysts say there is great opportunity for food manufacturers to tap into the Hispanic market, as Hispanics are just as likely as the overall population to use common foods such as sweetened breakfast cereals, rice, spaghetti sauce, cold cuts and potato chips. On the other hand, their usage falls well below the average when it comes to flour, hot cereals, frozen vegetables, potatoes, nuts and, surprisingly, tortilla chips.

Market analysts, promoters and media buyers believe the success of food items and other general-consumption products marketed to Hispanics has a lot to do with luck and timing. But most agree there are four basic tenets to follow: Promotional messages should be culturally relevant, respectful, inspirational and educational.

New-School Marketing

Hispanics are less frequently moving into areas with high populations of their ethnic group, according to recent Census data. In the 1990s, most Hispanic immigrants came to the United States through five gateways: California, Florida, Illinois, New York and Texas. Now they are equally likely to end up in Iowa, South Carolina or Tennessee. The spread of Hispanics challenges the communities in which they settle, as most local schools and governments are not adequately equipped to accommodate Spanish speakers.

Reaching out to Hispanic populations has become such big business that college students can actually secure a degree in the subject. Florida State University is launching the countrys first center for Hispanic marketing communication, which will offer graduate certificates and undergraduate minor programs.

Myrna Sonora is the director of Hispanic business for The Michaels/Wilder Group, a specialized advertising agency incorporating three divisions: Yellow Pages, Internet, and Recruitment Advertising. Based in Phoenix, the award-winning firm is celebrating its 15th year of business thanks to a loyal client base that includes hundreds of self-storage owners and managers. For more information, call 800.423.6468; visit www.michaelswilder.com.

Most of you are familiar with Aesops fable about The Goose With the Golden Eggs. Those of you who are not, consider this your lucky day. Youre about to be transported back in time to when moral values were taught using delightful little tales of human foolishness and suffering:

One day a countryman going to the nest of his Goose found there an egg all yellow and glittering. When he took it up it was as heavy as lead and he was going to throw it away, because he thought a trick had been played upon him. But he took it home on second thoughts, and soon found to his delight that it was an egg of pure gold. Every morning the same thing occurred, and he soon became rich by selling his eggs. As he grew rich he grew greedy; and thinking to get at once all the gold the Goose could give, he killed it and opened it only to findnothing.

The official moral of the story is Greed oft oer reaches itself. But a wistful member of the 21st century might deduce other truisms like Only a silly goose kills his goose, Dont kill your goose before all your golden eggs are hatched, or Misuse your goose, and its cooked. The bottom line is: Geese who lay golden eggs are good to have around. No doubt.

Now lets say the goose is your self-storage business, and the golden eggs represent the cash flow it creates. Investors and owners always aim to maximize their return on investment. The big mystery is how to operate in the most efficient, lucrative manner. Which financing options do you choose? How do you maximize potentially limited opportunities such as low interest rates and tax benefits? How do you leverage equity, and when do you seek financial backing? Make the wrong decision, and its as good as wielding the axe.

As this months slate of writers will tell you, we live in unique economic times, and even the Fed is perplexed by rate behavior. Nobody knows how long the window of opportunity will remain open to take advantage of historically low interest rates. What we do know is 2005 is the last year to make the most of post-9/11 tax enticements, such as bonus depreciation and deductions on capital improvements. Though it is late in the year, it isnt too late to take action and make some profitable business decisions.

If youre a newcomer to the industry or current owner seeking to refinance, this issue will teach you about assembling a successful loan-request package and help you understand the difference between basic loan types and lending institutions. It will also delve into more advanced topics, such as interest-only financing, letters of credit, prepayment options and cost segregation. In addition, it touches upon tangential ways to streamline monetary processes, such as electronic banking and a program of regular rent increases.

Keeping your goose happy, healthy and producing those golden beauties is a very delicate balance of care and exploitation. Its just as possible to do too much as too little. Trying to take advantage of every feasible finance alternative may not be the way to go. But knowing your choices is more than half the battle in profitable parenting. Investigate your investment opportunities and groom only the ones that seem well-suited to your business.

One day a storage operator going to his facility found there a chance to make more money with only reasonable effort and some careful planning. When he pursued financing, he found it laden with options of which he was previously unaware. He soon discovered to his delight that he could cut costs and create more cash flow with his current resources. He had come across his golden eggs and operated happily ever after.

Until next time,
 
Teri L. Lanza
Editorial Director
[email protected]