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Self-Storage Finance: A Year in Review

Article-Self-Storage Finance: A Year in Review

The current view from the street (summer 2008) is pretty grim. One only needs to browse daily business headlines to recognize the severity of the nation’s economic situation.

The “credit crunch” has gone from Wall Street to Main Street, and is leaving the road littered with potholes and other obstacles for borrowers and investors to navigate. While this view isn’t the greatest, self-storage owners and investors can survey the landscape by examining a few key sectors of the current real estate finance market, gaining valuable knowledge to help make educated and powerful investment decisions.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are shareholder-owned mortgage finance companies charged by Congress with supporting the U.S. housing sector by keeping money flowing in the mortgage markets. Due to congressional charter and an implied government guarantee, the two are often referred to as government-sponsored enterprises.

Fannie and Freddie are the cornerstones of the residential mortgage market. Including investments and guarantees, Fannie Mae’s total business topped $3 trillion for the first time in May, while Freddie Mac had $2.2 trillion. These two firms are involved in nearly half of the U.S. residential mortgage market.

Stock prices for both companies hit 52-week lows in July as market speculation predicted the government was poised to step in to help resolve major funding problems. To illustrate the magnitude of the decline, consider that shares of Fannie Mae traded as high of $70.57 in July 2007 and dipped to the $7 range by July 2008. Meanwhile, Freddie Mac shares, which hit $67.20 in the summer of 2007, plunged to the $5 range a year later. Fannie and Freddie have reported more than $11 billion in losses since the housing market bubble burst in mid 2007.

Banks and Financial Institutions

Global banking and financial stocks have fallen sharply in the last year due to the credit crisis. Bear Stearns no longer exists; Wall Street mainstay Lehman Brothers (at the time of this writing) was looking at long-term survival options given its plummeting share price; IndyMac Bank failed and was taken over by the Federal Deposit Insurance Corp.; and other national and regional banks faced similar fates as IndyMac. RBC Capital Markets analyst Gerard Cassidy was quoted by Reuters saying that as many as 300 banks could fail in the next three years.

CMBS Market

For the past several years, the commercial mortgage-backed securities (CMBS) market drove record transaction activity (property sales and refinancing) for all types of commercial real estate, including self-storage, through widespread availability of aggressive debt terms. That market, however, has come to a screeching halt during the credit crisis.

Consider that the annual CMBS fixed-rate conduit loan volume from 2005 to 2007 was $136 billion, $161 billion and $189 billion, respectively, according to Commercial Real Estate Direct. Self-storage lending accounted for $6 billion. Progress achieved during this three-year period allowed the self-storage real estate market to reach previously unforeseen pricing levels as cap rates compressed in the face of aggressive debt.

In contrast, through the first six months of 2008, total CMBS volume nationwide dropped to $10.7 billion, most of which was carry-over volume from loans originated in 2007. There has been little, if any, new CMBS loan production thus far in 2008.

Knowledge Is Power

Indeed, today’s view isn’t the rosiest. The straight facts are the economy is a mess and the average storage owner or investor can do little about recessionary fears, rising energy costs or the state of financial markets. But what they can do during this time is continue to gain knowledge and understanding.

Quoting Sir Francis Bacon: “Knowledge is power.” With knowledge and understanding of the situation’s magnitude, you can apply constructive energy into developing powerful strategies to ride out this economic turbulence. Below are six suggestions to survive the storm.

Understand the current market and have reasonable expectations about deal terms. If you are a self-storage property buyer, apply reasonable debt parameters to the transaction and bid the purchase accordingly. Conversely, if you are a seller, understand the implications that current debt parameters have had on cap rates. If possible, try to avoid spending valuable time, money and resources on a deal that will need to be re-tooled, or worse, might collapse from foreseen events.

If you are well capitalized, the time may soon arrive for bargain shopping. Storage buyers who were aggressive three years ago and took short-term debt positions may be overleveraged, creating potential opportunities to partner with or buy these individuals out of their equity positions. Also, look for opportunities to buy bank-owned real estate for little more than the existing note balance, as banks scramble to recapitalize foreclosed deals.

If you are assuming an existing CMBS note, you might be able to exceed the available loan-to-value ratio in the current market and get in to deals with less than the typical equity requirement. For example, consider a deal made at full leverage two years ago with a couple years of interest-only payments. Even if this transaction’s value has slipped on the asset, the outstanding loan can typically be assumed. You will need to work with the loan servicer to assume the debt, but if you can negotiate a favorable purchase price from the borrower, it might result in an advantageous position where the equity contribution going in is minimized.

If you are a seller with a recent vintage CMBS loan in place, you may be able to capitalize on the tremendous rates and terms in place on your asset. If there was an initial interest-only period on the loan, or even if you just have a 30-year amortization, it is likely that little to no amortization has occurred on the debt in the past couple of years. When marketing your property for sale, make sure you understand and highlight the positive impacts it can have on the deal; aggressive rates and terms in place are an asset that will potentially allow the buyer to step into a financing package that is more aggressive than the current market’s offerings.

If you have a loan coming due in the foreseeable future, get started on refinancing and allow plenty of time. Due to a myriad of factors, lenders have been segmented in this market. It can certainly work to your advantage to shop for the best terms. Equally important is to know when to stop shopping for financing. This is not a market where you need every last basis point on a rate. Certainty of transaction execution is what is paramount.

If you do need to transact in the current market, consider short-term financing. The yield curve has taken a more traditional shape, which means the longer out you go, the higher the rate will be. Also, by accessing a short-term deal, you can revisit the loan in just a few years. Hopefully, then, the markets will have stabilized and can present more compelling long-term loan options.

Shawn Hill is a senior vice president with Beacon Realty Capital. To reach him, call 312.207.8237; e-mail [email protected].

Michigan Self-Storage Businesses Benefit From Small Tax Victory

Article-Michigan Self-Storage Businesses Benefit From Small Tax Victory

On Oct. 2, the Michigan Senate took a step toward annihilating the 21.99 percent surcharge on the Michigan Business Tax (MBT), passing two important bills and sending them to the State House. By a 26-12 vote, it approved Senate Bill 1242, which would phase out the surcharge over three years, beginning in 2009. The ruling body also approved Senate Bill 1038, which would make a series of technical corrections to the MBT, removing taxes, fees and other elements from inclusion as gross receipts. For example, the bill would prohibit the Department of Treasury from imposing the MBT on taxes retailers are required to collect from Michigan consumers.

The MBT surcharge was added late last year, enabling the state to replace the widely unpopular tax on services. But it generated outcry among businesses that have seen significant tax increases, including self-storage facilities. Eliminating the surcharge has become a primary target of Michigan business groups. Pogoda Management Co., the state’s largest operator of self-storage facilities, has been particularly active in urging fellow business owners to speak out against the surcharge.

Mobile Self-Storage Survey Report Released by MiniCo and MS-SA

Article-Mobile Self-Storage Survey Report Released by MiniCo and MS-SA

MiniCo Publishing, in a joint initiative with the Mobile Self-Storage Association (MS-SA), has released the "2008 Mobile Self-Storage Survey Report," the only report of its kind focused the mobile-storage industry. The report includes statistics, charts and analysis addressing the scope of the market, and covers topics such as accounting, transportation, marketing and operations. The report is available for $75 for MS-SA members and $185 for non-members. It can be purchased at www.ministoragemessenger.com.
 
MiniCo Publishing is a division of Phoenix-based MiniCo Inc., which provides specialty insurance programs, publications, and other products and services for the self-storage industry.
 
Information regarding the MS-SA, including membership details, can be found at www.ms-sa.org.

StorageVault Canada Plans to Purchase Winnipeg Facility

Article-StorageVault Canada Plans to Purchase Winnipeg Facility

StorageVault Canada Inc. signed an Option to Purchase Agreement to buy a self-storage facility in Winnipeg, Manitoba, Canada, from an arm's length vendor. The right to exercise the option to purchase begins Jan. 1, 2009, and continues until Jan.15, 2009. The aggregate purchase price is $7.15 million. StorageVault plans to finance the acquisition with secured bank debt and the proceeds from a private placement. For more information, call 306.536.3771

What You Need to Know About Selling and Buying Self-Storage Retail Products

Article-What You Need to Know About Selling and Buying Self-Storage Retail Products

When it comes to retail sales, there are two figures most self-storage professionals worry about: what to charge and what to pay. In this article, we’ll explore both and give you some ideas you can use in your business. In fact, we’ve answered some of these questions so often, we’ll refer to them with the familiar acronym FAQ (frequently asked questions).

Selling FAQs

1. How can I compete in price with the big retailers?

The bad news is you can’t. The good news is you don’t have to. Is there a home improvement center or Wal-Mart next door? If not, don’t worry what they charge for locks, boxes or anything else you sell. Remember, the convenience you offer has value. After all, if a customer needs boxes it usually means he is in the midst of a hectic life event.

Whether leaving for college, between houses, clearing out a deceased relative’s belongings, or in the middle of a divorce, you can bet the customer feels stressed. Anything that simplifies his day will be appreciated. If you’ve got the supplies he needs on hand, he will be less price-sensitive. Such people will gladly pay extra to avoid making another stop to pick up what they need. Remember, convenience is why convenience stores make money despite higher prices.

2. Do low retail prices bring in customers?

Unless you count only the most extreme penny-pinchers, no. As a general rule, retail sales are a byproduct of unit rentals, not the other way around. Ask yourself: Will a one-time $10 savings on boxes make a customer overlook a $15 dollar higher monthly rental fee? Lowballing retail prices doesn’t bring in rental business ... it just gives away profit.

It’s strange how often self-storage people, especially the ones who brag about being near capacity despite higher-than-average prices, are the ones who fret about retail prices. Is it likely their customers are both willing to pay more every month and, at the same time, reluctant to pay more when buying supplies? Or could it be that these owners are still not quite comfortable making retail sales?

3. What are loss leaders?

A loss leader is when your supermarket sells a product, such as milk, below cost. They can do this because they make it up when the customers buys other, higher-margin foods. Try pricing a popular box size at a lower margin while pegging other sizes or tape a tad higher. You may be surprised at the results.

Once you accept the loss-leader philosophy, you come to realize you don’t have to stick to the same rigid markup on every item across the board. For example, those slow-moving cotton gloves might sell better at a lower margin. And popular items, like locks, might support a higher margin.

4. How much higher can you peg your retail?

One wine importer I know tried selling the same vintage at three different stores and priced each a dollar apart. To his surprise, he found the middle price generated more sales in every store he tested. If you have more than one facility, test price points to learn how much you can make before you encounter sales resistance.

5. What about special sales?

With the exception of a clearance sale to get rid of old merchandise, don’t run any “unadvertised sales.” Sales are meant to generate traffic. If only seen by people already there to rent units, you are reducing your profit. On the other hand, if you can use a retail sale to generate more money, such as advertising “free” supplies with a rental, a sale may work.

Again, when people come in to rent a unit boxes and locks are still secondary and, generally, renters are not too price-sensitive. If they find you’re having a “50 percent-off sale,” do you think they’d be likely to buy twice as much in supplies?

Buying FAQs

1. When isn’t the lowest price the best price?

Buying a season’s worth of product may save a few cents per piece but it will also tie up scarce capital for as long as that overstock lasts. Smart retailers keep as little inventory on hand as possible. They rely on suppliers to deliver what they need “just in time.” In that way, they use their supplier’s warehouse as their stock room.

Of course you could get the lowest price by substituting odd-sized boxes, substandard locks and flimsy mattress covers, but that could lead to customer complaints and jeopardize your customer relationships. When it comes to quality, ask yourself: Should I take a risk just to save a dime? Or should I simply raise my retail by a dime?

2. What else is there to consider but price?

Service, for one. If the low-bid supplier can’t supply what you want when you want it, what good is a lower price? Do they offer speedy delivery? The less time it takes to place and receive an order, the less inventory you have to keep on hand.

3. What is the order minimum to earn free freight?

If you have to order more, you’ll need to stock more, which ties up more capital. Not a good thing.

4. Does the supplier provide attention-getting signage and help with organizing your displays with professionally produced plan-o-grams?

A well-planned retail display can bump up sales by more than 12 percent. These are services every supplier should offer. The best suppliers offer them at no charge. “Free” services have a measurable value to your business. If you have to pay extra for any, add them to your real costs.

What about employee training? Some suppliers offer webinars and sales training materials to make training a breeze. Better-trained managers always sell more retail.

5. How do I deal with a price increase?

Though rising prices are a fact of life, you shouldn’t just accept them without doing your due diligence. Get prices from other suppliers, but first ask them to guarantee their prices won’t jump after you’ve switched. Assume that most vendors will lowball just to get your business. When you compare prices, consider whether a 5 or 10 percent difference is worth the hassle of dealing with a new supplier. Be a smart business person, not just a tough haggler.

6. How do I take advantage of a price reduction?

Sure it happens! Maybe it’s a sales promotion or a supplier’s inventory reduction, but deals do come along. It’s your chance to get supplies at prices that’ll fatten up your bottom line. Be cautious. Buy wisely. You don’t want to be in an overstock situation at the end of the busy season. Consider the cost of your capital and buy no more than a few months supply. If you’re wondering whether you should “pass the savings on” to customers, stop! The small price reduction will do nothing to increase your sales volume and, again, you’ll be giving away profit.

This article covers most of the frequently asked questions regarding buying and selling retail product. You can also ask your retail supplier for advice on making your store more profitable. After all, when a retail supplier’s customers do better, we all do better.

Rob Kaminski is vice president and general manager of Supply Source One, a division of Schwarz Supply Source, a retail supplier for more than 100 years. With a dozen warehouses across the country, the company has one of the self-storage industry’s most complete selections of retail products, as well as office, maintenance and janitorial supplies. For more information, visit www.supplysourceone.com.

Supplier Spotlight: The Rabco Corp.

Article-Supplier Spotlight: The Rabco Corp.

Nearly a year ago, The Rabco Corp. celebrated its 20th anniversary. Not only was it a time for reflection, but also a chance to look forward to the next 20 years. With rising material costs and an increase in competition, Rabco stands above the crowd with years of experience, emerging technology and old-fashioned customer service.

Owners Ron Rabou and Larry Cox started Rabco in 1987, after working for a supplier of self-storage and greenhouse buildings, and realized the potential in the emerging self-storage industry. Today, Rabco is one of the industry’s largest manufacturers and suppliers of self-storage buildings.

The company offers a full range of metal buildings, primarily for self-storage, but also boat/RV, flex space and rigid-frame distribution. Rabco’s staff includes designers, detailers, engineers, a full-service sales and estimating team, project managers and associated staff to keep projects in budget and on time.

A key to the Rabco’s long-term success is simply being the best in the self-storage industry. “What we sell here at Rabco is knowledge,” says Buster Owens, president of the Winter Garden, Fla.-based company. “That’s one of the big attractors, especially to the new developer. We’re very familiar with the whole process, not just the building process.”

That includes completing all design work in-house. Plus, each salesperson has a project manager/inside sales coordinator, who serves as an in-house contact person following the project from beginning to end. From site planning to building layout to managing the property, the Rabco team helps owners build a business—not just a facility.

Going High-Tech

In addition to experience, the company has also embraced technology as a way to differentiate itself in the market. The Rabco website underwent a dramatic overhaul last summer to create a more user-friendly site and add new features, including a builders’ tracking log. Owners can now log onto the website and, using a customer ID, pin and job number, access owner-dedicated space.

“They can complete their job information sheets online, transmit directions to the jobsite and, most important, it will have a delivery schedule for the materials,” Owens says. “No matter where you are, if you have access to the Internet, you’ll be able to see what has been delivered to your site and when the balance of the materials is scheduled to be delivered.”

The added online features are a direct response to customers’ needs, Owens says. For example, the ability to access certain information online—such as color charts or contact information—will eliminate job delays. “If they can complete it and submit it online, it saves time,” says Owens, adding that it also streamlines work in the office.

The company also purchased new job-cost accounting software with plug-and-play modules. “It can generate a lot of financial information that makes the company run more efficiently,” Owens says.

The addition of twin 42-inch plasma screens in the conference room enables the company to have interactive meetings with clients. “We can make redlines for revisions and, at the conclusion of the meeting, we’re able to forward them to our drafting department, the customer’s home or business, or an architect,” Owens explains. “Everyone gets a copy of the same changes at the same time. It eliminates confusion and any discrepancies.”

Another tech feature on the horizon is a database of drawings. “The drafting department would be able to pull up like-kind buildings and similar projects,” Owens says. A drawing database would enable Rabco to send building details electronically to an owner’s home or architect. “This helps make the shop drawings coordinate with the architectural drawings and eliminates discrepancies in the field,” Owens explains. “It’s a pretty nice tool for our internal use, as well as for owners, designers and architects.”

Expansion in the West

Another significant change for the company in ’08 was the addition of Jimmy Anderson to the Rabco team. Anderson, an industry veteran, will be a key player in Rabco’s quest to expand its current operations in the West. Anderson, who lives in Texas, is the executive vice president of Rabco, overseeing operations west of the Mississippi.

“His experience in all aspects of the self-storage construction industry, his core values of integrity and customer service, and his ability to help customers achieve their goals is something that will be beneficial to our company,” Owens says.

“Becoming a part of Rabco was a very easy decision for me to make,” Anderson adds. “Having known the Rabco team for many years, both as a supplier and a competitor, I knew that our values of customer service and support were aligned. By opening a support office in Texas, we will be able to better serve our customers west of the Mississippi. I am extremely excited about our growth opportunities.”

For more information, call 800.989.0220; visit www.rabco.com.

Hawaii Self Storage Hosts Kapolei Family Fun Festival and Fundraiser

Article-Hawaii Self Storage Hosts Kapolei Family Fun Festival and Fundraiser

Hawaii Self Storage is celebrating the grand opening of its new Kapolei location, the company’s fifth site, with a Family Fun Festival featuring Halloween activities. The event will take place Oct. 24-26 from 5 to 9 p.m., and all proceeds will benefit the Kalaeloa Homeless Shelter, Kapolei High School and Kapolei Public Library. Highlights include: 

  • A “spooky trail” developed and run by Kapolei High School's drama department, the Kapolei Interact Club (teen Rotary) and the Leo Club (teen Lions). Guests will walk through eight eerie scenes that are appropriate for children ages five and older. A donation of $2 is requested to enter.
  • “Ghoulish Games” through which kids can test their skill and win prizes. Coordinated by the Waianae High School student government, activities include pumpkin decorating, a coloring contest, a “fishing for spooks” contest and pumpkin bowling. The cost to play all eight games is $5.
  • A free costume contest with prizes for the scariest and cutest costumes. The contest will be held at 7:30 p.m. on all three nights, with adult and child categories.

The Kapolei facility was built by local development company MW Group Ltd. Hawaii Self-Storage also has sites in Kaimuki, Mililani, Pearl City and Salt Lake. For more information, visit www.hawaiiselfstorage.net.

InStorage REIT Buys InScotia for C$68 Million

Article-InStorage REIT Buys InScotia for C$68 Million

InStorage Real Estate Investment Trust  agreed to buy its third-party development partner InScotia Developments Limited Partnership for approximately C$68 million. The acquisition is expected to benefit InStorage and its unitholders by acquiring a portfolio of income-producing properties with considerable upside.

According to the company, InScotia's portfolio comprises of interests in eight self-storage properties that are currently in their lease-up phase and a land parcel zoned to permit construction of a 93,000-square-foot facility. InStorage estimates stabilized net operating income from the acquired properties to be in the range of C$5.5 million on an annualized basis.

The company noted that it would pay about C$68 million for InScotia, funded with the issuance of C$14.3 million of convertible debentures that will bear no interest and have a three-year term to the InScotia vendors, the assumption of C$33.6 million of first mortgage and construction loans, and the repayment of C$20.2 million in mezzanine loans to it. The company expects the transaction to close by late October, subject to receiving all required consents. For more information, visit www.instoragereit.ca/.


ISS Blog

Time for Fall Festivals

Article-Time for Fall Festivals

When I left Phoenix last week to head to Nashville for the ISS Expo, it was a warm 90 degrees. I returned late Friday night to wind and, surprisingly, cooler weather. It seems fall is finally here.

If you live on the East Coast or even the Midwest, you’ve likely already spotted the many faces of fall: cooler weather, changing leaves and shorter daylight hours. Another sign: the onslaught of fall festivals. Schools have them. So do cities and neighborhoods. So why not a self-storage facility?

Hawaii Self Storage, a facility heavily involved in its community, is celebrating the opening of its fifth location in Kapolei, Hawaii, with a family fun festival, Oct. 24-26. The facility will have a spooky trail, games and a costume contest.

Hosting an event like this is a fantastic way to get involved with your community. You can attract new tenants and show existing ones your appreciation. And you don’t have to put on a mini-carnival to attract visitors.

A small fall festival could include face painting, games and activities such as pumpkin carving or coloring contests, or even a pet parade. Invite a local musician or high school band to play. Hawaii Self Storage partnered with a high school drama club to create the spooky trail. You can charge a small fee to cover the costs of the event or ask nearby businesses to co-sponsor the event. Post company banners or posters around the event area or invite your sponsors to participate. Be sure to have a couple of units open so visitors can take a peek. Also have facility info on hand, like rates, move-in specials, security features, hours of operation, etc.

With the holiday season just around the corner, consider hosting a Santa Day or open a unit for gift-wrapping. For more ideas on community involvement, check out this article from the ISS archives.

It's no secret that many facilities are seeing occupency rates drop. Homeowners are tightening up, and competition is soaring. Hosting a community event is a surefire way to ensure your facility is the choice for self-storage. If you've hosted an event or are planning one, hit the leave comment button below to share your story.
  
  
 

The Benefits of Developing Condominium Self-Storage

Article-The Benefits of Developing Condominium Self-Storage

Owners of expensive recreational vehicles, collectible cars and boats are turning to a relatively new concept in self-storage—condominiums. After shelling out big bucks for a big toy, these owners don’t balk at paying $60,000, $75,000 or even $100,000 for a secure place to keep it. Five storage experts offer their views on this exciting new trend.

Wes Pettit, Storage Condo America

Although the concept of storage condominium ownership is new to Connecticut, the storage condo is rapidly becoming the storage solution for the future, says Wes Pettit, developer for Storage Condo America in Windsor Locks, Conn. Storage Condo America is a storage condominium facility developed by Park Place Storage Condominiums LLC. The company specializes in creating large storage condominium units for personal and commercial uses. Pettit’s background includes construction and operation of traditional self-storage facilities and commercial property development.

“No one can predict the future, but if you look at the history of inflationary trends it’s easy to realize that rents, in general, do not come down,” Pettit says. Although multiple advantages exist for the customer who buys a storage condo, two of the largest are elimination of monthly rents and appreciation of real property that can be later sold. Storage condos can also be listed as an asset on personal balance sheets. Plus, the unit owner has the freedom to install amenities and property improvements to accommodate his needs.

The advantage to the developer is the elimination of long-term responsibility, including staff for the property, Pettit says. Once units are sold, property management comes under the responsibility of an association.

Caesar Wright, Mako Steel Inc.

“The model of condominium self-storage has emerged over past three or four years,” says Caesar Wright, president of Mako Steel Inc. in Carlsbad, Calif. Mako designs, supplies and installs steel buildings for the self-storage industry nationwide.

Most RV-storage facilities sit on 6 to 10 acres of land, but in Southern California, those 6 to 10 acres are worth $12 million to $20 million, Wright says. Many mom-and-pop operations are cashing in and selling their properties to RV/boat storage developers.

While construction is not much different from regular self-storage with the exception of amenities, condos often run into resistance from cities, Wright says. “The condo concept is a different animal than self-storage,” he says. “Many cities are generally not favorable to this type of storage.” City officials question what’s in it for them because the city doesn’t receive any sales tax revenue from the product or income tax derived from use of the labor pool with storage condos. Often, developers must propose something unique or pay for a street or public-service change to gain approval.

Ted Deits, Eucalyptus at Beaumont

The storage condo market is more of a luxury market, says Ted Deits, owner and developer of Eucalyptus at Beaumont, Southern California’s first-of-its-kind RV storage condominium. “People will spend more money to own the space for their boats and RVs,” he says.

Deits conducted a due diligence survey of about 1,200 potential customers to find out what they wanted. Among the items were a variety of unit sizes and door widths, customizable interiors, restrooms, showers, dump stations, a playground, wash bays, ice machines, a 60-amp for each unit, propane tanks, Wi-Fi availability and valet service.

Area demographics for condos are also different than traditional self-storage. Most of the initial buyers for Eucalyptus live more than an hour away with some as far as Australia and Hawaii.

Eucalyptus at Beaumont pre-sold 50 percent of its units in two initial offerings before construction even began. The $10 million property offers 108 condo units priced between $55,000 and $182,000, and provides the extras many owners of luxury vehicles expect. There are five standard unit sizes. Unit depth ranges from 35 feet to 50 feet, and all have 14-foot door heights. Widths range from 11 feet to 26 feet with 10- to 20-foot-wide sectional doors. Some units can be combined to create a unit up to 100 feet deep.

“You can build a condo facility but still rent the units, but you can’t build a rental facility and sell the units,” Deits says.

Gary Morris, Premier Storage Condos

“We are in the business of selling garages to people to store their big toys,” says Gary Morris, owner of Premier Storage Condos in Phoenix. The 311-unit facility, the brainchild of Morris and Roger and Lee Farmer, exemplifies the rapid rise in popularity of the storage condominium. The partners are not traditional self-storage entrepreneurs but real estate developers who saw the potential of selling self-storage condominiums to recreational vehicle owners.

“Building a storage unit makes sense,” Morris says. “People can downsize their homes and have somewhere safe to store their toys but, at the same time, build equity in the unit.” Owners know if they sell their RV they can rent their unit to others or sell the unit on the open market.

Premier offers several unit sizes from 14-by-30 to 22-by-40 at a cost of $125 per square foot. Every unit includes fire sprinklers, electrical outlets, fluorescent lighting and individual door alarms. The large sectional doors are sealed on all four sides. Driveways are 56 feet wide to allow easy parking of these large vehicles.

The property has 24-hour access with alarm monitoring and 24-hour video protection. Security is supplied by PTI Integrated Systems. All buildings are plumbed for water so customers can wash vehicles in front of their units before storing them. The facility features an RV-waste dump and separate bathrooms with showers for men and women.

Construction of the 213,425-square-foot facility began in early January by the Ayres Group General Contractor. As of this writing, the facility was 90 percent sold. The Ayers Group is already planning a 530-unit complex in west Phoenix.

Jim Stratton, Real Estate and Development Consultant

Two market conditions support the development and sale of storage condos—an overall shortage of vehicle-storage space and high rents for quality vehicle storage, says Jim Stratton, a real estate and development consultant based in New Orleans. The demand for recreational-vehicle storage is still growing based on increased sales of vehicles and growing parking restrictions, he says. As of 2007, the number of RV and boat owners using commercial storage is approximately 11 percent.

Vehicle storage can be divided into three segments: owners of RVs, boats and other vehicles, small-business owners and investors. The first two are the two primary end-users of storage. Small-business owners are attracted by the design of the vehicle-storage unit, which is very similar to the design of typical office/warehouse space, and the opportunity to own rather than rent.

The developer has the option to restrict buyers to just those intending to store vehicles, but many have found vehicle storage and small business coexist quite well, says Stratton, who has provided market research and feasibility studies for real estate developers including self-storage for more than 20 years.

“The storage-condo market might represent a profitable niche in many locales,” Stratton says. “But careful study of demand, supply and financial feasibility is essential to success.”