These are unique times in the self-storage real estate market. To get answers to questions relevant to todays facility owners, buyers and sellers, I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the western region. Ive asked them to comment on the state of the market in their areas and share thoughts on how the industry will perform moving forward. Joining us in the discussion are:

• Steve Boldish, Coldwell Banker Commercial NW, Medford, Ore.
• Mike Dunn, Mike Dunn & Associates, Costa Mesa, Calif.
• Larry Hayes and Steve Hall, Larry Hayes & Associates, Missoula, Mont.
• Joan Lucas, Joan Lucas Real Estate Services, Denver

1. As the economy and real estate market start to recover, should self-storage owners consider selling, buying, or continue to operate their properties and see what happens? How is the economic recovery progressing in the major market areas in your territory? 

Boldish: Cash investors are seeking high returns, as might be expected. Nows a good time to buy if you can handle the risk associated with low occupancy and perhaps three to five years before the market fully recovers. Ive advised sellers with good cash-flow properties to hold rather than sell unless there are circumstances forcing the sale. If they dont have to sell, its better to wait and evaluate the market in six-month intervals.

Dunn: Until the economy recovers, owners in Southern California should continue to operate. This is still a buyer's market and, unless there is a pressing personal concern (death, divorce, partnership break-up), most sellers will not be able to obtain top price for their property. The exception is institutional-quality properties, which are likely to experience competing offers. Institutional buyers will generally not pay the prices seen two years ago, but will pay good value for a property with 12 to 24 months of a quality income stream.

The economic recovery is still a way off in Southern California. Unemployment remains high, job loss continues in the public sector, and state and local government instabilities weigh heavily on the business and public communities. The major storage companies see this as a time to buy and are looking to invest in quality storage deals. Outlying suburban properties or smaller (below 50,000 square feet) will generally not be considered by major players. I see a continuing consolidation of storage properties of more than 50,000 square feet.

Hayes/Hall: Without specific reasons for selling now, we recommend they continue operating their properties and increase marketing efforts to build occupancies and gain value increases from higher revenue and improvement in regional economics. Throughout Montana and Idaho, some areas are improving, while other areas have continued to stagnate. There is a definite advantage to buyers and sellers to act while interest rates are low because as interest rates escalate, it will hurt both parties. Our economic recovery is doing well, and Montana is one of the only states still in the black.

Lucas: The market really is rebounding in Colorado. Theres more activity now than weve seen in a year. Owners are still reeling from the downturn; however, some are starting to see an increase in occupancies again. If the owners are really interested in selling, we encourage them to take a good hard look now. Many of the major buyers have come back into Colorado, and for good quality projects, theres aggressive activity. Projects in smaller towns are still affected by the slowdown, because buyers for their sites are still the people who need to get financing, and need to have at least 35 percent as down payment. 

2. What advice would you give owners with regard to financing for self-storage properties in todays market? 

Boldish: More than ever, buyers, builders and owners need to "qualify" their lender, just as lenders qualify a borrower. Recently, an owner building a new facility was 30 days out from obtaining permanent financing that included an interest reserve to carry the property through the stabilization period. Their lender was seized by the FDIC and the loan was not funded. The owner lost the property through foreclosure.

Dunn: Financing is "easier, but not "easy" to find as compared to last year. Anecdotally, lenders are creeping back into the market; but while rates may be attractive, the underwriting criteria remain difficult. Lenders will demand larger equity stakes from borrowers in exchange for favorable rates. Prepayment penalties for 10-year financing will not disappear, as most individual borrowers have little leverage to negotiate reduction of loan terms until there is an increase in lenders competing for loans.

When obtaining new financing, sometimes theres a trade-off between having a prepayment penalty and having lower origination fees or interest rates. The lender may be willing to reduce or eliminate a prepayment penalty based on the amount you pay in loan fees or on the interest rate in the loan contract. Negotiate with a lender just as you would with a buyer or seller.

Hayes/Hall: Local lenders continue to provide the best means of financing in the Montana and Idaho markets. Although some national lenders will provide financing, its the relationship between borrower and lender in specific submarkets that provides the availability of funds. Local lenders have shown a willingness to provide capital at reasonable rates with 20-year amortizations, but with a call provision or rate adjustment every five years. Its not typical in those situations for a lender to have a prepayment provision in the loan. Further, these lenders are not interested in new projects but are willing to loan on stabilized projects.

Lucas: We talk with owners all the time who have a loan with stringent prepayment penalties, or they have a lender that wants to get the loan off of their books. When those loans come due, we encourage them to talk with life-insurance companies and lenders like Wells Fargo, as they have all come back into the market with money to lend for self-storage. I dont know of any banks that are doing non-recourse loans now, but depending on the borrowers relationship to the lender and financial capabilities, the lender might be willing to waive prepayment penalties, as many lenders are still looking to get real estate loans off their books. Several lenders are quoting low rates on three-year terms and higher for seven.

3. With the market beginning to improve and strong performance of the self-storage sector during the recession, do you think well start to see new development of properties in 2011?

Boldish: New development will not take hold until the cost to build becomes less than the cost to acquire. With the unemployment rate in Oregon being higher than the national average, I don't see new development taking place in any of our commercial sectors for several years. With self-storage occupancy rates in the west down over the last 24 months and a soft housing market in Oregon, new self-storage construction in 2008 saw anticipated 18-month stabilization periods extending to 24 to 36 months.

Dunn: We wont see new storage development in Southern California for the next couple of years. The area experienced a boom in development that ended in 2007-08 when storage was considered the soup de jour of the construction business. A number of projects scheduled to come out of the ground in 2008-10 have been put on hold. Until theres a trend of positive absorption of existing vacant space, it will be difficult to get construction financing for all but the largest and most experienced companies. Once absorption is back on track, development financing will ease and construction will resume. This will not occur for another three to five years.

Hayes/Hall: At this point, the Montana and Idaho submarkets appear to be reasonably well covered. Some cities in the region are oversupplied, and new construction is not likely for some time. Other cities continue to show growth in the multi-family markets, which suggests some growth in this self-storage demand generator. It would seem the Montana market is best defined as either saturated or adequately serviced, so new construction in the region is likely to be spotty and fairly modest.

Lucas: The one piece still missing is construction financing. My advice would be to wait at least a year, and let the dust settle before starting construction on a new project. I would also strongly suggest a good feasibility study to verify that the market can really absorb another facility.

I recall an example in Colorado where, two years ago, a community consistently turned down application after application for self-storage development. Then out of the blue, the planners decided to allow it. Unfortunately, two very large projects opened within weeks of one another, and because of their geographic proximity, theyve fought for every single tenant. Each facility is now only 50 percent occupied and serves as an example of what can happen when a market gets overbuilt.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers. For more information, call 800.55.STORE; e-mail [email protected].

The suspect in a stabbing at a self-storage facility Tuesday in Oroville, Calif., was shot and killed Thursday during a confrontation with Sacramento police.

Zachary Ragan, 42, was killed near Arco Arena in Sacramento. Butte County Sherriffs investigators identified Ragan as the man who stabbed Ronald Knight, 43, at a self-storage facility on Lincoln Boulevard. Although the police searched for Ragan after the assault, they were unable to find him and issued an arrest warrant.

Thursday morning, Sacramento police spotted Ragan walking along Truxel Road. He was also a suspect in an assault at a youth-group gathering in Sacramento Wednesday evening, where he allegedly threatened a 17-year-old with a knife.

When police confronted him, he reportedly threatened the officers with a knife. Police stun guns failed to stop him. Officers then shot him as he charged.

Police do not yet know what spurred Tuesdays attack on Knight, who was an acquaintance of Ragan. Knight underwent surgery at Enloe Medical Center and is listed in stable condition.

Self Storage Company, a provider of an online self-storage directory, launched a new program to help self-storage facilities adopt sustainability practices and preserve resources. The Make Yourself Green program provides guidelines for making a self-assessment of green practices, scoring the facility, and planning the adoption of green practices in the four key areas that have the most impactenergy use and conservation, water usage and conservation, recycling and paper usage, and cleaning and disposal.

"We decided to launch this program because were concerned about the use of natural resources," said Art Gould, acting division manager, Self Storage Company. "Self-storage yards have a unique opportunity to reduce their own environmental footprint and also influence their customers by modeling conservation, reuse and recycling. Our intent is to encourage our listed facilities to improve their own adoption of green practices and encourage their customers to also move in that direction."

Make Yourself Green is a self-administered program. Operators simply visit this website,  download the self-assessment scorecard, review their current practices, fill out the guide, and see where they have opportunities to become more green. Then they submit the scorecard back to the program administrator, and can receive the Make Yourself Green badge which can be displayed at their location and on their website. Make Yourself Green also includes programs for community involvement like "shredder days" and drop-off recycling.

"It has become clear that customers want to do patronize green facilities and businesses," Decker said. "Adopting green practices can appear to be expensive, and getting an official certification can also be time consuming, so we designed this program to make it easy for self-storage operators to focus on the areas with the greatest impact. Done the right way, practicing sustainability can lower operating costs, attract customers and help the local community."

PODS Enterprises Inc., a Clearwater, Fla.-based provider of moving and storage services including portable storage, appointed Clive Burton to the position of vice president of sales.

Burtons role with PODS will be to develop new solutions and relationships in corporate relocation, government/military, commercial, construction and affinity segments.

Clives track record, extensive experience, and knowledge in the industry make him a valuable leader of our sales team, said CEO Tom Ryan. His sales approach and leadership are a great fit for PODS and our customers. We are excited to have him join the team.

Burton has nearly 25 years of sales leadership experience. He joins PODS from AVIS Budget Group Trucks, where he led the national commercial sales team. In the course of his career, Burton has a proven track record of working with franchise business models to strategically target and expand share in key business-to-business market segments.

Founded in 1998, the PODS network has completed more than 250,000 long-distance relocations, exceeded one million deliveries and has more than 140,000 PODS containers in service in 48 U.S. states, Australia, Canada and the United Kingdom.

The Lock Up, a Chicago-based self-storage company with more than 30 facilities nationwide, is offering visitors to its Facebook page in November the chance to win an Apple iPod Touch.

Facebook has really been a fantastic way to keep people apprised of our latest storage deals and campaigns such as the iPod Touch giveaway, as well as to garner any comments or suggestions they may have for us, said Andrea Carnes, vice president of operations.

To enter the Facebook contest, users simply log onto Facebook, navigate to The Lock Up Self Storage page and click on the "iPod Touch Giveaway" tab. Next, they click on the Like button above the profile tabs to join their community. From the dropdown menu, they should choose their nearest Lock Up facility from the list, then click the "Go" button. Once the photo of the facility has loaded, click Like underneath the photo.

Facebook users may then select Share on the right-side bar to notify their Facebook friends of the opportunity to win. The contest will run through the month of November with one winner per location chosen. Each winner's name will be posted on The Lock Ups Facebook page shortly after the close of the contest.

Our goal is to not just collect Facebook fans, but to gain a greater rapport with people across the country so we can tailor our services and special deals to their needs, no matter which facility they might be using, Carnes said.

Contest entrants must register to win by Nov. 30, 2010. Contest winners must redeem prize in person at the location selected on entry form and show a valid photo ID. Winners must redeem their prize within 30 days of notification. Contestants may only enter one time and for only one location. Lock Up Self Storage and SHS Management employees and immediate families are not eligible to win.

Extra Space Storage Inc., a self-storage real estate investment trust, announced operating results for the three and nine months ending Sept. 30, 2010.

 

Highlights for the three months include:

• Achieved funds from operations (FFO) of $0.24 per diluted share including development dilution of $0.03 per share and a one-time $0.02 per share charge resulting from the bankruptcy of a tenant sub-leasing office space from the company under a long-term office lease assumed  in the 2005 Storage USA acquisition.
• Grew same-store occupancy by 180 basis points to 85.8 percent, compared to 84 percent from the same period a year ago.
• Increased same-store revenue and net operating income (NOI) for the by 3.9 percent and 7.8 percent, respectively, compared to the same period in 2009. Same-store revenue and NOI includes tenant reinsurance income and expense.
• Acquired three properties from the company's third-party management program for approximately $5.4 million.  Subsequent to the end of the quarter, Extra Space acquired three additional properties for $21.2 million.
• Completed the development of one property at a total cost of $8.5 million.
• Added 21 properties to the company's third-party management platform.

"Our operating platform has once again delivered solid results with better-than-expected, top-line growth and expense containment, said CEO Spencer F. Kirk. Efforts to grow our footprint through expansion of our third-party management platform continue on a successful trajectory and the acquisition environment is improving. We have had a strong rebound in our operations; however, its possible that this rate of growth may not be sustainable."

 

Headquartered in Salt Lake City, Extra Space owns or operates 809 self-storage properties in 34 states and Washington, D.C. The companys properties comprise approximately 540,000 units and more than 58 million square feet of rentable space.

 

RJ Self Storage in Rio Grande, N.J., launched a food drive, We Can Feed the Hungry, to benefit the New Jersey Food Bank. The facility will accept non-perishable donations from now until Thanksgiving. Self-storage customers who donate non-perishable food items will receive a rental discount.

We are really excited about the food drive, said Jason Carl, property manager. 14.6 percent of U.S. households, more than 49 million Americans, including 16.7 million children, struggle to put food on the table. Were looking to help stop hunger these holidays in our local communities.

Westy Self Storage will celebrate its 20-year anniversary by building its 17th location at 179 Westmoreland Ave. in White Plains, N.Y.

The White Plains location will be a new 117,302-square-foot building. Just like all Westy Self Storage buildings, the White Plains location will have a grand atrium lobby with balconies from the upper floors looking into it, as well as art on the walls, soft background music and granite lobby floors.

The White Plains location will be the fifth Westy facility in Westchester County, a suburb filled with historic landmarks yet a mere 20 miles from Manhattan.

Were extremely pleased to become part of this community. Westy is committed to our customers as well as the neighborhoods we serve, said company president Caesar Arredondo. We know our new Westmoreland Avenue home will have a positive impact on the downtown White Plains area.

Founded in 1990, Westy Self Storage is a family-owned company headquartered in Stamford, Conn. The companys portfolio of facilities span the tri-state area with eight centers in New York, six in Connecticut and three in New Jersey.

Amazing Spaces has earned the WomenCertified Seal and is specially qualified to provide an extraordinary level of sales and service to women.

The WomenCertified Program is designed to teach sales and service professionals how to deliver better customer service, with the goal of creating women friendly companies and experiences to increase customer satisfaction.

We are excited to have completed the WomenCertified Program.  The training was informational and fun and helped us enhance the level of service weve always delivered to our customers, said Kathy Tautenhahn, vice president for Amazing Spaces. We believe in providing the best customer service and as a WomenCertified company we are now committed to upholding an even higher level of service.

To become WomenCertified, sales and service professionals must complete a series of intensive training modules to learn the communication and customer-service skills proven to be the most effective and desired among women customers. Once companies complete the program, theyre listed on the WomenCertified Locator on Womencertified.com, where consumers can search for certified women-friendly companies.

Amazing Spaces has facilities in Spring, Houston and The Woodlands, Texas. Facility amenities include climate and non-climate-controlled self-storage spaces, RV and boat storage, and wine storage.