Unfortunately, it’s not uncommon for a self-storage operator to learn one of his tenants has passed away. This is often discovered when rent hasn’t been paid and late or lien notices are sent to the tenant’s last known address. It’s at this point relatives and friends may come forward seeking to access the unit, hoping to retrieve the deceased’s property.

There are a couple of different scenarios that can play out in these circumstances. Based on the facts, a self-storage operator has a few legal options for how to respond.

Access Code and Keys

If a family member has the access code and keys to the unit (meaning he needs no action from the manager to enter the space), he can access the unit and, if warranted, remove the property from the rented space. This type of access is analogous to that for any rental property; a family member or friend who previously had access rights doesn’t immediately lose those rights when the tenant dies.

However, it’s important to clarify that this permitted access is only possible when the self-storage manager isn’t involved in providing gate-code access or cutting the lock. If the facility operator is interested in addressing this possible situation right when the tenant moves in, he can add an addendum to the rental agreement that specifically lists the party who has access rights upon death of the tenant.

If the family member does not have authorized access, the facility manager can’t allow that person into the unit. To gain access, the family member must provide the manager with copies of the death certificate and a court order stating that the family member been appointed as the administrator or executor of the estate. (This process can be quick or take up to 60 days.) Once he provides these documents, the family member can access the unit and decide if he wants to continue renting in the name of the tenant’s estate or terminate the rental agreement and remove the items. In either case, he must continue to pay rent on the unit to avoid foreclosure.

Options for Small Estates

If the deceased tenant had a small estate value ($15,000 to $150,000, depending on the state), the family may be able to obtain and prepare a Small Estate Affidavit or process the estate through a Summary Administration. A Small Estate Affidavit is a sworn document, signed by the family member, stating that the amount of the deceased estate is so low that it’s not going to be probated through the courts. Unfortunately, it’s only available in about 20 states.

Once the family member provides the affidavit, the self-storage manager can give him access to the unit. The language of the affidavit must provide, under oath, that there are no competing claims being made by others concerning the property and the party signing the affidavit indemnifies the storage facility if a competing claim arises. In some states, the document must be filed with the court, with an order issued to verify the facts.

Another method of resolution for small estates is the filing of a Summary Administration. Although this process is handled through the probate courts, the timeline is shortened based on the fact that the estate value is small. The decision to use a Small Estate Affidavit or Summary Administration is based on the value of the estate. In some states, if the value is $10,000 or less, an affidavit can be used; if it’s over that amount, a Summary Administration is required.

No Response from Family or Friends

If a self-storage operator learns a tenant has passed away but isn’t notified by a family member, he should try to reach the emergency contacts listed on the rental agreement. He should also contact the local probate court to see if the tenant’s estate has been probated (and an executor named).

If there’s an executor, the manager can contact that person to determine what to do with the unit. Ultimately, if he’s unsuccessful in making contact with those listed on the rental agreement, or any relatives or friends who might be willing to resolve the tenant’s default, he may then send a certified letter to the tenant’s last known address and proceed with the foreclosure process. Depending on the state, there may be a waiting period to allow the estate to be probated before the sale can occur.

Notice of Competing Claims to the Stored Property

There are instances when the facility operator learns a tenant has died and receives calls or visits from multiple family members, each making a claim to the unit contents. In this case, it’s important that he overlock the unit and instruct the family to go to the probate court and submit their claims there, understanding the court will issue a determination as to a rightful heir and proper party to take possession of the property.

Until that time, the facility operator can continue to charge rent. It’s expected that those making a claim will pay to avoid the enforcement of the lien over the contents.

The Debt of the Estate

When it comes to tenant death, self-storage managers need to keep a few basic issues in mind. Most important, just because a tenant has died doesn’t mean his obligation to creditors has also ceased to exist. Someone has to pay rent on the storage unit or the unit will eventually go into foreclosure.

But if the manager knows the tenant has died, it makes sense for him to do what he can with phone calls, letters and even a visit to the local probate court to see if anyone has stepped forward to take over the estate, especially before proceeding with a foreclosure. Lastly, if a resolution is being attempted, the storage operator should delay any enforcement of his lien rights, since the estate process can sometimes take weeks to complete.

Scott Zucker is a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a speaker at industry events, author of “Legal Topics in Self Storage: A Sourcebook for Owners and Managers,” and a partner in the Self Storage Legal Network, a subscription-based legal service for storage owners and managers. To reach him, call 404.364.4626; e-mail [email protected].

Compass Self Storage, a member of the Amsdell family of companies, has purchased a self-storage facility in Fate, Texas, its second in the market. The property at 159 Riding Club Road will be rebranded under the Compass name. The purchase was made by separate affiliates of Amsdell Group LLC and Compass Self Storage LLC.

The facility comprises 123,000 net rentable square feet of storage space. Compass plans to add another 20,000 net rentable square feet to the property in the immediate future, company officials said in a press release. Facility’s features include climate-controlled and drive-up units, video cameras, and a full line of moving and packing supplies. Truck rental will also be available, according to the release.

Last spring, Compass acquired its first Texas storage property, Abby’s Storage in Cedar Hill. Plans are underway to open new facilities in Grand Prairie and Mansfield, Texas.

Headquartered in Cleveland, the Amsdell Cos. draws its roots from the family-owned construction company founded in 1928. Since its inception, the company has been active in several billions of dollars of real estate ventures, with a primary focus on self-storage. It has owned and operated more than 500 storage centers under various trade names in more than 27 states. It currently owns and operates properties in Florida, Georgia, Kentucky, Michigan, Mississippi, New Jersey, Ohio, Pennsylvania, Tennessee and Texas.

The New York Self Storage Association (NYSSA) will host its 2014 conference and membership meeting, Oct. 15-16, at the Turning Stone Resort & Casino in Verona, N.Y. The two-day event will feature educational seminars, vendor exhibits and a cocktail reception.

The first day of the conference features a Real Estate & Finance Symposium in which industry professionals will evaluate and discuss the New York self-storage market. Topics will include acquisition strategies, facility refinancing and development. Also on day one will be three workshops: “Legal Issues at the Point of Sale,” presented by Joseph Miller of Miller & Lee LLP; “Cross-Cultural Sales and Customer-Service Strategies,” presented by Tron Jordheim, vice president of marketing for StorageMart; and “Own the Phone: 10 Reasons to Follow Up Within 10 Minutes,” presented by Kyle Shelton, sales-team lead at SpareFoot.

The second day of the conference will feature a seminar on technology and operation, presented by Syrasoft President Tom Garden, who will talk about ways in which technology can improve a self-storage business. Also on day two will be a Building Design & Development Panel, in which national builders and manufacturers will discuss the evolution of the self-storage product; a seminar titled “Maximizing Profitability through Electronic Payments,” presented by Sherry Burris of PayPros; and a Legal Panel focusing on issues specific to New York state.

The annual conference is open to the public, and interested parties can register for $125, which covers both days. Association members who sign up by Oct. 8 will receive a 20 percent discount. The cost to attend the workshops is $50 per person. Details are available at www.nyselfstorage.org.  

Last year’s event garnered the largest attendance on record, according to an NYSSA press release. Formed in 1982, the NYSSA is a nonprofit that provides education and legal support to self-storage professionals in New York.

After three years of momentum building in the self-storage investment market, buyers and lenders will place what could be record amounts of capital into self-storage properties by the end of the year. Industry lending is fundamentally strong, and lenders continue to maintain disciplined underwriting standards, all while creating liquidity and a fluid transaction market.

At the same time, overall market fundamentals are still strong, with demand surging and supply of new product slow in coming. The question on many investors’ minds is, “How long will this last?” History tells us these market cycles always go further and last longer than anyone thinks.

Every self-storage owner must consider his individual and company objectives to capitalize on the current market conditions and protect the fruits of his labor. Below is an outline of the various options available to owners today and what they can do to maximize their investment.

Option 1: Batten Down the Hatches

You want to hold onto your property for the long haul. The questions you must consider are:

• Are you willing to hold your property for five to 10 years?
• Do you have solid financing in place for the contractual period of at least five to seven years?
• Do you have liquid resources to cover the debt service in the event your revenue declines 25 percent?
• Is your facility one of the five most competitive storage properties in a 3- to 5-mile radius?
• Is the local municipality reluctant to approve new self-storage projects?

If you can’t answer “yes” to these questions, you’ll have a serious problem reaching your objective of holding the property. As we all learned between 2008 and 2011, the availability of real estate loans can become scarce for long periods and terms can drastically change from one year to the next.

If you have or are considering a commercial mortgage-backed securities or life-insurance loan with no personal recourse, you must understand the following: how the prepayments work (defeasance or yield maintenance), what cash management is and, in the event of a deed in lieu of foreclosure, what are the tax implications of “debt forgiveness.”

It’s clear the value of self-storage properties can fluctuate drastically in a five- to 10-year period—as much as 40 percent. You can only imagine the effect a 40-percent value reduction would have on a property that’s seeking financing. If you’re not comfortable with your answer to any of the above questions, try Option 2.

Option 2: Time to Move On

If you’re thinking of retiring or lowering your risk, you’re concerned about your market, or you just want to take it easy and simplify your life, maybe you should consider selling. The questions to answer are:

• Are you willing to sell at the market price?
• Do you want to avoid waiting several more years for the next “peak” in values?
• Do you believe prices are within 10 percent to 20 percent of the all-time highs?
• Do you understand capitalization rates?
• Are you willing to pay the taxes?

Once again, if your answer is “yes,” think about selling. There are many serious buyers in the market, almost always knowledgeable about self-storage and, for the foreseeable future, willing to pay very aggressive prices for well-run and -located properties. The net result is if you decide to explore selling in today’s market, you should expect a very aggressive valuation of your property and will most likely be able to choose from multiple buyers. If you’re not comfortable with your answers to Option 2, you may want to think about Option 3 or return to Option 1.

Option 3: Denial

Denial, by simple default or negligence, is often a popular choice when owners are presented with several options that seem to make financial sense. By any standards, the first two options are more difficult, and denial is easier—for now! However, they give you some ability to protect the fruits of your labor.

As history has proven, the one thing that remains constant is investments change, and the value of an investment has more to do with the market than its overall performance. Thoughtful action is always more productive than worrying about doing nothing.

With new self-storage construction picking up and the threat of rising interest rates, now’s the time to act. Self-storage owners should take a hard look at their long-term goals and consider which steps should be taken to protect their investment.

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 and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail [email protected]; visit www.argus-selfstorage.com.

Baja Construction Co., a design/build company specializing in carports, RV/boat storage and Solar Support Structures, has hired Robert (Bob) Boilini as business development manager for the company’s self-storage division. Boilini has more than 30 years of experience in the sales and marketing of light-gauge steel-building systems. He’ll be responsible marketing Baja’s self-storage buildings nationwide.

Boilini previously worked for self-storage builder BETCO Inc. and Cannonball:HNP, a manufacturer of agricultural and commercial doors, sliding-door hardware, and other metal-building accessories. He also founded the ACERO Group in 2010 to serve the building-component, selfstorage and engineered-systems industries.

Based in Martinez, Calif., Baja Construction designs and engineers solar-support structures and light-gauge steel structures, including those used at self-storage facilities. The company has built carport and steel structures for more than 25 years and has installations in 34 states.

Dahn America360 LLC, a self-storage real estate investment-management and development company, recently purchased Kangaroom Self Storage in Bradenton, Fla., for $2.48 million. The seller was Hilco Investments Inc., a Tampa, Fla., real estate firm. According to the source, the property last changed hands in 1995 for $805,000.

Built in 1986, the property at 5717 14th St. W. encompasses 40,000 square feet of storage space and 561 units on 2.43 acres of land. It’s in South Bradenton near U.S. 41, south of State Road 70. Facility features include boat and RV parking, video cameras, and packing and moving supplies.

Irvine, Calif.-based Dahn America360 and its affiliates have developed, acquired or sponsored more than 5 million square feet of self-storage properties. The company currently manages a portfolio of more than 65 facilities consisting of more than 3.9 million square feet and 30,000 units.

In celebration of its 40th anniversary, MiniCo Insurance Agency LLC, a provider of insurance products for the self-storage industry, is launching an online photo contest. The company is inviting customers, insurance agents, advertisers, colleagues and friends to visit its Facebook page and submit a photo wishing MiniCo a happy anniversary.

Three prizes will be awarded for the best photos. The grand prize is a $500 gift card; the second-place prize is a $250 gift card; and the third-place prize is a $100 gift card. Participants may upload photos through Oct. 24. Voting will take place from Oct. 25-31. The official rules are available at http://www.minico.com/photocontest.

“MiniCo owes its continued success to the support of our policyholders, insurance agents, subscribers, advertisers and colleagues in the self-storage industry,” said Mike Schofield, CEO and president. “This photo contest is another fun way to engage and give back to interested parties that have played a major part in the sustainability of MiniCo over the past 40 years.”

Industry veteran Hardy Good launched Mini Storage Insurance Corp. in 1974 and a publishing division five years after. The company later became MiniCo Inc. Good sold the insurance and publishing divisions in 2010 to Aran Insurance Services Group, a full-service general agency and underwriter. Aran has since expanded the company’s product line to include specialty property and casualty insurance. Current non-storage programs include those for fine art and collectibles, agribusiness, sports and activity, contractors liability, and fantasy sports gaming.

Phoenix-based MiniCo offers two tenant-insurance programs and specialty property and casualty commercial insurance for self-storage operators in the United States and Canada. The company carries an A.M. Best rating of “A,” and also operates MiniCo Insurance Agency of Canada Inc.

U-Haul International Inc. recently acquired the former Debonis Storage and RV facility in Rio Rancho, N.M., and has rebranded it as U-Haul Moving and Storage of West Rio Rancho. The property at 1101 Veranda Drive consists of five single-story buildings on 5.74 acres of land.

The company plans to make several improvements to the property, including the addition of a two-story retail showroom and hitch bays.  

“This is a growing community, and I am honored to be able to say that our U-Haul team will be experiencing this growth with our customers,” says Sabrina Montoya, general manager.

The acquisition of Debonis Storage and RV was driven by U-Haul’s corporate sustainability initiatives, which supports infill development to help local communities lower their carbon footprint, according to a company press release. U-Haul’s adaptive reuse of existing buildings eliminates the amount of energy and resources required for new-construction materials and helps local cities diminish their unwanted inventory of unused buildings, U-Haul officials said.

Established in 1945, U-Haul International Inc. has more than 40 million square feet of storage space at more than 1,000 owned and managed facilities throughout North America.

 

Over the past several years, the self-storage industry seen some amazingly low interest rates. To most loan experts’ surprise, they remain at historic lows today. Will rates go up in the future? Absolutely. The question is when; and if anyone can predict the timeline and by how much, that person will replace Johnny Carson as Carnac the Magnificent.

It’s hard to imagine that any self-storage owner who had the opportunity to refinance in the past several years hasn’t done so. Many even paid significant prepay penalties to refinance into longer-term, fixed rates for fear of future increases. There are circumstances, however, that may have prevented or delayed refinancing for some owners. These include significant prepay penalties, excessive debt (high loan-to-value, or LTV), property vacancies and slow leaseup, or weak borrower financial statements. Or it could be the owner was enjoying a very low adjustable rate and playing the waiting game while taking advantage of prepayment flexibility in the event of a potential sale scenario.

At this point, anyone with a long-term hold strategy who has the opportunity to refinance into long-term, fixed-rate debt should refinance as soon as possible. This isn’t to say rates are going up any time soon or that they won’t even come down a little bit, as we’ve recently seen. But if rates go up by even .25 percent to .5 percent, it could mean significant additional interest over the loan term, depending on the size of the loan.

The elections are coming in November, and who knows what effect that might have on economic policy and potential inflation based on political-party agendas. Add to that the fact that all lending institutions—including banks, credit unions, life companies, conduits, mortgage real estate investment trusts and even bridge lenders—are flush with cash and scrambling to get it into the market. Essentially, borrowers are in a very good negotiating position and are seeing lenders price and re-price to get a deal.

Let’s a take a look at some existing rate terms, who’s lending and how you can capitalize on today’s low interest-rate market.

The Lenders

Interest-rate spreads have compressed, and we’re seeing low-leveraged life-company quotes in the 135 to 150 basis-point range, equating to a 10-year fixed rate of about 3.95 percent to 4 percent. Interest-only options, typically up to five years, are also being quoted. Conduits have come down in spreads, with the range being 155 to 205 basis points over corresponding swaps for low- to high-leverage deals and interest-only up to a full 10-year term.

Banks have become extremely competitive and are winning deals from life companies in some cases due to greater flexibility and closing time, despite the usual recourse nature of their loans vs. the non-recourse life or conduit program. Credit unions are coming on strong, offering zero and short prepayment-penalty programs as well as leverage up to 75 percent on fixed rates up to 10 years.

Borrowers have a number of options for how and where to get a loan. There are obvious choices locally and regionally. Borrowers can meet directly with loan officers at banks and credit unions, while other options are typically best handled by a mortgage banker or broker. While brokers have access to the conduit (commercial mortgage-backed security, or CBMS) market, they’re limited to only a handful of life companies, which generally work exclusively through mortgage bankers.

These lenders provide financing on loans starting at about $500,000 and offer various structures, terms and prepayment scenarios, with fixed rates up to 25 to 30 years. Life companies are ideal for financing portfolios, offering releases or substitution of collateral when negotiated at application, and can lock the rate up front and up to 12 months. Most life companies require a 2 percent refundable deposit early in the process to hold the rate and prevent cancellation of the deal.

This differs from CMBS loans, which typically offer an LTV up to 80 percent and don’t require any refundable good faith or rate-lock deposits since these are not available up front. However, conduit lenders will take third-party report deposits of typically $35,000 to $50,000 to cover the appraisal, environmental and property-condition reports, and legal fees, which can run $20,000 to $30,000.

Most CMBS loans like to be at $5 million or more, but some will venture down to the $2 million range, although this doesn’t change the cost structure. Another CMBS advantage over life companies and other lenders is it’s more forgiving with borrower financial strength, credit issues (including bankruptcy and foreclosures) and tertiary property locations.

Both mortgage brokers and bankers offer potentially more choices than a borrower might find locally. In addition to having access to more than 30 CMBS and life-company lenders, they have a database of other banks and credit unions that lend on regional and national platforms, which could benefit a borrower and offer additional choices. Recent examples of closings include an Indiana bank that funded a property in North Carolina, a Missouri lender that financed a Georgia property, and a Florida bank that extended a loan to a California property.

Many borrowers will find a smorgasbord of opportunities, while some may be limited to higher-leveraged Small Business Administration or limited programs due to the size of the loan request, property location (rural), property condition, occupancy issues, or borrower credit or financial concerns.

Required Documentation

If you’re ready to seek refinancing, be prepared to present a lender, mortgage banker or broker with the following documentation:

• Property profit and loss statements (P&L) for the last three years, plus year to date (a trailing 12-month P&L may also be required for CMBS lenders)
• Rent-roll summary by unit size, sometimes called a unit-mix or occupancy report
• Property description (construction type, the number of interior/exterior units on each floor, elevators, amenities, etc.)
• Color photos of the property
• The borrower’s personal financial statement and schedule of real estate
• Two to three years of the borrower’s federal tax returns (if the borrower is an entity, similar information to the above is needed as well as the information for the guarantor)
• Occupancy history reports for the last three years

More information may be requested, but this should be enough to underwrite and size up a loan quote. If you’d like to refinance your self-storage loan, don’t delay. Interest rates are at an all-time low, making this the best time to lock in a great rate for your investment.

David Smyle is a vice president of San Diego-based Pacific Southwest Realty Services (PSRS), a commercial mortgage banking firm founded in 1972. The company services a portfolio of more than $4.3 billion, offering life-company financing from more than 18 investors as well as conduit, CMBS, bank and credit union options. Prior to PSRS, Smyle was owner and president of commercial mortgage brokerage Benchmark Financial for 16 years and spent 12 years in commercial banking. To reach him, call 858.522.1411; e-mail [email protected]; visit www.psrs.com.