Typically, our managers wear many hats: marketer, customer-service rep, salesperson, supply clerk, custodian, police officer and, sometimes, legal advisor. This type of position requires more specialized training to achieve proficiency. Corporate experts estimate that turnover costs for an $8/hour employee runs an average of $3,500 to $5,500 dollars. Considering the unique variety of jobs our managers are required to learn, our cost is probably thousands of dollars higher.

As a supervisor, its critical to do what you can to curtail this enormous expense. Proper screening, selection, training, counseling, retraining and a sound salary and bonus structure are critical to keeping a good employee around for a long time. The price of keeping one quality employee is far less than the cost of losing one.

Screening and Selection

Finding good employees is harder than most people think. First, most facilities place employment ads that start with something like: Local self-storage business looking for ... This approach may dissuade potential candidates, as most do not understand the business and have negative perceptions of the industry. They may envision a rundown garage-style property. They dont realize we now operate in retail-focused office environments that are clean, safe and technological.

The storage industry has evolved over the years. When placing an ad for employees, dont mention storage. Instead, advertise for people who offer sales and customer-service skills. This approach will result in a larger response to the ad and bring in candidates with the traits you need.

During the initial screening phase, conduct a phone interview. Be prepared to ask and answer questions. General inquiries will cover salary, benefits and job duties. I like to open an interview with, Tell me a little bit about yourself. This opens candidates up to talk so you can get a sense of their personalities.

Look for a friendly, enthusiastic, well-spoken individual who is interactive on the phone. Keep in mind this is the person who will give customers a first and lasting impression of your company. Phone performance is critical in our industry. You can spend thousands of dollars on marketing, property features and amenities, but the most prominent difference between you and competitors will be your employees.

You can train an individual to operate the facility, management software and security system, but you cant change his personality, voice, or what I refer to as inner-personal skills. I choose employees based on personality first, then their skills. If an employee cannot impress potential customers on the phone, he isnt the right person to sell your products and services.

Training

Training seems to be a difficult task for many operators. It should be organized and concise with set standards and a follow-up schedule. Employees never get it all right the first time. The biggest mistake supervisors make during training is failing to reinforce what employees have learned and determine what areas need more focus.

Retraining is a must to ensure all basic requirements of the position are clearly understood and executed according to company policies and procedures. Each property or business must have an effective operations manual that can be followed and referenced as necessary. Following are some other effective suggestions:

• Find the right venue. The property is not the best place to do your initial training. Most sites are too busy to conduct effective training sessions. If you are covering the store while training, there are usually too many interruptions for optimal comprehension of the material.
• Use your brightest star/educator. Dont delegate one of the most important tasks to an employee who is leaving the company or a mediocre staff member. Select someone has the knowledge and skill to train others. Not everyone is capable. If your company is large enough, you may want several people involved in the training process.
• Be prepared and give homework. Use an operations manual or training guide to thoroughly cover the material to be taught and make sure the material is up to date. Its difficult to teach policies and procedures if no manual is available. Consider using other resources, such as a checklist of topics to be covered. For homework, have the trainee read sections of the manual or listen to sales-training tapes. Finally, dont delay scheduled training sessions. In the absence of guidance, employees will quickly learn bad habits that are hard to correct.
• Follow through. Train employees on the most important skill sets first, emphasizing sales and service. Never train on the computer on the first day, as most employees will become singularly focused on the technology and miss the most important part of the job. Make sure the material you cover is clearly understood. Stop periodically and check employees comprehension. Dont wait until the end of a session and realize they got off track or confused. Set and enforce standards. Tell them what you expect and how you are going to evaluate their job performance.
• Evaluate. Assess employees performance and retrain them as necessary. Conduct maintenance of behavior checkups. Maintenance of behavior is anything that keeps an acquired skill or knowledge up to a performance standard. Theres an old adage that says, What gets measured, gets done. If you dont measure your results, you wont know how employees are performing and what corrective action is necessary.

Well-trained employees will be satisfied, confident and competent. When they feel sure of their ability to rent units, sell merchandise, and operate the computer and security system, they feel good about themselves and enjoy working for you. This encourages them to stay longer. Competent employees also create fewer problems and mistakes, which means fewer complaints from customers and supervisors. All in all, training and follow-up are important to a healthy work environment.

Counseling

Counseling is an often missed area of the employer-employee relationship. Positive feedback and constructive criticism are essential. Leaders and supervisors regard this process as a necessary but time-consuming process. If you care about the quality of your facility, evaluation of personnel for maintaining standards or improving performance cannot be overlooked.

Employees have a better chance of improving their performance if evaluations are given fairly and with care. Many people are interested in the effectiveness of their skills and are willing to focus on constructive criticism. But they expect their supervisor to be fair in his observations and suggestions for improvement.

Feedback on the quality of ones work, good or bad, will help an employee be more successful. You must acknowledge excellence as well as poor performance. Explain the employees strengths and weaknesses. Provide suggestions for improving in weaker areas and encourage him to continue in areas of outstanding performance. Then listen to his comments and end with simple recap of the conversation.

Counseling should be performed at least once per month. A mere 15 to 20 minutes of your time shows you care. Employees will also respect that you are there to help them improve, not to threaten or punish.

Compensation

This particular subject is often debated in the industry. The most commonly asked question by owners and supervisors is, How much should I pay my managers? Simply put, your wage and bonus plan should provide reasonable compensation based on the following factors:

• Size and income of the facility
• Employee knowledge and experience
• Level of responsibility for the particular position
• Number of employees being supervised Job performance
• Geographical location of the property (metropolitan, rural, etc.)

If your manager operates a facility in downtown San Francisco, his compensation package will be very different from that of a manager in Poteau, Okla. A large facility with four to five full-time employees and 900 units may pay a manager $40,000 to $50,000 a year, while a manager of a much smaller, 350-unit facility with two employees may receive less than $25,000 a year.

I recommend a compensation package that consists of 70 percent to 80 percent in base pay and 20 percent to 30 percent in bonuses. The total package should be an achievable goal. Incentives are the most effective way to get performance out of your employees. Set goals and provide the motivation to achieve greater results. Delinquency rates, economic occupancy and telephone-sales scores are but a few things to use as criteria. Most important, compensation should be reviewed annually.

How you pay your managers will have an impact on their willingness to work harder and stay longer. When was the last time you reviewed your employees wages and benefits? Would you be able to live on their salaries? Sometimes, we ask a lot of our people but fail to pay them what theyre really worth or even give them a pat on the back for a good job. A heartfelt thank you goes a long way, as does a day off, a surprise bonus or tickets to a show. Your employees simply want to know you appreciate what they do.

Retention of good employees is a problem facing every business. How we introduce them to our company, treat them while theyre employed, and pay them for their hard work and expertise is important. Providing them a positive business environment is key to starting a long-term relationship. Training staff and ensuring they understand their duties and responsibilities also goes a long way.

An old proverb says, Give a man a fish, and you feed him for a day; teach him to fish, and you feed him for a lifetime. Is your training program feeding or teaching employees? Think about it!

Thomas Krendl is the CEO of SkilCheck Inc., which has specialized in auditing, property management, feasibility studies, sales training and consulting for the self-storage industry for 20 years. For more information, call 800.374.7545.

A lot of self-storage managers need help understanding their goal when speaking with prospects on the phone. Few follow an outline or a script, even though it can mean the difference between a sale and lost business. Some feel that because they have worked in their position for years and done a great job, there is no need to improve their phone presentation. Others respond negatively to any suggestion of change, thinking their supervisor is just looking for a way to make their lives miserable if asked to participate in training, particularly if it involves role-playing or being recorded.

Ownership or the management company is partially to blame for failing to recognize the need for and importance of a scripted sales presentation. Such an outline is designed to fulfill the goal of turning walk-in customers or callers into renters. It provides consistency in your message from call to call and store to store, and serves as a reminder of points that should be covered. It also keeps managers on track during each call while allowing them to inject their own personality to the conversation.

Every call your store receives has value, as you have likely spent advertising dollars to make the phone ring. That value depends on how much you have spent and how many calls it generates. On average, facility managers are successful in turning callers into rentals less than 35 percent of the time. But 90 percent of callers who actually visit your store will rent with you and stay for an average of seven months. With this in mind, isnt it worth investing time and money to develop an effective sales presentation and train your managers to use it productively?

When it comes to the phone presentation, it is important to stress confidence, competence and consistency with your staff. Provide training that will enable managers to present the product clearly and successfully. Teach them to inquire, educate and build value with each prospect, to differentiate themselves and the store from the competition. In essence, they should learn to be effective communicators of your sales story.

Role-playing with managers and using mystery-shopping services can help you refine your presentation script, identify areas for improvement, and increase your ability to convert callers to renters. This will generate more opportunities to close sales and, as a result, add value dollars to your bottom line. Significant value dollars are those generated above your current level of success. Consistency in the sales presentation will help earn them.

Are you sitting on an untapped opportunity to bring significant value to your companys bottom line? Are your managers effective in their goal of turning walk-ins or callers into renters? Even if your answer is a resounding yes, you owe it to yourself and your business to have your staff well-trained, well-scripted and mystery-shopped on a regular basis. In the end, the prize is worth the price.

Paul Weston is a partner and business manager of A TelePro LLC, a Brad North company that provides mystery-shopping services to the self-storage industry, assisting in the education, evaluation and improvement of managers in their phone-sales performance. Mr. Weston has more than 25 years of sales and sales-management experience. For more information, call 513.492.5010; visit www.atelepro.com.

The hiring process can be a mine field, with potential disaster at every turn. Following are some employment catastrophes to avoid:

• The Cloning DisasterHiring someone like yourself, or someone just like the person already in the position.
• The Stereotype DisasterBelieving administrative personnel are always women and maintenance personnel are always men. These are false assumptions and should be avoided.
• The Candidate is too Strong DisasterBeware of telling a candidate he is overqualified or too strong for the position, which may be inadvertently telling him he is too old. Proceed with caution. When telling a candidate he didnt get the job, simply say, The candidate who most closely matches the skills and qualifications for the position was selected.
• The Halo Effect DisasterYou single out the one thing you like in a candidate and it clouds your judgment. This is the same as allowing one thing you dont like about an applicant to affect your decision. Always look at the big picture.

Making yourself aware of these disasters will make your recruiting process more efficient and help you avoid legal liability. Research indicates a fundamental key to business success is hiring, training and retaining quality employees.

The most effective recruitment methods produce a plethora of applicants to be sorted and qualified. A good human-resources department will maintain and administer the process with consistency. Even without a dedicated HR staff, a formal, communicated hiring policy will increase the likelihood of selecting the right candidate who has knowledge and experience to be an asset to your business.

Define Your Needs

Your first step is to evaluate the need to hire. If the open position is the result of a termination, consider absorbing merging it into another job description, changing it to part-time status, filling it on a temporary basis, or eliminating it entirely. When a new position is created as a result of increased responsibilities or workload, the company should ask if this is a good time to consider more efficiency and use current personnel.

Have a process to identify and prioritize job openings. Remember the importance of record-keeping in recruiting. Accurate documents need to be maintained for each step, including the job description, recruiting methods used, applications received, candidates interviewed, candidates chosen, and the reason for their selection. Good records will provide evidence for valid selection criteria, which will help reduce the risk of faulty hiring practices.

Sources of Applicants

There are a number of avenues open to businesses seeking recruits. One of the most popular is the Internet. Traditional venues, headhunters and newspapers now compete with web recruiters. Determine your needswhen you need the hire and what his skill sets must beand select an applicant source that will best match your requirements. You may want to try several.

• First, look within your organization. The best candidate may be right in front of you. Job posting is another alternative. Then look at other existing candidates. Many of you have steady stream of unsolicited applicants who have submitted applications and resumes. Maintain a separate database for these applicants and dont hesitate to use it.
• Consider friends of friends. Locating candidates by word-of-mouth is very effective. Contact vendors and customers to see if they know of anyone who may fit. Maintain a log of people who impress you with their contact information.
• Use a job hotline. A toll-free number may be a good way to share information about available positions. The number could be included on all advertising materials.
• The Internet is another great source. A recruiting bank on your website is a great way to advertise available positions.
• Schools are a good source of new applicants. Post jobs on bulletin boards and in campus publications.
• Job fairs have become popular as the labor market becomes more competitive. Attract applicants attention and make a lasting impression.
• Professional organizations are a good networking source. You can post jobs on their websites and bulletin boards.
• Outplacement companies offer a valuable source of job-seekers.
• Large local newspapers may get the greatest response, but they can be expensive and pull candidates from beyond your local area. If you choose this medium, avoid advertising on Sundays and holiday weekends to keep costs in check.
• Recruiting firms may save time, but can be very expensive.
• Unemployment offices can provide many applicants, but they will likely require extensive qualification and training.

Determining Salary

The determination of salary is based on factors such as attitude, experience, education, aptitude and ethics. Consider paying a salary higher than the industry standard and including a performance bonus. This will almost always attract a more quality candidate and, in effect, enhance the performance of the business.

The Interview Process

Efficient interviews will help you avoid hiring mistakes. Ask questions that indicate the applicants past performance and relate directly to essential job qualifications. First and foremost, you will need to know how the applicant works with people.

Well-phrased questions will reveal the applicants level of experience and skill and how he might fit your company. Libraries and bookstores offer an extensive selection of books and periodicals on the subject of interviewing. Be sure you know what you can ask during an interview. One good resource is Try Smart Hiring for Your Business by Robert W. Wendover, which includes 500 questions to help screen candidates.

The State of Hiring Survey

Consider these findings uncovered in a survey of managers, hiring professionals and job recruiters:

• 87% of managers believe hiring the best people should be No. 1 in terms of importance to a company.
• 79% of managers said their companies did little to make sure hiring was a priority, even though they talked about it a lot.
• 84% of recruiters thought hiring professionals were not willing to spend enough time to properly review job descriptions.
• 76% of recruiters indicated most of their hiring personnel could use extensive interview training.
• 93% of recruiters said that more than half of the time, hiring professionals selected not the best person to be hired, but the person they liked the most.
• 75% of hiring professionals felt recruiters should do a better job designing the job description and assessing the candidates.
• 87% of hiring professionals did not think they were interviewing the best candidates available.
• 81% of hiring professionals said only one-third of the people they hired performed as well as expected. Another third fell short, and the final third should never have been hired.

Do these findings sound familiar? In which year do you think the survey was conducted: 1957, 1974, 1988, 1999 or 2004? This is a trick question. The survey was taken during each of these years, with nearly the same results. Lack of commitment, poor hiring systems, overvaluing presentation to performance, and using skill-based and subjective job descriptions that preclude the best people from being considered are the most historically committed hiring mistakes.

When initiating the hiring process, consider talking to a qualified recruiter who can impart suggestions on how to improve your selection process. With a cautious, well-planned, well-informed process, theres no reason to make poor hires 66 percent of the time.

Gregory A. Call is president and CEO of Irvine, Calif.-based Self StorageWorks, a management, consulting and development firm that specializes in the employment process and uses the Administaff personnel-management system. This article was referenced entirely through Administaff. For more information, call 800.779.6797;
e-mail [email protected]; visit www.selfstorageworks.com.

Self-storage operators arent the only ones searching for an untapped market in todays competitive environment. Companies like Ford, Wells Fargo, IBM and Hewlett-Packard have begun wooing the countrys exploding Hispanic population. Could the Latino market be a potential bonanza for self-storage?

Its a great opportunity for those in the industry who are savvy enough to see the writing on the wall, says Shelly Little, consultant with Michaels/Wilder Group, a marketing and advertising agency based in Peoria, Ariz. All the data points to a trend that says this market isnt going away and is growing exponentially. Yet Hispanics are historically under-advertised to. If companies move forward and reach out to them, their efforts will be rewarded in the long run.

The number of Hispanics living in the United States is growing fantastically. From 1990 to 2000 alone, it increased 35 percent. The U.S. Census Bureau estimates about 14 percent of U.S. residents are Hispanic.

Self-storage should court Latino customers while they are getting established in the United States, advises Little. To overlook this market while it is in its infancy is not playing smart. Down the line, Hispanics will remember those businesses that were there for them when they needed a place to store their important personal and business goods, she says. Theoretically, the move will be repaid with long-term loyalty and numerous referrals.

Just as important to the self-storage equation is the market segments corresponding growth in wealth and homeownership. More than half of Latinos in the United States will own their own homes by 2007, according to a recent estimate by Hispanic Market Weekly. The populace also is gaining in disposable income. The fact that Hispanic families are typically larger than in non-Hispanic households is another telling factor.

While renting or transitioning to homeownership, they will need somewhere to store the valuables they accumulate, Little says. The changes in lifestyle that result from the increased disposable income and growth in families translates into many opportunities for the self-storage industry.

Cultural Concerns

Little counsels owners to evaluate the demographics in their current markets. Is the Latino population substantial? What is the competition doing? Investors may want to investigate the feasibility of a new facility catering to densely Hispanic areas. Also look at the type of Spanish being usedis it Cuban, Mexican, Caribbean or Puerto Rican? Before proceeding, its wise to hire a consultant or agency with expertise in working with the Latino market.

In reaching out to Hispanics, language is a major consideration. Most Latinos are understandably more comfortable conducting business in their native tongue. Although many are bilingual, they prefer to read material and converse in Spanish unless they were born and bred in the USA, Little says. Having a manager who is bilingual is really helpful. You are breaking down the barriers that make it more challenging for them to do business with you.

Because self-storage isnt widely available outside the United States, the concept will be new to some Hispanics. A bilingual manager can go a long way in enhancing their comfort level during inquiries. I think there are also issues regarding self-storage organizations not having the infrastructure in place to support the Spanish-speaking customer, Little says. All their collateral, invoices, bills, everything should be set up in Spanish.

Culture may impact the business transaction as well. A prepared operator/manager will be flexible enough to adapt. There are several segments within the U.S. Hispanic market that are used to dealing primarily in cash, Little explains. In their country, it was cash; you did not use a credit card. They may not have a bank, a bank account or a way to check credit because credit wasnt available in the country they came from. Business owners should be sensitive to this and prepared to handle it.

Se Habla Whoopsie-Daisy

Watch out for common pitfalls when targeting the Hispanic market. Failing to fully prepare is one of them. You cant just put Se habla Español in an ad and expect to be overrun with clients, Little says. And youve got to be properly equipped with a bilingual person and materials in Spanish and English when those clients reach out to you.

Translation can be dangerous terrain, as evidenced by the horror stories of mistranslated text and concepts. A few years ago, Parker Pens ran an infamous ad assuring Spanish-speaking customers that its pen wouldnt leak in your pocket and embarrass you. Instead, the translation read, It wont leak in your pocket and make you pregnant.

Little says people sometimes assume that because they took high school Spanish, theyre proficient enough to prepare their own bilingual materials without expert assistance. Its important to ensure your translations are culturally appropriate and using the version of Spanish relative to your market, she says. You can offend this market big time. Its not worth it to save a buck here or there.

A qualified marketing consultant can handle translations and recommend valuable advertising vehicles and mailing lists. They also can provide cultural insights on effective communication. For example, family, friends and loyalty are hot buttons for Latinos, who tend to favor small talk to establish a relationship before plunging into business negotiations.

Consultant Checklist

In choosing a consultant, do your homework. Look for someone who has the resources to research the market and to identify Hispanic patterns. Check to see if they are walking the walk, Little says. Do they have a bilingual staff? Do they have collateral, including a website, in both English and Spanish? Do they understand the self-storage industry and its challenges?

Erroneous assumptions about the Latino market are preventing many companies from pursuing the demographic, according to Little. Some believe there is no money there, others are scared off by the possibility of hassles and costs associated with target marketing. Its natural to be wary of uncharted territory. But Little says the bold investor shouldnt allow his fear of the unknown or beliefs in outdated stereotypes to steal away future profits.

Dont underestimate what this market offers to businesses. It may seem complicated, but it really doesnt have to be with the right agency or consultant to evaluate existing efforts, identify opportunities, develop and execute the strategy. Make the effort, she says, and you will be rewarded.

Todays competitive environment can be tough on those looking to buy self-storage properties. Many are eager to take advantage of low interest rates and the industrys bright future, though in some areas, viable facilities are few and far between. Employing a combination of resources can be the best solution:

Consult industry-specific listing services.

Contact real estate agents who specialize in self-storage.

Cold-call existing owners and operators to seek a sale.

Expend good old-fashioned shoe leather (visit sites and talk to owners).

One familiar rule of thumb in real estate is you will make one offer for every 10 properties you consider. If youre lucky, one of those offers will be countered or even accepted. Of course, the danger is that as capital pours in and cap rates continue to fall, frustrated buyers are tempted to place riskier bets on lower-quality stores. This enticement must be resisted at all costs. It is far better to demonstrate discipline than to rush into a dubious deal. Remember, in real estate, you make your money on the buy.

Keep a Cool Head

The sellers market is forcing us back to the basics. Today, more than ever, finding the right deal depends on doing your homework in an objective and dispassionate way. Sure, its exciting when you finally find a property you like and begin framing an offer. But this is not the time to let your judgment be clouded by a desire to close the deal. Instead, with your enthusiasm tightly leashed, maintain a laser-sharp focus on the fundamentals: current income and your estimated operating costs. Then focus on the following:

Purchase price

Closing costs and fees

Cost of improvements

Cost of financing

Cost of providing returns to investors

Evaluate these financials in great detail. Is your offer enough to make the deal work? Have you built in a cushion so you can continue paying your investors during difficult times?

Remember to remain unemotional. Avoid falling in love with any one property, no matter how much it may fi t your search image. When emotions become involved, the dangers go far beyond paying more than a facility is worth. They include such risks as purchasing a property with serious, even fundamental, flaws or rushing into a market that is already overbuilt.

The Dirty Details

You can avoid common mistakes by concentrating on frequently overlooked issues:

1. Deferred Maintenance

Dont ignore maintenance problems, such as outdated roofs and broken doors. Sooner or later, these items will have to be rectified, reducing your returns.

2. Property-Tax Increases

These can be triggered by the purchase of the property.

3. Yellow Pages Advertising

In certain markets, Yellow Pages ads can be very expensive. Check to make sure this expense is reflected accurately in the figures. Also make sure a facility has paid for its current advertising in full, as some sellers will have prepaid only a portion of their bill. The second and often considerably larger payment will become an unexpected expense for you down the road. Also ensure the ad hasnt been cancelled by the seller anticipating his exit. You may not realize you have lost this crucial advertising until the publication deadline has passed.

4. The Sellers Numbers

Never rely on figures provided by the seller. Review all the numbers you can get your hands on in exhaustive detail. You may discover, for example, that the owner/operator has never drawn a salary. This produces a payroll savings you will be unable to duplicate. If the seller assures you that youll be able to raise rents without difficulty, ask one simple question: If thats so, why havent you raised them already?

5. Due Diligence

Never consider closing on a property until you have conducted a thorough due-diligence effort. Once youve bought the property, its too late for second thoughts.

Concentrating on these and a thousand other issues will help you determine your target propertys ability to generate and sustain income. This objective perspective will be invaluable during negotiations with the seller and potential lenders. Best of all, it will help you meet your most important goalprotecting your investors.

In the months ahead, those searching for the right store will need all the patience they can muster. As you push ahead with your search, it may help to remember the ancient adage caveat emptor (let the buyer beware). Have you ever decided to pass on a property and later discovered youd made the right choice? Or have you experienced buyers remorse? Often, the best deals are those you walk away from with your checkbook unopened. Feel free to drop me a line and share how you may have made money on the buy.

Scott Duffy is the founder and principal of Self Storage Capital Group Inc., an emerging owner and operator of public self-storage facilities based in Santa Monica, Calif. Mr. Duffy is an entrepreneur and investor whose background includes more than 15 years of management experience with media and technology firms, including FOX Sports, CBS Sportsline and NBC Internet. He has also worked with bestselling authors and speakers Anthony Robbins and Jim Rohn, conducting workshops throughout the United States and Canada in sales training, customer service and personal development. For more information, e-mail [email protected].

As I write my last column for 2004, I cannot believe another year is almost over. Our industry confronted some major issues in the past 12 months. For one, FBI agents visited facilities and talked with owners and managers about the need for extra diligence in the operation of their businesses. A year-old law, the Service-members Civil Relief Act, continued to trip up owners who are uneducated about the need to protect active-duty military and National Guard customers from unjust auctions of their belongings. Fortunately, illegal lien auctions performed on some delinquent units have gotten only local media attention. But this is a poignant reminder of the world in which we live.

Next, the national Self Storage Association (SSA) acquired a new executive director, Michael T. Scanlon. He is already making his presence felt at the SSA. There are only a few states without organized associations to carry our flag in front of state legislatures and executive department agencies. In the years ahead, well see state associations play a more important role, sharing ideas and strategies for dealing with the many issues we will continue to face.

One of the biggest accomplishments of 2004 will be the SSAs National Consumer Demand study being conducted by Dr. George Leon of National Analysts. Results are expected early next year. While we can speak from our personal experience with customers about why they chose to store with us, there has never been an accurate predictive model the entire industry could use. Are you targeting all the market segments that might use storage? Are your marketing dollars aimed at the right audiences? Is there really demand for another store in the market area? Is there an end in sight for storage demand? These are just a few of the questions I hope the research will answer.

Finally, I have witnessed a change in how we conduct business across the country. Customer-service-oriented companies continue to grow with strong occupancies and rental-rate increases. At the same time, old line operators let deferred-maintenance issues mount at their stores, and the What do you want? attitude of underpaid, unmotivated employees results in declining business. Competition persists for all of us. The answer is not to cut prices. Self-storage is still one of the best entrepreneurial business opportunities when taken with the right approach.

Where to Look for Workers

I am constantly asked by owners about the best way to find new employees. In many markets, traditional classified newspaper ads are not generating quality prospective candidates, and online searches can draw wannabes looking for unrealistic income.

During a recent visit to an Albany, N.Y., convenience store, I was reminded that many of us have great employee prospects and dont even realize it. A large sign on the Stewarts Shop front door read, Our best employees come from our loyal customers. Interested? Call or go to our website, www.stewardshops.com. This company has more than 300 locations across New York and Vermont. It has made the conversion of customers to employees part of its human-resource operations.

If you are seeking full- or part-time staff, are you talking to your customers? Do you have a sign posted in your office to let them know you are looking for employees? I urge you to give it a try. You may be surprised by the results.

Even the Big Guys Use Business Cards

I recently purchased my second set of Bose Acoustic Noise Cancelling headphones, which I use faithfully as I fly around the country. I had a bit of a surprise when I opened the package. Amazingly, even a company the size of Bose, with its multimillion-dollar marketing budget, still understands the power of a business card.

Inside the travel case was a stack of courtesy cards, which read, Our customers tell us they are often asked about their Bose Quiet-Comfort 2 headphones. For your convenience, we are providing this handy courtesy card for you to pass along. The card did not say the company would do anything special for me for being a spokesperson for the product. In fact, it implied it was doing me a favor. While I am sure many customers simply throw the cards away, a few like me dutifully pass them out whenever somebody asks about the headset.

Bose understands people will recommend its products simply if it asks them to. So why do self-storage operators seem to have such a problem promoting their referral programs, especially when they actually provide cash or discount incentives for customers help? If you are not using a referral program, start one. The best source of marketing you can ever hope for is the recommendation of a satisfied customer.

Lianne Marshall, president of the Storage Center in Rhode Island, sent me an excellent book that describes how to create customer evangelists. Authors Ben McConnell and Jackie Huba make a compelling case when they state, Customer evangelism cuts through the muck of advertising clutter. Friends, family and colleagues influence our behavior more than any repetitive ad or aggressive salesperson can. If you want to stay competitive, pick up a copy of Creating Customer Evangelists and learn some strategies for turning customers into part of your sales force.

Finally, dont forget to print business cards for all of the members of your team, regardless of their position on your staff. It must be difficult for employees to take pride in their job or work for a company that wont even spend $50 or $60 to provide them with business cards. Even still, I encounter cardless managers in offices across the country as I travel.

Holiday Decorations

In less than a month, the winter holidays will be upon us. For some, that means rent-collection problems, but for others, its an opportunity to say to their local communities, Hey, look at us! If you have been involved in the construction of a self-storage store, you know that getting a facilitys sign approved by the zoning committee can be a huge problem. I am always amazed that communities that are more than willing to take our tax payments dont want us to advertise our businesses.

The holidays are one time a year when you can add lights and other attention-getters to the outside of your store without a whimper from municipal officials. Adding decorations is an annual opportunity to change the appearance of your buildings and office. Many managers take a great deal of pride in their holiday decor. The environment it creates can be infectious. It reminds people who drive by your store daily that you are there and an active part of the community. This season, dump the Bah! Humbug! routine and lighten up your storage world. And dont forget that candy canes arent just for kids!

Giving Thanks

I want to thank Inside Self-Storage Publisher Troy Bix and Editorial Director Teri Lanza for allowing me the opportunity to write this column and share my thoughts on the industry with others. Thanks also to you readersI hope you have benefited from my ramblings. May the blessings of the holiday season enrich your life and that of your family and co-workers, as well as this planet we call home. See you at the ISS Las Vegas Expo in February.

Jim Chiswell is the owner of Chiswell & Associates LLC. Since 1990, his firm has provided feasibility studies, acquisition due diligence and customized manager training for the selfstorage industry. In addition to being a member of the

Inside Self-Storage Editorial Advisory Board, he contributes regularly to the magazine and is a frequent speaker at ISS Expos and various national and state association meetings. He introduced LockCheck, an inventory data-collection system, to the self-storage industry. He can be reached at 434.589.4446; visit www.selfstorageconsulting.com or www.lockcheck.com

It's easy to implement records storage lite along with small-business packages in self-storage without adding to your core employees. Nontraditional staffing is the key. What is this, and how does it add to service revenues without adding to overhead? There are four ways to staff any task or work activity: full-time employees, part-time employees, outsourced or contract staff, and temporary staff. Each has pros and cons.

• Full-time employees add to your general overhead and tend to cost the most in long-term expense dollars. In this era of doing more with less, you should have only a core of full-time employees who provide the focus for your primary business. Full-timers should be kept to the minimum since benefits, taxes, workers compensation, health insurance and vacation time are costly.
• Part-time employees are beneficial because they add value where you need it and do not require as much by way of benefits.
• Outsourced or contract staff may be the best way to staff projects and additional services.
• Temporary staff is by far the least optimum way to staffing, since they generally come with little or no skill. As a result, the need for training and supervision is increased.

Those who implement records storage lite in self-storage may find they can enhance their margins by using outsourced or contract labor to offer services that would ordinarily require full-time staff. These resources fall into several categories that are widely available in just about any marketplace.

Soccer Parents

There is a valuable supply of potential staff to be found in parents who stay at home to raise their children instead working full time. Most want to be home when the kids leave for school and back when they return in the afternoon. In many cases, they have highly prized training and education. It is not difficult to find former administrative assistants, paralegals, legal secretaries and others in your neighborhood. Generally, they like to work from 10 a.m. to 2 p.m., Monday through Friday. These people are ideal for taking new-account inventories, data entry, special projects and billing assistance.

Two Men and a Truck

Although there is an actual franchise by this name, what Im referring to is the small moving companies that are plentiful in most communities. They are typically made up of a couple of guys who have gone into business with very little capital and are bootstrap entrepreneurs. They may have nothing more than a truck, some moving equipment, a cell phone and two strong backs. They are willing to work hard for their money and are used to moving heavy materials.

Furthermore, they are looking for recurring revenue. You can offer this, since you will often be doing pick-ups for new clients. They can handle your moves on their slow days. Since most household moves occur on the weekends, this leaves the moving company several days each week to perform work for you. As you grow your business, they grow theirs.

Of course, they must follow your procedures and use your uniform. They must sign a contract that requires them to behave in certain ways and reflect the image you desire. In effect, they become invisible to your clients, meaning clients believe they are part of your organization. There will be more on the subcontracting agreement later. Small moving companies can be ideal subcontractors that can be used for new account and regular weekly pick-ups from existing clients.

Courier-Subcontractors

Rather than refer to outsourced or contract workers as couriers, I prefer to use the term courier-subcontractors. Couriers refers to delivery companies you generally find listed in the phone directory, many of which do not have their own vehicles. They usually contract out to independent drivers who own trucks. These subcontractors can work for multiple courier companies on the same day, so you can hire them directly rather than going through a third party.

The business model includes a parent company that handles sales and dispatching and subcontractors that make deliveries. The most common revenue split is 60/40. The actual delivery agent gets 60 percent and pays his own insurance, fuel and maintenance. The dispatcher receives 40 percent and owns the client relationship while connecting the courier-sub-contactor to the gig (specific pick-up or delivery engagement).

Subcontractor Agreements

If you choose to use this model for hiring employees, pay careful attention to detail when creating the agreement both parties will sign. You should have a contract with any subcontractor with whom you do business. The following are some rules of thumb:

1. Always have a written agreement signed and dated by both parties.
2. Specify written roles and responsibilities of the subcontractor.
3. Build measurement, benchmarks and expectations into the agreement.
4. Consider performance bonuses and penalties.
5. Have an exit strategy to release the subcontractor if he does not comply with your rules.
6. Develop a training program and materials for each subcontractor.
7. Ensure the subcontractor becomes invisible to your client. (He should look, dress and act like your own employees.) 8. Select only individuals you would consider hiring for your own staff.

The most important part of outsourcing and subcontracting labor is control. You should never give up management of the subcontractor, just as you would never give up management of an employee.

Regular columnist Cary McGovern, CRM, is the principal of FileMan Records Management, which offers full-service records-management assistance for commercial records storage startups, marketing assistance, and sales training in commercial records-management operations. For assistance in feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail [email protected]; www.fileman.com.

Many first-time self-storage developers assume a construction loan is similar to permanent financing. But approaching financing from this perspective may create long-term negative consequences. Construction and development financing is radically different from other credit facilities. It is approached uniquely from all four of these perspectives: 1) lender, 2) borrower, 3) risk analysis and 4) underwriting. If the lender is inexperienced in self-storage lending, he may not fully understand the idiosyncrasies of the product type and make mistakes based on unfamiliarity.

The Greatest Mistake

Many a borrower and lender have made the mistake of structuring their construction loan in a way that would be acceptable for other real estate types, meaning as a typical two-year, interest-only loan. On the surface, this works great. It only takes six to eight months to build a project, so it would seem two years should be ample time. But consider the following timeline:

1. If all goes well and construction starts near to the close of the loan, this assumes permits are in hand.

2. In a typical project of 50,000 square feet, this assumes a gain of 1,875 to 2,500 square feet per month, which likely means renting 2,000 to 2,750 feet per month (pessimistic and optimistic, respectively).

3. Most permanent-loan lenders want to see six months to a year of seasoned cash flows to feel comfortable with the debt-service coverage. Keep in mind the higher the DSC, the greater the opportunity for the borrower to negotiate a better rate.

Most banks do not make construction loans for longer than a year, and only a few go to two years. What do you do? Look for a construction lender that will grant a hybrid of the construction and short-term permanent loans. The mini-perm is becoming more popular with banks and construction leaders. It is typically 12 to 18 months of interest- only, pure construction loan. After the interest-only portion, the loan adjusts every six months, increasing in amortization as the cash flows support higher debt-service coverage (DSC). Here is an example of a well-negotiated, win-win mini-perm loan:

This will provide the borrower proven cash flows with at least 1.40 DSC (target) and that are seasoned for at least one year above 1.25 DSC (minimum). If necessary, a six-month extension (or two) should be negotiated. Expect to pay two points on the front end for this loan, and a point for each six-month extension.

Some banks will require full personal guarantees for the entire mini-perm loan term. Strong borrowers may be able to negotiate a burn-off of recourse as the cash flows mature. This loan provides the lender (bank) with an assurance the project is able to sustain itself and the borrower could refinance at 1.25 DSC.

Negotiating the Best Loan

Your feasibility-study consultant should be able to assist you in the loan-negotiation process. Assuming he determines the project is strong and the cash-flow pro formas and budgets support the DSC, he can provide the bank with breakeven-analysis and sensitivity reports that will help it feel comfortable with loan terms most favorable to the borrower.

Your feasibility study should include a loan request with all the salient loan data the bank will be looking for, including important ratios and even your tax returns and financial statements. A good consultant will have referrals to lenders who are accustomed to underwriting permanent loans for self-storage. He may or may not have suggestions for construction lenders, as the construction loan is typically a relationship loan, which means the borrower is likely to already have some credit facility with the lender.

Since a construction loan does not have the strength of the collateral (a project that fails to complete construction is worth significantly less that a finished product), the lender must rely more heavily on the strength of the borrower. The borrower should have development expertise and experience, or the lender will substitute borrowing experience or equity. He should also be able to demonstrate self-storage experience, especially if the lender is sophisticated. A novice self-storage lender may not understand how critical strong management skills are during lease-up. Many banks incorrectly assume a proven track record in real estate means the borrower will be successful in the selfstorage endeavor.

The three Esexperience, expertise and educationcan almost always be substituted with financial strength. The lender will often look to the three Cscredit history, character and cashto supplement a weak experience factor.

Getting Started

Self-storage construction loans are a unique product for many lenders. You should prepare for you initial meeting. Prior to face time with the bank or construction lender, ask the following questions:

1. Do you make self-storage mini-perm loans?

2. Is the projects location within the lending footprint of the bank?

3. Is the loan size within the limitations of the bank or will it require a participant?

4. If the bank requires a participant, does it have one for a selfstorage loan?

5. Have you ever made a self-storage loan?

If the answer to these questions is yes, set up an appointment to meet. If the answer to No. 5 is no, you will want to know more about how the approval process is going to work. A negative response in this case can actually work in your favor if you have a weak or marginal project.

RK Kliebenstein, president of Coast-to-Coast Storage, is a former commercial lender and provides feasibility studies and financial consulting to self-storage developers. He can be reached at 877.622.5508, ext. 81.

Before investing in a car wash, potential investors and operators ask these basic questions: How much does it cost? How do I finance it? What options are available? How do I put this whole project together? What kind of return can I expect? These are the fundamental questions on which your decisions will be based. Let’s start at the beginning.

The car wash-industry has traditionally been segmented into three categories of operations:

Self-Service—Commonly referred to as wand-style, quarter, do-it-yourself, etc. Here the owner washes his own vehicle. You provide only the space and equipment, he handles the labor. The wash quality is variable as it depends totally on the vehicle owner. This type of facility is generally not attended; however, it does require regular maintenance and housekeeping.

• Conveyor—Commonly referred to as full-serve, exterior or flex-serve. In this case, the vehicle is placed on a conveyor that moves it through a series of applicators, washers, rinses and dryers. Whether the owner exits the vehicle depends on the type of service selected. In a full-serve, he leaves the vehicle, and you provide the labor to clean the interior and detail the exterior. The customer enters the building to complete the sale and waits for the wash to be completed. In an exterior wash, the facility cleans only the outside of the car. In flex-serve, you offer the option of interior or exterior-only. A conveyor facility is always attended; the number of staff depends on the services offered.

• In-Bay Automatic—Commonly referred to as a rollover, in-bay or automatic. Here the vehicle passes by an automatic teller. The owner selects the method of payment and type of wash and enters the facility. At a petroleum site, the transaction occurs at the pump. The equipment may be touch-free (relying on wash solutions and high-pressure water to clean), or it may be a friction-style unit that relies on soft foam or fiber to make contact with and clean the vehicle.

How Much Does It Cost?

Each car-wash type has a different financial commitment. The investment on a self-serve wash varies by geographic area. In cold climates, the facility must have heaters, in-floor heat and, in some cases, doors. Approximately $25,000 to $30,000 should cover equipment. In warm-weather areas, only about $15,000 to $20,000 is necessary. Buildings, like equipment, will vary by climate. In cold-weather areas, they can run $30,000 to $40,000 per bay; in warm climates, $20,000 to $30,000 per bay. Land is the big variable, but costs average $3 per square foot. When all is said and done, your land, buildings and equipment should total around $80,000 per bay.

Conveyor car washes are far more difficult to price. I find estimating price per square foot works best. A typical full-service facility will require approximately 5,000 square feet. Using $200 to $250 per square foot as an average for buildings and equipment, your cost is about $100,000 plus your land, which can fall all over the map. I have seen good sites start at $10 per square foot and go up. It all depends on the market opportunity and whether the revenue can support the investment. Overall, it would be difficult to invest in a conveyor car wash for less than $1.2 million.

In-bays are more predictable in terms of price. Most will cost around $150,000 with ancillary equipment. Buildings average $100,000 to $150,000 and, again, land is the great unknown. The total project with land for a single in-bay should be around $350,000 to $400,000.

How Do I Finance It?

First, it is important to note that start-up businesses (first-time car-washers) are difficult to finance. The risk factor involved is high and, as a result, many customary channels of financing are not available. This does not mean money is not out there. It just means you have to look hard to find an acceptable source. That’s the bad news. The good news is car washes have an excellent track record, and their failure rate is minimal. Existing business owners will be surprised to learn leasing is not an option. Of course, there are always exceptions.

There are many creative ways to finance your car wash. The first is to look at the resources closest to you: family and friends. Typically, this group produces minimal returns. An offer to pay a better rate than they currently earn on their assets could be attractive.

There are always professional investors looking for an opportunity. Your cost of using venture capitalist funds will vary by the perceived risk. In most cases, the cost will be partial control of your business as well as some loss of equity. You have to consider whether this is worthwhile.

Finally, you can investigate financial institutions that may be willing to listen to your business opportunity. Fortunately, the U.S. government understands the need to encourage entrepreneurs and the creation of new enterprises. As a result, it formed the Small Business Administration (SBA). The SBA offers several programs for business finance. Two to look at are “7a” and “504.” These are guarantee programs available through your local bank. Basically, the SBA provides an insurance policy to your bank. For more information, visit www.sba.gov. There you can download an enormous amount of information as well as details pertaining to the above-mentioned programs.

As you look at the SBA or any other financing program, you need to consult with your accountant and attorney. They will guide you through the creation of your business. Other valuable resources include:

1. The International Car Wash Association (www.carcarecentral.com)
2. Local trade associations
3. Chambers of commerce
4. State and or local real estate groups
5. Small Business Development Centers (www.sba.gov/sbdc)

Putting Your Project Together

The keys to success of any new venture are fairly straightforward. If you look at why new businesses fail, the two most obvious reasons are lack of capital and execution. So as you plan your project, there are a number of items that fall in the must-do category:

1. Due diligence regarding all aspects, risks and rewards of the car-wash business
2. Thorough analysis of resources you will bring to the venture
3. Complete analysis of the competitive environment
4. Development of realistic financial goals and projections
5. Creation of a strategic plan to include vision, customer-value statement, and operating principles
6. Knowledge, understanding and commitment of financing
7. Recruitment of competent staff
8. Development of strategic alliances
9. Commitment of all stakeholders to success of the enterprise

What Is My Return?

The financial return on cash or assets for all car washes mentioned is very similar. As you begin preparing your financial projections, you will discover the need for historical information. Fortunately, a number of the industry magazines publish financial statistics for the car-wash industry. Using past industry standards as well as information from equipment vendors, you will be able to develop site-specific projections.

Typical returns should be in the range of 20 percent or better. It should be noted that return on total investment does vary, as there are a huge number of variables that affect it. The professionals you select as well as input and guidance from your financing source should provide the data you need to make a clear-cut decision to enter the wonderful world of car washing.

Fred Grauer is the vice president of investor services for MarkVII Equipment LLC, a car-wash equipment manufacturer in Arvada, Colo. He has made a life-long career of designing, selling, building and operating car washes. He can be reached at [email protected]. For more information, visit www.fredgrauer.net.

If youre thinking about refinancing your existing self-storage loan, you should be asking these questions:

• When is the right time to refinance?
• I have a floating-rate loan. Should I switch to a fixed rate?
• Are there new loan products to consider?
• I have a prepayment penalty. Should I wait until the end of my current term to refinance?
• What will it cost to refinance?
• How can I optimize the process of refinancing by learning from others mistakes?

Knowing what to look for and what to expect will help you to manage the expense category that is generally the largest monthly cash outflow a self-storage owner has: debt service (interest and principle payments). As you think about the refinancing process, some of the key elements to consider are timing, product variety, prepayment penalties, and rates, terms and costs.

Timing

Making the decision to refinance is not always easy. A due construction or permanent loan will definitely set off this event. However, when reviewing some of the other triggers, you will find more than a few require considerable thought:

• Construction loan due
• Permanent loan due
• Need expansion funds
• Remove recourse
• Desire to pull out trapped equity
• Improve cash-on-cash return
• Interest rates low or expected to increase

Many self-storage owners do not realize they may have a considerable amount of trapped equity tied up in their business. Values for self-storage have increased significantly over the past few years, providing owners the opportunity to pull hundreds of thousands of dollars out of their operations. Selling your facility will free this trapped equity, but refinancing to the maximum loan-to-value will have a similar effect. Pulling this equity out through refinancing may also have some significant tax advantages.

Another reason some owners refinance their business is to increase their cash-on-cash return. Also called return on invested capital or the equity dividend rate, it measures the annual return you make (cash flow) in relation to the cash invested (or current equity). One way to increase this figure is through refinancing. The higher the cash flow and the lower the cash invested, the higher your return will be. In other words, the more of a lenders money you can use to finance your facility, the higher your cash-on-cash return.

Another trigger that may come into play is the opportunity to lock in a low interest rate. This has been particularly relevant over the last few months, as rates have started to move up from historical lows. Borrowers with floating-rate loans, such as those tied to the Prime Rate, are especially vulnerable to higher interest expense. A variable-rate loan may be right for you if you plan on paying it off in the next few years. But as the general consensus is short-and long-term rates are headed up, the timing may be right to refinance with a fixed-rate loan.

Loan-Product Variety

What used to be a relatively small list of loan products from which a self-storage owner could choose has branched into many alternatives. This is good from a borrowers perspective, but finding and selecting the right product to fi ts your needs can be difficult. To give you an idea of the many loan features available, here is a partial list:

• Fixed and floating interest rates, with loan terms of three, five, seven, 10, 15 and 20 years
• Amortization periods up to 30 years
• Interest-only for x number of months
• Multiple prepayment-penalty options
• Fixed fees and closing costs
• Early rate-lock options
• Recourse and nonrecourse
• Low-cost, variable-rate bonds Many of these features can be combined.

For example, a borrower could select a fixed-rate, 15-year loan with a 25-year amortization period and interest-only for the first 24 months. There are many other options.

Prepayment Penalties

Most long-term loans (longer than five years) taken out over the past seven to 10 years have some form of prepayment penalty. Just because there is a penalty, however, does not mean you cant refinance. It does mean you should perform a cost vs. benefit analysis before proceeding. It is always worthwhile to do a cost vs. benefit analysis when interest rates are low and values are high; interest rates are high and values are high; or there are other cash needs. It is generally not worth doing an analysis when interest rates are low and values are low; or interest rates are high and values are low.

When preparing for a refinance, become familiar with the following types of penalties. While there is probably some debate over which is the worst (pick your poison), this list presents them in sequence of what is considered to be most favorable to least favorable:

• Step-down
• Flat-fee
• Yield-maintenance
• Defeasance
• Lock-out

While there isnt space in this article to adequately cover each of the penalty types, it is important to match your needs to the alternatives. You should also be aware there is generally a cost, in terms of higher interest rates, associated with the most favorable prepayment clauses. Dont let a prepayment penalty prevent you from taking advantage of the benefits of a new loan or from pulling out needed trapped equity. Do the analysis or get someone to assist you.

Interest Rates, Terms and Cost

There are a lot of variables to weigh in a refinancing transaction. Many affect the interest rates, terms and cost of a loan. The following will give you an idea of these variables for a long-term, nonrecourse loan:

• Net operating income (NOI)
• Ability to cover debt service
• Requested loan-to-value (LTV)
• Percent occupancy (physical and economic)
• Loan amount
• Roof tops/population (in a 15-mile radius)
• Size (rentable square feet)
• Competition (in 5-mile radius)
• Quality of construction/age of facility
• Ratio of climate-control units
• Market occupancy
• Visibility/drive-by traffic
• Credit worthiness of borrowers
• Rental rates and rental-rate trends
• Barriers to entry in market
• Existence of outside professional management
• Deferred maintenance
• Quality of record keeping

For the most part, the first 10 or so variables are the most important and will have the largest impact on a borrowers ability to obtain nonrecourse financing at favorable interest rates and terms. If you are an experienced self-storage operator, you can imagine how a lender might look at each of these items. Following is how some of these variables would look in an ideal refinancing borrower profile:

• NOI coverage of debt service at 1.30:1
• LTV of 75 percent or less
• Occupancy at 80 percent or higher
• Loan size above $2 million
• Population of 100,000-plus in 15-mile radius
• 40,000 or more rentable square feet
• High-quality buildings, security, etc.
• Good personal credit rating

Even if your profile doesnt look like this, you can still refinance your current loan. You just may not get the best terms and interest rates. For a recourse loan, the ideal borrower profile would be focused more on the credit worthiness and self-storage experience of the borrower.

Terms for a nonrecourse refinancing will vary, based on where the borrowers business falls on the above variables. The following table provides an idea of the range you might expect for a 5-year, fixed-rate and 10-year, fixed-rate nonrecourse loan. Again, depending on the individual circumstances, the interest-rate spread (percent over the Treasury index) could be more or less.

Refinancing your self-storage loan does not have to be expensive. Generally speaking, you should plan for between 1.5 percent and 2.0 percent of the loan amount for your overall costs. There are loan programs that will help control these costs by offering fixed fees. These programs usually apply to loans in the $500,000 to $4 million range.

Common Borrower Mistakes

The refinancing process does not have to be complicated or stressful. One way to ensure a smooth process is to learn from others mistakes. Following are some common mistakes to consider before you start.

1. Not considering all available loan products.

The natural tendency for a borrower when it is time to refinance is to use the same loan product from the same source as used in the original loan. By doing so, he may miss an opportunity to find a new product that may be less expensive or better fit his needs. For example, if you typically roll over your bank loan at the lenders maximum term for a fixed rate, generally five years, you may not realize 15-year fixed rate loans are available, often at similar rates.

2. Using an inexperienced attorney.

Using an inexperienced attorney to close your commercial real estate loan could cost you considerable time and money. You should select your attorney based on his experience in closing these particular loans. Commercial real estate brokers are a good source for referrals.

3. Failing to negotiate deal points in the loan-quote letter.

A lender will generally issue a loan-quote letter, which contains all the key aspects of the loan being offered. This is the point in the process to make sure you understand everything in the quote and that any issues are cleared up before proceeding. Once the letter is signed and deposits are made, it will be too late to renegotiate. This is also the point at which you want an experienced attorney involved in the process.

4. Not anticipating the lenders underwriting adjustments.

Many borrowers are surprised and often disappointed when a lender or loan broker calculates the maximum debt a self-storage business can support at a dollar amount lower than expected. Lenders can and do make adjustments to effective gross income and operating expenses before determining the amount they will lend on your business. The rationale behind this is if they have to take over the property in a default proceeding, they want to ensure they can duplicate operating results until they are able to resell the property. The categories lenders most commonly adjust are vacancy, operating expenses, management fees and reserves. Being aware of these adjustments will prevent you from being disappointed or surprised as you go through the refinancing process.

If you own a facility fortunate enough to be above 95 percent occupied, theres a good chance you will not get credit for your occupancy in the lenders valuation analysis unless he can substantiate it by looking at occupancy across the market. Some lenders use a minimum vacancy of 10 percent or the actual vacancy, whichever is greater. The net effect of this adjustment will be to lower your NOI, which will translate to a lower-than-expected loan amount.

The adjustments lenders make to operating expenses are geared toward making them reflect what they might expect if they had to take over the facility and run it themselves. For example, if you have been running your facility at an operating cost of only 20 percent due to lack of payroll, advertising expenditures or third-party management fees, the lender will add these line items into your profit-and-loss statement during the underwriting and loan-sizing process. The net effect reduces your NOI, which in turn reduces your value and, consequently, the amount you can borrow.

The same type of adjustments to operating expenses will be made for reserves for repairs and maintenance. The amount of the reserve is generally determined by an engineering inspection and is based on what the inspector claims is necessary to maintain the property in top condition.

5. Not using an experienced self-storage mortgage broker.

The last of the common mistakes owners make when refinancing is not using an experienced self-storage mortgage broker. Brokers have many lender contacts that know and understand the business. These connections allow them to offer clients a large assortment of loan products geared toward their needs. Because brokers do volume business with lenders, they are also able to get favorable pricing, which is passed on to the borrower. Using a broker can save money, time and headaches during the process.

Whether you are refinancing for the first time or contemplating a refinance for the future, it is important to understand the alternatives and pitfalls involved. If you do your homework and use the expertise of others, you will find the process successful and stress-free.

Bill Walton is a CPA and a vice president of S & W Capital and Realty LLC. He specializes in arranging financing for owners in the self-storage industry. For more information, call 704.371.4275; e-mail [email protected].