In-this column, I write a lot about the basics of self-storage sales. This is because you need to constantly practice the fundamentals. If you dont, you may get soft. Its no different than getting physical exercise. You always do your warm-ups and simple routines first, even if youre trying to build strength and endurance.

But if youre getting bored with the basics, lets take things to the next level. You may not be too impressed. You might think Im cheating you or just blowing smoke. But heres the secret, just as it was in the childrens fairy tales we all love: Everything you need, you already possessthe knowledge and the skills are within you. You just have to be trained to use these advantages and be prepared to use them.

Just Do It

Look at the masters of any pursuit. Youll see the advanced work is in the doing, not the knowing. That is to say, you can study and train all you like, but success is the result of how you act in the moment.

• Lance Armstrong may do a lot of training and have a lot of skill. But when it comes to race day, victory is about peddling and pacing himself.
• I doubt Tiger Woods begins a tournament without playing lots of practice rounds and working on all the aspects of his game. But on the green, its every stroke that counts.
• Some of you may like martial-arts flicks, like the old Bruce Lee movies. Lee studied several disciplines and perfected their basics. But when it came time to fight, he improvised based on his opponents approach.
• Most jazz musicians have years of training in theory and performance. Some go through classical study and could perform with any orchestra. But when it comes to a solo or spontaneous piece, it all boils down to the musicians mood and the performance of his peers.

So it is in selling self-storage. Once you know the essentials, you can throw yourself into the sales arena with abandon. Your goal is to make a new friend, anticipate obstacles that might prohibit the sale, and politely, professionally and persistently make the deal.

Because You Never Know

You dont know what sort of a prospect youre dealing with until you start to ask some good questions. You dont know where the advantage in your offering lies until you listen to the customers answers. You wont know how to help him talk himself into the sale unless you can address his concerns. You wont know if you can seal the deal until you ask for a decision.

For all these reasons, you cant jump into a sale willy-nilly. Without a firm grasp of the fundamentals, you could be a detriment to your business. So dont forget to warm up before you go selling. Stretch your sales muscle and review your best strategies. Then you can yell Whoaaa! and jump into the fracas.

Tron Jordheim is the director of PhoneSmart, an off-site sales force that helps storage owners rent to more people through its call center, secret-shopping service, sales-training programs and Want2Store.com facility locator. You can read what he is up to at www.self-storageblog.com. For more information, e-mail [email protected].

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

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

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

Make Money, Not Donuts

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

1. Focus on earning as well as saving.

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

2. Dont underestimate the importance of convenience.

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

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

3. Trust the input of employees.

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

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

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

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

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

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

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

How Low Can It Go?

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

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

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

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

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

Who Buys Lunch?

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

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

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

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

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

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

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

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

Let’s start with the future. Almost all financing decisions are based on expectations. Do you expect to sell your property any time soon, or do you plan to hold it for the long term? Will your net operating income increase significantly, or have you reached stabilization? Will interest rates rise or fall? These are just some of the questions you need to ask yourself as you look at the financing alternatives available in today’s marketplace.

Loan types fall into four basic categories: construction, bridge (also known as interim), permanent and mezzanine. Let’s look at each loan type and the role it plays in self-storage.

Construction Loans

The easiest test to determine if you need a construction loan is to look at your self-storage site. If you don’t see any units, there’s a good chance you need a construction loan! There are no real viable options unless you have the money to build the project yourself. In simple terms, the construction loan provides you the debt capital to acquire a plot of land and develop a storage facility on it. While all construction loans accomplish the same thing, they’re not all the same. In fact, every loan is unique.

The great majority of construction loans are provided by commercial banks and thrifts. But in recent years, some of the Wall Street-based lenders and life-insurance companies have entered the loan market, often combining construction and permanent financing into a single transaction (usually for larger deals). Shop alternatives, and pay attention to detail. Items that appear trivial or meaningless during the loan process may prove to be important later in the project.

Bridge Loans

A bridge, or interim, loan is usually a floating-rate loan offered for a short term, usually one to three years, with very liberal prepayment terms. Bridge loans may require personal guarantees, but some are nonrecourse. The choice between bridge and permanent financing involves a careful analysis of where your project stands now, and how successful you believe it will be in the future. Let’s look at some scenarios in which bridge financing may be the smart choice:

Instability.

A bridge loan may be your best alternative if you are acquiring a property that has not yet reached the occupancy or income level you desire, or an older property with a volatile operating history. Why? The primary benefit of a bridge loan is flexibility. A bridge loan allows you to wait until a property has reached its highest possible net operating income before making the long-term commitment to permanent financing. This is especially important if you’re aiming to maximize the size of your loan.

To sell or not to sell?

Some owners have a very clear plan for the future of their property, while others do not. If you don’t have a clear plan, or if your plan involves the sale of the property, a bridge loan may be your best bet.

Many income properties are sold with permanent financing in place, with the buyer assuming the existing loan. But most experts will tell you that allowing a buyer the flexibility to make his own financing decisions is a real benefit when you’re trying to sell a facility. This can be especially true if your property has appreciated and your loan has a much lower loan-to-value ratio than it did when you made the purchase. In this case, the assumption of your existing loan may require a bigger down payment than a buyer is willing to make.

The interest rate on an assumed permanent loan will impact the sales price. If your rate is deemed to be above market at the time of the sale, you can expect at least a slight discount in the offering price because of it.

I just can’t get permanent fixed-rate financing!

There are many reasons a borrower may find it difficult to obtain a permanent loan. He may have had credit or bankruptcy problems. His financial strength may not be up to par when compared to the loan amount he is requesting. Or he may have had a bad experience with a lender in the past that resulted in a negative reference. In any case, the passage of time will most likely be to the borrower’s benefit, and a bridge loan is very good way to buy time. He will almost certainly have to provide personal recourse to his lender, but that’s palatable when the alternative is no financing at all.

The very broad category of bridge financing incorporates many types of loans and lenders. The most common providers are commercial banks and thrifts, but nearly every lender has a product aimed at satisfying the bridge-loan borrower.

Many life-insurance companies and Wall Street lenders have a strong appetite for large bridge loans, and offer them with the hope of eventually providing the permanent financing that will follow. “Hard money” lenders (usually private parties) provide high loan-to-cost or loan-to-value bridge loans at higher interest rates and sometimes also take an ownership interest. In purchase transactions, bridge financing is often provided by the seller of the property. If you decide a bridge loan may be your best choice, check with your mortgage banker to assess the alternatives in your market.

Permanent Loans

Permanent loans are traditional fixed-rate mortgages, with terms as short as five years or as long as 30 years. Over the past decade, the 10-year loan term has become the most prevalent.

Permanent loans differ from bridge loans in two primary areas. First, permanent loans generally have fixed interest rates—and, thus, fixed monthly payments—in effect for the entire loan term. This can be of tremendous benefit to a borrower, especially if the loan is obtained in a low-rate environment. A property owner is wise to fix his most significant expense item, as it essentially increases the performance of his property. Offsetting this benefit is the second primary difference between bridge and permanent loans: prepayment penalties. In most cases, a lender’s willingness to provide a long-term, fixed-rate loan is contingent upon a guarantee that it will receive interest for the entire loan term. To ensure this, lenders charge penalties if a loan is paid before its maturity.

These penalties can be structured in an infinite number of ways. They can be a stated fixed percentage of the loan amount, or they can be derived from a formula aimed at providing the lender the exact same return it would have received if the loan had gone to term. In most cases, any permanent loan paid two years or more before scheduled maturity is going to have significant penalties.

How do you know if the time is right for a permanent loan? You’ll ask yourself the same questions posed in regard to bridge loans, but this time, you’ll be looking for different answers.

Is the property stable?

If you’ve reached a occupancy level in keeping with the surrounding market, you can consider your property to be stable. This doesn’t mean your income won’t improve, it just means increases will be primarily driven by changes in rental rates, not occupancy. A stable property is a good candidate for permanent financing.

Are you a long-term holder or a potential seller?

What’s your game plan? If you expect to sell your property in the foreseeable future, you may be better served by a bridge loan. But if you plan to keep the property indefinitely, it’s a good idea to lock into a long-term interest rate that will fix your costs.

What if you just don’t know what the future holds? If you have a permanent loan and eventually decide to sell, a buyer can usually assume your existing loan, helping you avoid prepayment penalties. The terms, amount and interest rate of the loan will all be factors in whether a buyer is willing to do this.

Are interest rates going up, going down or remaining stable?

If you really knew the answer to this question, you’d be a billionaire. All we common folk have to help us predict interest-rate trends is history. And in the financial market, history doesn’t always repeat itself. In the end, it boils down to what you think will happen with rates and how they relate to your personal investment strategy.

If current fixed rates don’t allow for the return you desire, and you’re convinced they will drop in the future, a bridge loan with a floating rate might be the best choice. On the other hand, if fixed rates are favorable to your investment goals, you should probably lock in a rate as soon as possible. Your lender or mortgage banker can offer his opinions, but the final decision rests with you.

In almost every type of commercial real estate, the largest single expense of ownership is the debt service on financing. Owners may find it prudent to fix that expense, even if the interest rate isn’t the lowest ever offered.

Mezzanine Loans

So now that you’ve asked yourself all the important questions and chosen between bridge and permanent financing, the decision process is over, right? Maybe not. Would you like to borrow more money than your lender is willing to give you?

Over the past five years, a previously rare loan product has worked its way into mainstream commercial lending. A mezzanine loan allows you to borrow an extra 5 percent to 10 percent in excess of the amount a traditional mortgage lender will normally allow (based on property value). Sometimes these loans are secured by a second mortgage; other times, they’re secured by a pledge of ownership interest in the property.

In most cases, mezzanine loans have interest rates more than double those on first mortgages. For this reason, they are primarily used during acquisition, attached to loans of $4 million or higher. They are rarely used for refinancing.

When deciding on financing, keep in mind your ultimate goal. Are you looking to build a property? Are you trying to fix costs for a stabilized property or obtain permanent financing for long-term debt? Are you seeking short-term options to get you through to a sale? Whatever your aim, today’s low interest rates make it a good time to seek financing. Evaluate your alternatives, and make the best choice for your business and future.

Tom Walsh is a director for Collateral Mortgage Capital LLC and office manager of the company’s Atlanta commercial loan-origination office. He has worked in commercial real estate finance for 20 years. Collateral is a national mortgage-banking firm founded in 1933. It represents several national and local institutional loan sources that serve the self-storage industry. For more information, call 770.817.1600; visit www.collateral.com.

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

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

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

Fulfilling a Market Niche

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

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

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

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

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

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

Financing the Future

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

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

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

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

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

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

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

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

Streamlined Construction

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

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

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

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

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

• Recourse vs. nonrecourseWith a nonrecourse loan, a lender can only go after the property, not the borrowers assets, in the event of default and foreclosure.
• Loan-to-valueThe maximum loan amount compared to a propertys appraised value.
• ImpoundsAn additional amount added to the monthly payment for taxes, insurance or capital improvements (replacement reserves).
• TermThe due date or maturity date of the loan.
• AmortizationThe period over which the payment is calculated.
• AssumabilityThe ability to take over an existing loan during the sale of a property.
• PrepaymentThe ability to pay off a loan before maturity or make additional payments to principal during the term of the loan, with or without penalty.
• Upfront rate locksThe ability to lock in an interest rate at application vs. approval or closing.
• Third-party reportsThe reports a lender requires to originate a loan, such as appraisal, environmental, inspection, survey, etc.
• Other loan costsThese include any number of fees, including loan, processing, document, underwriting and legal.

Banking Institutions

Included in the institutional category are banks, savings and loans and credit unions. These sources still provide the majority of self-storage financing due to relationships with borrowers, flexible prepayment-penalty options, quick closings and low costs.

Institutional lenders are not only lending in their local markets. Many are offering nationwide programs with fixed-rate options for three, five, seven, 10 and, occasionally, 15 to 20 years. They also offer amortizations up to 30 years, though 15 to 25 is more common. Loan-to-values can go to 80 percent but are usually between 65 percent and 75 percent. Typical institutional rate ranges vary by market and competition. The following fixed rates were obtainable as of Sept. 1:

The higher-end rates usually apply in small-population or rural areas in which competition is limited. Lower rates are more often provided by large regional or national institutions, which prefer to lend in highly populated areas and major metropolitan markets. Many of the nationwide lenders have minimum loan amounts of $500,000.

Most of these programs offer fixed rates over the first 10 years, and then roll to additional fixed or adjustable rates for the balance of the term. After the initial period, pricing is reconfigured at fixed margins over an index. However, there are some loans that run for a full 25-year term with amortization re-pricing every three to five years.

A recent development is the credit unions introduction of commercial lending programs in select markets, which offer very attractive fixed and adjustable rates and often no prepayment penalty. These can be a great alternative to banks, which are sometimes not competitive enough or cant offer long amortizations. A few credit unions are lending nationwide. Some will only lend to a borrower if he qualifies for membership by living, working, worshiping, etc., in a credit unions local, regional or state market area.

Conduits

Conduits (securitized lenders) are the predominant source of low, long-term, fixed-rate financing. They offer spreads that range from 1.1 percent to 1.4 percent (110 to 135 basis points) over the corresponding Treasury (usually the 10-year Treasury). At the time of this writing, the Treasury is at 4.2 percent, putting the overall interest rate between 5.3 percent and 5.5 percent for a fixed, 10-year term with a 25- to 30-year amortization. Maximum loan-to-values are 75 percent, with 80 percent on exception. Fully amortized 15- and 20-year fixed rates are also available.

Conduit loans carry much higher costs than bank loans. Expenses can range from $10,000 to $30,000 for appraisal, environmental, survey, legal and inspection reports. This does not include loan or survey costs and other fees, all of which can be built into the loan to reduce out-of-pocket expenditure. Prepayment penalties are usually tied to defeasance, but can also use yield maintenance or a fixed step-down percentage. (For greater explanation, visit www.defeasewithease.com.)

Minimum loan amounts for most conduits are $2 million or more, though a few conduits offer programs for amounts as low as $500,000 to $1.5 million. These loans require more paperwork and time to close (usually 60 to 75 days), but they offer upfront rate locks for a 2 percent refundable deposit. Conduit loans are mainly nonrecourse, but they require carve-out guarantees and prefer single-asset entities as borrowers. They also demand higher coverage limits for title and property insurance as well as endorsement requirements.

Originators of conduit loans are mainly commercial mortgage bankers, mortgage brokers and some banks. Their nationwide programs also apply to Canada.

Insurance Companies

Insurance companies are also strong providers of long-term, fixed-rate financing with terms of five to 25 years and amortizations up to 25 years. Their rates are typically 125 to 175 basis points over the Treasury, loans are nonrecourse, and costs are similar to those of conduits. However, when it comes to prepayment penalties, insurance companies tend to cherry-pick only the better-quality facilities, typically those constructed of wood frame or masonry, not metal, and located in major metropolitan areas. Insurance companies also tend to be more conservative on loan-to-value (60 percent to 75 percent), though theyre more flexible with regard to impounds.

Because insurance companies are portfolio lenders, they can be creative with term and amortization and really love self-amortizing product. Loans are typically obtained from correspondents (usually commercial mortgage bankers), not directly from the insurance companies themselves.

Overall, its still a great time to refinance. Despite the rise in short-term interest rates, long-term rates have remained relatively stable. Whether youre trying to take out a construction loan or replacing existing financing, its not too late to take advantage of great opportunities.

David Smyle, president of La Mesa, Calif.- based Benchmark Financial, is a mortgage banker and 20-year veteran of the commercial-banking industry. His company offers financing solutions for self-storage, apartment and commercial properties nationwide through its direct-lending relationship with bond street capital as well as other institutional financing sources. For more information, call 877.862.7916, ext. 201; e-mail [email protected]; visit www.benchmarkfin.com.

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

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

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

Whats Covered?

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

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

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

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

Fair Value

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

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

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

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

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

Latinas Struggle and Soar

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

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

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

Cable Connection

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

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

Cyber-Spanic

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

Opportunity on the Menu

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

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

New-School Marketing

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

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

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

Traditional paper-check transactions in which merchants manually endorse and carry checks to the bank for deposit are still very common. In fact, checks are the most widely used payment method at many self-storage properties.

The Check Clearing for the 21st Century Act (Check 21), which went into effect in October 2004, allows an electronic image of a paper check to be substituted for the original at a bank or in a court of law. So when you deposit a paper check, the bank can process it electronically without needing the consent of the check-writer or originating bank. Your bank simply scans and then shreds the paper copy, converting it to an electronic check before distributing it to the originating institution.

Thanks to Check 21, consumers can no longer count on achieving float time with check payments, which is good news for merchants. Businesses that process large numbers of paper checks should take advantage of electronic processing and the benefits it provides. In fact, electronic checking creates such convenience for owners and consumers that all businesses should review their payment-processing options. The following alternatives work particularly well in a self-storage environment.

Point of Sale

Today, at most places of business, traditional cash, check or credit-card payments can be accepted in the form of a debit transaction, in which a customer enters his PIN into a keypad. The funds are withdrawn from the customers account and credited directly to the merchant within 24 to 48 hours. The point-of-sale (POS) transaction does not go through unless the funds are available at the time of purchase. No longer must merchants deal with the risk of registers full of cash or large cash deposits. Debit transactions also help them avoid the threat of bad checks and credit-card charge-backs.

Prearranged Payment and Deposit

In the case of a prearranged payment and deposit (PPD), a customer authorizes a merchant to regularly debit his account for a set amount. Every month, the customers account is debitedand the merchants account creditedfor a standard recurring payment, such as rent.

To initiate a PPD, the merchant scans one of the customers blank checks into management software via a magnetic-ink check reader (MICR), which captures the account and routing numbers. Then each time rent is due, the merchant submits the PDD to his bank or payment processor in a batch-mode file produced by the software. The bank or processor transmits the file to the Automated Clearing House (ACH), an association of Federal Reserve member banks. At the ACH, the debit transactions in the batch are sent electronically to their banks of origin, and each account is debited for the designated amount. Finally, the transactions are sent to merchants bank and the appropriate funds credited to his account.

PPDs are processed before paper checks at the Federal Reserve, which streamlines this type of payment processing. The turnaround time for an ACH batch transaction, from the file upload to the ultimate credit, is less than 48 hours. If a customers PPD is reversed for any reason, the merchant knows within 24 hours.

The processing fees charged by banks and processors for PPD transactions are very competitive with those charged for paper checks. However, PPD saves owners money in time and labor. In addition, because PPD is automatic and preauthorized, it doesnt carry the threat of charge-backs associated with credit-card payments. Once the customers account has been debited, the transaction is final.

Point of Purchase

A point-of-purchase (POP) payment is used for in-person sales. The customer presents a check to the merchant, who collects the account, routing and check numbers. These numbers are then used to generate a debit entry to the customers account for a single electronic transaction. The merchant submits the transaction to the bank or processor instead of the paper check, eliminating an unnecessary trip. The original check is now void and cannot be used again.

Accounts Receivable

An accounts receivable (ARC) transaction converts a check that arrives in the mail to an ACH transaction. The advantages to the business are similar to those of the POP paymentit takes less time to scan the check into software than to write out a physical deposit slip and visit the bank.

By integrating electronic payment options with other tools such as the Internet and self-serve kiosks, self-storage owners can provide customers with greater convenience and cut costs. As the industry matures, it continues to generate more alternatives for safe, convenient and customized rental space as well as streamlined funds management.

Alison Kiesa is the sales and marketing director of Syrasoft Management Software LLC, which has produced management-software solutions for the self-storage industry since 1991. For more information, call 800.817.7706; visit www.syrasoft.com.