In its joint venture with Harrison Street Real Estate Capital LLC,
Morningstar Properties LLC acquired Village Self Storage in Carrboro/Chapel Hill, N.C. The facility will operate under the trade name Morningstar Mini Storage. The property has 727 total units, including climate control and drive-up access units. For more information, visit www.mstarproperties.com.

Daniel Nauertz and Thomas Weickardt joined Wildeck as inside regional sales managers. Nauertz joined the Western regional sales team. He has four years of regional sales experience including lead generation, project management and customer service. Weickardt will manage sales in Wildeck’s Central and Eastern territories. Weickardt has 15 years of experience in industrial equipment sales. For more information, visit www.wildeck.com.

Space Station Self Storage of Rhode Island is a winner of the 2008 Beautiful Landscape Award bestowed by the East Providence Beautification Commission. The award is given to businesses that add to the “aesthetic and environmental beauty” of the city, according to Commission Chairman Joe Gibson. All neighborhood organizations are considered each year for the award, which has been presented since 1967.
 
Additional winners were Chaput and Feeney, Certified Public Accountants, Little Rhody’s House of Dog Grooming and Rhode Island Medical Imaging. In addition, the John Hunt House Museum received the 2008 Community Service Recognition Award for the improvement or maintenance of a public space.

For information about Space Station Self Storage, visit www.spacestationri.com.

Applications for the Inside Self-Storage (ISS) Humanitarian Service Awards, which recognize self-storage companies or professionals who volunteer time, expertise, resources or funds to assist those in need, are due on Nov. 21. This year, ISS will give four $2,000 grants, made payable to the nonprofit organization, project, event or program being supported. Individuals may nominate themselves, their own companies or other eligible candidates or companies. All nominees must be directly connected to the self-storage industry.
 
Detailed program guidelines and an application form can be found at www.insideselfstorage.com/humanitarian_award. Winners will be notified in writing by Dec. 15 and formally recognized at the Inside Self-Storage World Expo in Las Vegas, Jan. 26-29, 2009.
 
ISS is a dynamic-services company that provides resources and services to the industry including a monthly magazine, bi-annual tradeshows, an information-packed website and educational seminars and materials. The company aims to recognize and bolster the philanthropic efforts of storage companies involved in community and charitable programs.

Equity Based Services Inc. (EBS) now owns Assured Self Storage and Blue Star Self Storage in Lewiston, Texas, a growing suburb of Dallas. The Assured/Blue Star acquisition adds 1,130 storage units, 115 parking spaces and 148,556 net rentable square feet to the company’s holdings. The company also acquired Silo RV & Self Storage in Nashville from Evergreen Realty Advisors for $3.8 million. For more information, visit www.equitybasedservices.com.  

Having trouble raising rents? Is your facility’s cash flow starting to stagnate? Well, how about leveraging your largest deduction, depreciation through the use of cost segregation (cost seg)? A cost-seg study allocates depreciable property to the correct categories in an effort to maximize your allowable depreciation deduction.

Over the last 15 months, more self-storage owners have felt the pinch of the slower economy coupled with new competition. However, relief is available from one of the most unlikely sources: the IRS. If you own or purchased a self-storage facility and have been depreciating it substantially over 39 years, you may be sitting on a financial windfall. Self-storage is a perfect fit for cost segregation since as much as 30 percent of the cost can be classified to accelerated recovery periods. For instance, instead of 39 years, land improvements can be recovered in 15 years. This accelerated depreciation helps owners defer federal and state income taxes.

Cost seg is often looked upon by owners as a competitive advantage that they do not want to share and for good reason. The result of a cost-seg study on a typical 45,000-square-foot facility could double the after-tax cash flow in the current year depending when the facility was originally placed in service.

Cost segregation has been around for many years. It began with the landmark case of The Hospital Corp. of America vs. the Commissioner. This favorable decision opened the door for real estate owners to accelerate depreciation on real and personal property improvements.

It actually gets even better when you consider bonus depreciation and the ability for owners to correct the method of depreciating real and personal property through an automatic change process.

Bonus Depreciation

In 2002, the Job Creation and Worker Assistance Act (JCWA) was enacted in an effort to stimulate construction in the aftermath of Sept. 11, 2001. Recently, this temporary provision was re-enacted to allow a one-time deduction of up to 50 percent of the cost of qualified property with a class life of 20 years or less to stimulate business.

For example, if you spent $150,000 on land improvements, you may deduct $75,000 of the cost immediately and depreciate the remaining balance over the normal recovery period. This is a substantial tax benefit that should not be overlooked and will run out this year.

Change of Accounting Method

The IRS allows owners to modify the recovery period from an incorrect method to a correct method through an automatic procedure, thus encouraging owners to depreciate real and personal property correctly. The best thing about this change is it allows you to claim catch-up depreciation, which could have been claimed in prior years (back to 1987) had cost seg been used.

A successful cost-seg study requires:

• A detailed analysis of the hard and soft construction costs
• A review of construction drawings and specifications (if available)
• An inspection of the improvements to identify construction means, methods and use
• An understanding of specific building, mechanical and electrical systems
• A detailed knowledge of the tax code as it applies to cost segregation
• Combined with the ability to understand the tax and financial issues involved with real estate

Self-storage facilities make ideal candidates for cost-seg studies due to vast amount of site work required for construction. Site work such as paving, sidewalks, storm-water drainage, curbing, fencing, security lighting, underground utilities, etc., is specifically identified by the IRS as a separate asset category with a reduced life (15 years) compared to a building that has a recovery period of 39 years. Furthermore, there are other systems that can be depreciated over five- and seven-year periods, such as movable partitions, security, access gates, computerized locking or alarm systems.

A cost-seg study does not replace the accountant’s role in preparing your tax return. However, it does provide your accountant the correct values to calculate depreciation.

Savings

Let’s take a typical 45,000-square-foot single-story self-storage facility. The depreciable basis is the hard and soft costs associated with the building, site work and personal property. Let’s say the hard and soft costs total $48 a square foot for a depreciable basis of $2.1 million. Based upon our experience, 30 percent of the depreciable basis can be re-categorized to shorter recovery periods (15 years, seven years and five years) as compared to all of it being depreciated over 39 years. This reclassification tax affected at 45 percent and discounted at 6 percent yields the taxpayer a tax benefit of $107,000 over 15 years. The $107,000 represents investment income as a result of the deferment of taxes.

Once cost seg is understood by owners and their accountants, the question becomes, “Why would you not consider it?” If you acquired a facility after 1986, are planning to buy a facility or embarking on a building program, cost segregation and the bonus depreciation available under the temporary regulations should be part of your strategy to increase and improve cash flow and reduce ongoing expenses.

Mark de Stefanis is president of Construction Cost Recovery Inc., headquartered in White Plains, N.Y. The firm specializes in services such as cost segregation with a focus on self-storage. He can be reached at 914.694.3800.

Torrance, Calif.-based America's Best Self Storage is celebrating its 20th birthday on Nov. 18. In honor of this milestone, facility owner Jack Donner will receive a Certificate of Recognition from the Torrance Area Chamber of Commerce, presented by Mayor Frank Scotto. A special ceremony and lunch will be hosted at the storage site from 11:30 a.m. through 1 p.m. Interested parties can RSVP by calling 301.212.7339.
 
America's Best is also serving as a drop-off station for Toys for Tots this holiday season. Area residents are encouraged to bring new, unwrapped donations for the cause. Any new storage customer who donates a gift will receive a coupon for one month of free rent on his storage unit. During tomorrow’s ceremony, they can also enter to win one of several $100 gas cards, which will be given away every 15 minutes throughout the event. Attendees can also enter to win Starbucks gift cards and one of two weekend getaways.
 
America's Best Self Storage has more than 1,200 storage units in 64 different sizes. For more information, call 310.212.7339, or visit www.abss4u.com.

On Jan. 15, 2009, Inside Self-Storage (ISS) and Sentinel Systems Corp. will present a free webinar titled “Self-Storage Security: Getting Past the Hype on Systems, Installation and More.” The online seminar will teach facility owners, operators and managers the correct way to protect their storage sites, beginning with the essentials and delving into more complex issues.
 
Attendees will learn about proper site design for security and how to appropriately incorporate components such as video surveillance, door alarms, site graphics, gates and more. They’ll also learn ways to maximize their security budget, whether building a new facility or renovating an existing one.

The one-hour event, presented by Sentinel Systems General Manager John Fogg, will take place at 11:30 a.m. ET and include time for audience Q&A. For details and to register, visit www.insideselfstorage.com/webinars.
 
Lakewood, Colo.-based Sentinel Systems has been supplying security systems and software exclusively to the self-storage industry since 1975. Fogg has worked in self-storage since 1986, originally as the manager and operator of multiple self-storage properties. Company details can be found at www.sentinelsystems.com.

ISS produces a monthly magazine, bi-annual tradeshows and education programs for the self-storage industry.

Thanks to a recent ruling by the Richland County, S.C., fire marshal, bands will no longer be allowed to practice at Sumter Street Storage near the University of South Carolina. Up-and-coming musicians have been using the facility for rehearsals since it opened in 1986; even local talent Hootie and the Blowfish rented space there. But noise complaints from a neighbor prompted an inspection that resulted in musicians getting the boot at month’s end.
 
Having space where emerging bands can practice is important to the city’s efforts to attract―and keep―young professionals to Columbia, S.C., Mayor Bob Coble told The State this week, citing the bands as an asset to the community. He plans to help the bands find a new, appropriate practice space.