A driver in Jacksonville, Fla., fell asleep Friday morning at a stoplight, woke up and then crashed into a self-storage facility.

An employee from the Jacksonville Fire and Rescue told news crews the driver appeared to be asleep while stopped at the intersection of New Kings Road and Edgewood Avenue. The employee knocked on the car window, which awoke the driver, who then drove off. The driver lost control of the vehicle and crashed into a self-storage building across the street.

According to police, the driver may have been drinking and could face charges.  

A fire at a self-storage facility in Burscough, United Kingdom, took three days to extinguish, and left the facility in ruins.  

Eighty firefighters battled the blaze at Abacus Self Storage for three days. The fire, which began Nov. 16 around 8 p.m., was so intense, 12 homes and a nearby business was evacuated.

Firefighters used water from the Leeds Liverpool canal to put out the blaze. Fire investigators found asbestos in the roof space, but said the substance likely wasnt the cause of the fire and didnt pose health and safety issues. The cause of the fire is still under investigation. No one was injured.

At a recent self-storage meeting with about 15 facility owners, everyone in the room took a turn sharing something about their business. One owner proudly got up and said he was going through a refinance of his property via a swap with the lender. Another owner asked him what a swap was and how it worked. The first owner then admitted he wasnt really sure, but he was going to get a better fixed rate than his current one.

This is a typical scenario I hear time and again from owners who are signing loan documents and really dont know what theyre getting themselves into. Theyre trusting the financial institution to do the right thing for the borrower (a scary thought). In this article, Ill help you understand how swaps work and explain the attributes of this financial product.

What Is a Swap?

Lets start with defining a swap. A swap is a derivative in which one party exchanges a stream of interest payments for another partys stream of cash flow. The key word here is derivative, which refers to a financial instrument or, more simply, agreement between two parties. The derivative has a value based on the expected future price movements of the asset to which it is linked, called the underlying, such as a share or a currency. The television show 60 Minutes has done several features on financial derivatives, calling them side bets.

There are many kinds of derivatives, with the three most common being swaps, futures and options. A derivative is a form of alternative investment. It is not a standalone asset, since it has no value of its own. However, more common types of derivatives have been traded on markets before their expiration date as if they were assets. The word derivative has gotten some bad press in the past few years since some of the option and futures derivatives were linked to the collapse of the financial market in 2007-08.

Interest-rates swaps provide a financial institution with a mechanism to hedge its bet on where rates will be in the future. Most swaps youll encounter in the self-storage world of financing will take a variable-rate loan (floating) and place a swap contract on top of it, essentially making the rate fixed.

A borrower will receive loan documents that are for a variable-rate loan, typically priced over the London Inter Bank Offering Rate (LIBOR) index. It appears theyre signing up for a variable-rate loan, which they are! However, in addition to those loan documents, there are additional documents that are the swap contract. This contract sits on top of the variable-rate loan, and will essentially fix the rate of the loan.

Understanding the Terms

Borrowers have often told me theyve signed for a 10-year loan, but the rate they quote doesnt seem to be in line with where rates are currently trading. Generally, as the old adage goes, if the deal looks too good, its probably not real. However, in some cases, a swap may be the culprit behind the confusion. What the lender may have done is provide a 10-year-term loan on a variable-rate basis, but then only provided a three- or five-year swap. After the three- or five-year period has expired, a new swap contract can be placed to continue along with the 10-year-term loan.

Unlike a few years ago when the yield curve was flat (and a 10-year rate was virtually the same a five-year rate), rates between a three-year and a 10-year term can differ around 2 percent today. Consider that as of this writing, three-year rates are as low as 4.5 percent while a 10-year fixed rate is in the 6.5 percent range.

Unlike the traditional loan payment you would make on a fixed rate loan (e.g., $2,000 per month for 10 years), a swap payment has a fixed interest rate. However, the monthly payments differ, each based on the number of days in the month. On the $2,000 per month example, a swap payment would be $2,013 in January, $1,904 in February, and so on. Months with 30 days would be approximately $1,992. The 12-month average payment would be $2,000.

Beware of Penalties

Since a swap contract is set for a specific time period, a prepayment breakage penalty comes into effect if its broken before term. This is important to know since this type of financial product may not be as flexible as many think. Most borrowers want the longest fix-rate term possible to lock in the rate. But a lot can happen in 10 years, so you have to be even more careful when youre entering into a long-term swap deal.

A swap is great if you dont need to alter it during the term. However, its important to remember that unforeseen life events do happen. Consider that a divorce could force a sale, or a partnership may dissolve, both of which are unfortunate but common events that lead to the need for breaking a swap contract.

One way to strategically offset the risk of a long-term swap is to break the 10-year-term loan into two five-year swap contracts. In reality, you only have a five-year fixed rate. At the end of the first five-year period, you simply re-swap your remaining term loan for another five years. Alternatively, depending on the circumstances, you may also choose to refinance the loan with another lender, this time with no prepayment or breakage fee.

Currently, were seeing interest rates near historical lows, and this has many concerned that in five years when their swap re-prices the rate will be much higher. In fact, there exists a delicate balance between the optimal interest rate and flexibility of options. Consider that a five-year swap contract is priced approximately 1 percent lower than the 10-year equivalent swap today.  

For example, if you were able to get a 10-year-term loan for $2 million with a 10-year swap contract at 6.5 percent, the total outlay over the 10-year period would be approximately $1,620,480. If you decided to get that same 10-year-term loan with two five-year swap contracts, you would only pay a 5.5 percent interest rate for the first five years. The rate would have to rise to 7.5 percent in the second five-year period before the borrower would pay the same as if he did the 10-year swap to begin with. And he would have the added benefit of being able to sell the property or refinance it at the end of the initial five-year period of the loan.

Consider All Your Options

Most financial institutions tell borrowers swap contracts can be assumed and, in theory, this may be true. But in practical application, its often difficult to achieve. In most cases, the adjustable-rate loan underneath the swap contract can certainly be assumed. However, its ultimately often up to the discretion of the financial institution whether to allow the assumption of the swap.

In fact, theres typically language in the swap-contract documentation that provides the financial institution with outs if the assumption doesnt work to its financial advantage. In practical application, Ive not yet witnessed a financial institution allow for a loan assumption when a swap contract is in place, because lending intuitions typically prefer the seller of the property to pay the swap-breakage fee.

The amount of the breakage fee is onerous and generally becomes cost-prohibitive for the transaction at hand. Im certain lenders would refute my previous comment, but if there isnt some financial advantage for doing so, my experience is that an assumption will not be approved.

Should You Swap?

So why are lenders using swap contracts as a mechanism to fix rates for borrowers? The simple answer is they make more money on the loan by hedging and placing this side bet. It would be much easier for a borrower to sign less paperwork and not get dragged into yet another financial product thats difficult to fully understand, but the easiest solution is not always the one thats readily available.

If youre considering entering into a swap contract to fix the interest rate on a variable-rate loan, its prudent to have a commercial-mortgage professional along with your attorney advise you during the process and take a close look at the documents. A swap can be useful financial tool; however, the key to executing a loan with a swap, like many other things in life, is asking many questions to the parties involved so you really know what youre getting into.

David Zorich is a senior vice president at The BSC Group, where he provides mortgage brokerage and financial-consulting solutions to commercial real estate owners nationwide. He can be reached at 949.232.5997; e-mail [email protected]; visit www.thebscgroup.com .

By Anita Setnor Byer

For many self-storage operators, purchasing workers compensation insurance is a statutory requirement. Even in the absence of this, a self-storage operator with only a few employees may want to consider the voluntary purchase of workers compensation to avoid the expense associated with litigation resulting from an on-the-job injury.  

But how much employers pay for this insurance typically depends on rates set by the respective insurers, individual states, or the National Council on Compensation Insurance, the nations largest provider of workers compensation data. Consumers are limited in their ability to bargain-shop for workers' compensation as they typically do for other types of insurance.

However, this lack of bargaining power doesnt necessarily mean employers are powerless to reduce their premiums. In fact, employers can lower the cost of their workers' compensation insurance by maintaining a safe working environment.

Modification Ratings

Workers' compensation insurance provides indemnity and medical benefits to employees injured on the job. In the workers compensation context, the term indemnity refers to monetary compensation for lost wages resulting from an injury or accident occurring on the job that prevents an employee from returning to work. Each time an employee files a workers' compensation claim, the insurance company must make a payment on the claim. Needless to say, insurance companies prefer insuring safe, or safer, workplaces because there are presumably fewer claims to pay.

Thus, in an effort to encourage employers to maintain a safe working environment and reward those who successfully do so, experience modification ratings are used to adjust an employer's workers' compensation premiums. Employers who experience fewer or no claims are rewarded with a credit toward their premiums, while those who experience a higher number of claims may face increased premiums.

Determining an employer's experience modification rating, or experience mod, involves fairly detailed and complex calculations, which are designed to tailor the final premium cost to the employer's actual claims experience. In short, the experience mod compares an employer's actual workers' compensation claims, typically over a three-year period, with those of other employers in the same type of business with a similar number of employees. Thus, your self-storage facilitys employee-safety record as it compares to other facilities with the same number of employees will affect how much you pay in workers compensation premium.

If an employer's claims experience is consistent with the industry average, the experience mod is 1.0, which, when multiplied by the base premium, will not serve to increase or decrease the premium. However, if an employer's claims experience is 25 percent better than the industry average, the experience mod will be .75, which, when multiplied by the base premium, will decrease the premium by 25 percent. Alternatively, if an employer's experience is 25 percent worse than the industry average, the experience mod will be 1.25, which will increase the premium by 25 percent. Therefore, by maintaining a safe workplace, employers can significantly reduce their workers' compensation premiums.

Frequency vs. Severity

In addition to this basic understanding of the experience-mod rating process, its helpful for self-storage operators to know some of the features of the process so they can tailor their safety- and loss-control procedures and maximize some of the potential benefits. For example, since the cost of a specific workplace injury is statistically less predictable than the likelihood of an occurrence, the experience mod places greater weight to accident frequency than it does to accident severity. In other words, an employer having one loss totaling $100,000 compared to 10 losses totaling $100,000 will generally have a better experience mod. The employer suffering one loss is seen as the more stable risk.

Given the unpredictability of the total cost of an injury, the experience-mod calculation takes into consideration the possibility that any single injury could have astronomical costs, thereby making a higher frequency of claims a greater risk than a single, expensive claim. Since a workplace with a higher frequency of claims involves a greater risk, the experience mod will make the premium higher. Thus, self-storage operators have good reason to consistently maintain a safe working environment.

Employers should also know medical-only claims generally dont have as much of an impact on the experience mod as indemnity claims. Since calculations sometimes reduce the value of medical-only claims by 70 percent, employers are not necessarily penalized when they occur. Moreover, the existence of open claims, or claims that have not yet been resolved, can negatively impact the experience mod, so employers benefit from getting claims resolved and closed.

Employer Rewards

In addition to adjusting an employer's experience mod, some insurance companies may reward employers by offering payments, typically called dividends, to insureds that eliminate or otherwise limit the number of claims filed by their employees. These dividends, which are reserved for the most attractive risks, are usually based on a sliding scale wherein the amount of the dividend decreases as the number of claims increases.

However, its important not to get too caught up in the most generous dividend percentage. For example, if an employer has a history of at least four workplace injuries per year, then its unrealistic to focus on the dividend percentage available only to those insureds experiencing no claims. When comparing workers compensation insurance quotes, the best approach is to focus on dividend percentages that comport with an employer's specific claims history.

Fully comprehending all of the aspects of the workers' compensation experience modification-rating system, including the manner in which it can be used to achieve the maximum benefit, can be overwhelming. Self-storage operators would be wise to consult an insurance agent familiar with the ins and outs of the rating system and available dividend plans. An experienced agent can also make sure workers compensation claims are filed properly so business operators can take full advantage of the benefits conferred.

For self-storage operators as for all employers, maintaining a safe work environment remains the best way to reduce the cost of workers' compensation insurance, even in states with relatively high premiums.

Anita Setnor Byer is president of Setnor Byer Insurance & Risk and founder of The Human Equation, a risk-management and human-resources enterprise providing online training and solutions. She has served as an independent consultant and risk-management advisor since 1997, and has authored numerous publications and training content in risk-management and human resources. To reach her, call 888.253.8498; e-mail [email protected] .

About $8,000 worth of tools were taken from a self-storage unit in Godfrey, Ill., last week. Investigators with the Madison County Sheriffs Department said someone broke into four units at a self-storage facility located at 7006 Godfrey Road earlier in the week, but nothing was taken.

The thieves returned Friday, broke into the four units again and stole tools from one locker, and clothes, a bed frame and a wooden chest from another. Police believe the thief may not have had the equipment or ability to take the items during the first burglary attempt.

The stolen tools include a belt sander, drill, reciprocating saw, grinder, socket sets and various other tools. Anyone with information can call the anonymous tip line at 618.296.3000.

Storitz Inc., an online self-storage directory and comparison tool, has launched an online marketing video titled Eat Pray Store, echoing the themes of personal adventure and introspection examined in the recent movie release Eat Pray Love, starring Julia Roberts. Coupled with an aggressive social-media campaign, the video engages online users through a tongue-in-cheek twist on what it really takes to embark on the journey of a lifetime: self-storage.

Available at http://storitz.com and the Storitz YouTube channel (youtube.com/storitzdotcom), the video features an actress parodying Roberts in her role as Elizabeth Gilbert, who embarks on an epic worldwide journey. Mr. Storitz quickly sets her on the right track by reminding her to first find a storage solution for her belongings.

Now through Dec. 31, Storitz consumers are invited to post stories about their own adventures on the Storitz Facebook page, and on Twitter by using hash tag #EatPrayStore. One person will be selected to receive a Flip Video camera to bring on his or her own quest.

"Storitz has made a commitment to provide a rich comparison-shopping experience for storage consumers, and at the same time create an effective Internet-marketing channel for self-storage property owners and operators, said Storitz CEO Adrian Comstock. Through viral campaigns such as Eat Pray Store, we are able to engage consumers and further drive awareness of our site, while at the same time bringing fun into the self-storage industry We wanted to encourage people to live out their own grand adventures and remind them that we are the go-to place for self-storage.

Sony Pictures Home Entertainment is releasing Eat Pray Love on Blu-Ray and DVD this week. Self-storage managers and owners see a strong connection between storage and the movies theme.

Within our facilities, we have quite a number of people who anecdotally tell us about their storage rental needs, said Mark Beck, operations manager of StorQuest Self Storage, which operates 46 facilities in four states. I would estimate that every day our facilities rent units to customers who are gearing up for a great life experience such as an extended trip to another part of the world. We're here to make the transition as seamless as possible for them."

Storitz.com currently rents units for thousands of self-storage properties, and has plans to add thousands more in the coming months. Storitz is seeing double-digit percentage increases in consumer visitors to its site month over month, and we see this trend continuing well into 2011, Comstock said.

Personal Mini Storage Management Co., which manages 31 self-storage facilities throughout Central Florida, collected more 1,120 pounds of canned goods and non-perishable food items during its recent food drive. The donations were passed on to the Pearlman Food Pantry of Greater Orlando, Fla.

Last year the company donated more than 580 pounds of food. Its goal is to collect more than 2,000 pounds in 2011.

For the upcoming holiday season, Personal Mini Storage has teamed up with Toys for Tots to collect toys for children in need. Donation boxes have been placed at each of the companys 31 locations.

Nolan Brothers Corp. purchased a self-storage facility in Eastpointe, Mich., from Simply Self Storage for $2.6 million.

The facility will be rebranded E-Z Self Storage Gratiot. The 65,435-square-foot self-storage facility, located at 21500 Gratiot Ave., was built in 2006 on 1.76 acres.

Adam Schlosser and Brett Hatcher of Marcus & Millichap Real Estate Investment Services in Columbus, Ohio, represented the seller and buyer.

A self-storage operator in New Jersey has spent four years battling a Life Hazard Use Fee, and has finally won.

Businesses that are required to have a Life Hazard Use permit must register with the New Jersey Department of Community Affairs and pay an annual fee to offset the costs of administering and enforcing the Uniform Fire Code.

Mitch Danzis, owner of Storage Station in Bernardsville, N.J., filed an administrative appeal against the fee, stating it was being misapplied by classifying self-storage facilities in with warehouses, and the fee was implemented randomly. The added expense, which could amount to several thousand dollars annualy, would also create unnecessary regulations, Danzis said.

In September, an administrative law judge agreed with Danzis, referencing a state statute that shows a self-storage facility is not a warehouse.

LifeStorage, a Chicago-based self-storage operator with 16 locations, has launched a fun video contest for the public. Interested parties should submit a creative two-minute video explaining why they desperately need self-storage. The winner gets a free rental on a 10-by-10 storage unit for one year.

Videos should be uploaded to the LifeStorage Facebook wall, or a link to the video can be e-mailed to [email protected]. The deadline for submissions is Dec. 21. A contest-promo video can be viewed at www.youtube.com/watch?v=Ha1LJVH8Xwo.

Videos should be no longer than two minutes in length and cannot contain any nudity, foul language or offensive material.

All 16 LifeStorage are in Chicago or one of its suburbs. The sites offer 24-hour, year-round access and other amenities and add-on services such as climate control, office suites, records storage, document destruction, mailboxes, heated loading docks, digital surveillance, and free Starbucks coffee.