By John Barry

Its an excellent time to consider acquiring an existing self-storage facility. With commercial real estate values at their lowest levels in years following the financial crisis of 2008, as well as the subsequent recession and unknown recovery period, self-storage investment opportunities are certainly worth pursuing. Heres a short summary of what you should look for when buying an existing facility today.

Find Motivated Sellers

Never before have self-storage owners been under such pressure to save their equity. Drops in occupancy rates have lowered valuations and, in many cases, to below the facilitys loan value. In extreme cases, valuations are even below the replacement cost.

Not only can facilities be valued on a capitalization rate based on current income but also on a dollar-per-square-foot or dollars per pound basis. Owners in default or foreclosure have created significant opportunities in what are called distressed situations.

Make a Management Decision

When considering purchasing an existing facility, decide early on whether youll engage a professional management firm to run the daily operation or handle this yourself.

Hiring a third-party company provides you with greater flexibility and gives you significantly more investment opportunities because the geographic location of a property isnt as important when you outsource the management. Evaluating properties in many regions can increase your chance of obtaining the highest return on investment. Once a property is acquired, you can continue your daily occupation or enjoy the benefits of extended time away, since the management company will handle all aspects of the operation, including monthly reporting to you.

If you self-manage and enjoy the additional income, remember that for most facilities over 30,000 square feet, a management-company fee will be added as an operating expense when you sell, because most buyers will use a third-party management firm.

Seek Synergies

Will the new acquisition create synergy with the self-storage properties you already own? If all are in the same general market, chances are you can combine your Yellow Pages advertising. Is it possible your facility manager could operate all properties? Will your management company offer a lower fee if it manages them all?

When you put your offer in, price the facility as a standalone operation, and then enjoy the synergies once you close. These are savings you earned and deserve, since you worked hard to establish the other sites.

Look for Stabilized Properties

Self-storage has seen tremendous growth since its beginning more than 40 years ago. Development had been strong until about three years ago. Now were seeing a new-development freeze due to overbuilding and a lack of financing. Oversupply in many markets, along with the recession and higher unemployment, brought with it a nationwide decrease in occupancy and rental rates.

Buyers previously priced deals on the last 12 months of net operating income, but today buyers want to see 24 or 36 months of financial statements so they can see the weaker market trends. Look for stabilization in occupancy rates. Has the facility weathered the storm and appear to be improving? If the owner needs to sell, be conservative in your projections if occupancy hasnt bottomed.

Scope Out the Competition

How does the facility compare in its location relative to the competition? Location has always been the No. 1 reason for success in real estate, and self-storage is a business that needs drive-by visibility to create an edge. Are traffic counts sufficient? Its not unusual for potential renters to miss the name of a facility, but if they know where it is when they need storage, theyll find their way to it.

How does the facilitys rental rates compare with competitors? If theyre lower, you have the potential of future rental increases. If theyre higher, price the facility where you think youll really be able to rent units. Find out what promotional discounts the competition offers and include these in your forecast. If theyre common to the market today, count on them in the future.

Does the facility have an edge in features and amenities? Does it have climate-controlled units while others in the market do not? Does it have fencing, security cameras or door alarms? Can you add truck rentals to better serve customers and create an additional revenue source? Ask yourself: If I was a self-storage tenant, why would I use this facility over the competition?  

Determine Your Goals

Is your goal to create a steady income source, do a tax-free exchange, pay down debt, expand the facility, or buy a distressed facility with low occupancy? Everyone has different aims, and many properties are available to meet them. If you buy a property thats 90 percent occupied, whats your up side besides current income and creating equity by paying down debt? What if another facility is built nearby? How will that affect your occupancy rate?

Some facilities today can be acquired below replacement cost and at low occupancy. If you buy a facility for less than the cost to build it and increase occupancy only 10 percent, you can really hit a home run.

Buyers are seeking expansion opportunities for two reasons: The land or building area for expansion usually comes at no cost and, if things improve, expansion means greater up side in potential revenue. Lenders are so conservative that they will loan on existing cash flow but not on extra land. Assuming you can achieve higher occupancy over time, when you can expand, the cost is minimal and the up side is high.

Self-storage still maintains the lowest default rates of all commercial and industrial segments. That doesnt mean lenders have no defaulted self-storage properties in their portfolios. It means they require lower than historical loan-to-value ratios, down from 80 percent to 65 percent, generically speaking.

If youre a first-time self-storage owner, it could be lower still. Lenders are seeking greater equity in projects to minimize their risk. At the end of the day, it lowers your risk as wellalthough the cost to get into the business has gone up. Cash is king, and with it you can find yourself in the drivers seat.

In summary, look for motivated sellers, analyze the propertys trends, know the competition as well as the property, and be firm in your investment objective. As John Paul Getty once said, "There are always opportunities through which businessmen can profit handsomely if they will only recognize and seize them."

John E. Barry is vice president of brokerage for Investment Real Estate LLC, a York, Pa., firm offering full-service brokerage, management, construction and feasibility services in the mid- Atlantic and Northeast States. To reach him, call 717.779.0804; e-mail [email protected] ; visit www.irellc.com .

Details of the agenda and education program for the Inside Self-Storage World Expo in Las Vegas, March 14-16, have now been posted to the event website at www.insideselfstorageworldexpo.com. The self-storage industrys largest conference and tradeshow will include more than 30 education seminars as well as four intensive workshops, multiple networking events, and an exhibit hall containing 125-plus booths.

The expo education program can be viewed by its four comprehensive tracks:

• Day-to-Day Operation and Facility Management
• Facility Marketing & Sales
• Construction, Development, Real Estate & Finance
• Technology

Hot topics to be addressed include Creating a Mindset for Business Growth, presented by John Traver, CEO of XPS Solutions Inc.; Free Ways to Get Self-Storage Tenants Online, by Mario Feghali, chief operating officer of SpareFoot.com; Cash Isnt Always King: Manager Compensation and Incentives, presented by Linnea Appleby, PDQ Management Solutions; and Using SBA Financing for Self-Storage, presented by Georgia Ragsdale, president and CEO of Best American Financial Services LLC.

The expo workshops are Legal Learning Live with Jeffrey Greenberger, partner in Katz, Greenberger & Norton LLP; Management Workshop with Mel Holsinger, president of Professional Self Storage Management LLC; Developers Seminar with RK Kliebenstein, president of Coast-To-Coast Storage; and the all-new Online Marketing Workshop with Eric Shanfelt, president of eMedia Strategist.

Peer-to-peer networking and interactive events include the Self-Storage Q&A, an open-forum discussion hosted by industry experts Holsinger and Jim Chiswell; roundtable discussions covering a wide array of topics; the Buyers & Sellers Meeting, created for those interested in self-storage real estate; the Technology Marketplace, where attendees get one-on-one time with purveyors of self-storage software, security, kiosks, call centers and other products; and The Experience, a brand-new, hands-on exhibition demonstrating the ease and convenience of the latest self-storage automated tools.

The ISS Expo will take place at the Paris Hotel & Resort. A special hotel rate applies for reservations made by Feb. 12. For travel information as well as details about the shows seminars, events, speakers and exhibitors, visit www.insideselfstorageworldexpo.com.

Storage Solutions and its affiliate, Union Development Co. (UDC), are sponsoring their annual holiday toy drive benefiting the U.S. Marine Corps Reserve Toys For Tots program. The self-storage operator is collecting toys at each of its 21 locations throughout Southern California.

In addition to supporting the holiday cause, individuals who drop off a new, unwrapped toy will be eligible for Storage Solutions discounts. New customers can save 50 percent off a new self-storage rental, and existing customers can save 25 percent off boxes and moving supplies. The collection ends December 19 at 5:30 p.m.

The toy drive is a long-standing tradition for the company, as is a monetary donation made each year when the Marine Corps Reserve picks up toys collected at the companys headquarters. Last year, Storage Solutions and UDC presented a $500 check for the program to Master Sgt. Wayne Harkley, Ret., whos now an instructor of Fontana High School Marine Corps Junior Officers Training Corps.

"The company has been involved with Toys For Tots for a long time and everyone here is very proud to support the program. We enjoy making it easy for customers and our local communities to get involved, too," said Jae Ho, operations manager.

Cerritos, Calif.-based Storage Solutions is the self-storage division of Union Development Co., a developer of real estate in Southern California for more than 100 years. The firm holds more than 1.7 million square feet of property in its portfolio including retail, industrial and self-storage facilities, and RV- and boat-storage facilities.

Strategic Storage Holdings LLC, an affiliate of self-storage operator Strategic Storage Trust Inc., has expanded into the Canadian market by entering into a term sheet for a joint venture with Toronto-based Budget Development Partners, a developer and manager of self-storage properties.

The venture will involve actively acquiring operational self-storage properties, as well as building new facilities or redeveloping existing industrial buildings throughout Canada. The sites will be rebranded under of the Strategic Storage Trust SmartStop SM Self Storage trade name.

The Canadian market is underserved in self-storage and will provide nice diversification in our aggregate portfolio, said CEO H. Michael Schwartz. This market has the same self-storage needs as the United States but is 10-plus years behind as far as supply. Their economy has been more stable in growth and commercial lending, which is definite advantage for us. So its natural our first international expansion would be into Canada.

Budget Development Partners will be the exclusive developer and onsite sub-property managers for Strategic Storage Holdings in Canada, specializing in identifying self-storage opportunities for acquisitions, and handling any site development and management, with Strategic Storage Holdings serving as the capital provider.

The opportunities for self-storage in Canada are enormous, but until now there has been a lack of interest or initiative on the part of many U.S. self-storage companies to cross the border, said Jamie Bennett, a Canadian native and senior partner with Budget Development. Canadian operators dont have enough capital and American chains dont have a local presence to get things done. This venture fits right in the middle, poised to take advantage of this untapped market.

Strategic Storage Holdings will carry out the same successful business model in Canada as it has in the United States.  Loans are expected to be arranged through Canadian banks, with the Canadian dollar debt hedging some currency risk.

Budget Development has been active in the Canadian self-storage market for more than a decade. We've been structuring our company to take advantage of this underserved market for a long time. At the same time, we needed a relationship with a company that not only shared our vision but had the financial resources to create a large self-storage presence here, said Reade DeCurtins, a senior partner with Budget Development, who will be spearheading real estate acquisitions in Canada. 

Strategic Storage Trust Inc. is a publicly registered non-traded real estate investment trust. The company currently owns 40 self-storage properties in 15 U.S. states.

PODS Enterprises Inc., a moving and storage company that provides portable-storage containers, recently opened the corporations first franchise in the United Kingdom. The newest PODS franchise, located in Leeds, England, will serve the moving and storage needs of residents and businesses throughout the West Yorkshire region. 

Its exciting to introduce the unique PODS moving and storage concept to England, said Jeremy Bradburn, owner of the Leeds franchise. The initial reaction by residents and business owners in Leeds has been very positive, and we anticipate business to increase steadily as the word spreads.

To celebrate its opening, PODS Leeds is supporting the Radio Aire & Magic 828s Cash for Kids Christmas Toy Appeal. The company will help collect, store and transport donated toys to sick and underprivileged children. Cash for Kids is the umbrella brand for Bauer Radios network of independently registered local charities, which operate across 20 local areas within the United Kingdom.

Founded in 1998, PODS currently provides moving and storage services to a population of more than 245 million consumers, in 48 U.S. states, Canada, Australia and the United Kingdom through its company-owned and independent franchise network. To date, the PODS network has completed more than 300,000 long-distance relocations, exceeded one million deliveries and has nearly 141,000 PODS containers in service.

Thousands of dollars of property was stolen from a Canadian self-storage facility last weekend.

According to investigators, the break-in happened at Store-N-Save Self Storage in Chatham, Ontario, Canada, between Friday 5 p.m. and Saturday 9:45 a.m. Ten units were affected and had serious damage.

Anyone with information can call Chatham-Kent Crime Stoppers at 800.222.TIPS, or visit www.crimestoppers.on.ca. Tipsters do not have to give their name or testify in court.

Safetech Pty. Ltd. introduced a new range of goods hoists to transport loads between floor levels at self-storage facilities. The goods hoists can also be used in a wide range of material-handling applications in commercial, industrial and residential environments.  

Designed to meet or exceed Australian standards, Safetech's goods hoists allow self-storage facility operators to increase their storage capacity while saving on installation costs and ongoing pit maintenance with a low-profile floor design that eliminates the need for a concrete pit.  

The hoists can be installed indoors or outdoors and are commonly used to lift goods up to a mezzanine floor or move loads down to the basement. The goods hoists can be custom-designed to meet specific site requirements.

Established in 1985, Safetech Pty Ltd is an Australian innovator, designer and manufacturer of materials-handling equipment. Safetech has grown to encompass a range of materials handling products that are distributed worldwide.

A man was shot Saturday evening at a self-storage facility in Toledo, Ohio. According to police, the owner of the self-storage facility reported firing shots after seeing two men cutting locks on self-storage units.

Joseph Lagger, 59, was in serious condition at Mercy St. Vincent Medical Center. The shooting is still under investigation.