A self-storage development proposed for the site of a dilapidated building in Jackson, Miss., faces zoning restrictions and opposition from former Jackson Mayor Kane Ditto and former Mississippi Gov. William Winter. Developer Craig Smith wants to buy the empty building next to Boots & More on High Street and turn it into storage. The property has been for sale since 2002, according to the source.

The High Street area is in an overlay district that has no means of providing exceptions for designated zoning uses, according to the source. The district currently excludes self-storage. "I don't see this property as being feasible for anything else [but storage]," Smith told the source, adding that he believes his storage business could add between $15,000 and $60,000 in tax revenue for Jackson.

Some city officials, including council member Melvin Priester Jr., believe the city should examine allowing zoning exceptions in overlay districts, but opposition from prominent leaders like Ditto and Winter would still likely provide a major hurdle for Smith’s project.

"Self-storage is basically a warehouse with a fence around it and no windows," Ditto told the source. "You would preclude any vital retail around it. High Street is not the place for it."

Winter said a self-storage facility would detract from the area, particularly after the new Civil Rights Museum and the Mississippi History Museum open on High Street in 2017. As many as 200,000 people are expected to visit the museums once they open, with many using High Street to access them, the former governor said. Jackson officials consider High Street to be the gateway to the city, according to the source.

Ward 7 council member Margaret Barrett-Simon told the source the building Smith has targeted for self-storage will be much more valuable once the museums open.

Brazilian self-storage operator GuardeAqui and Chicago-based investment firm Equity International have added Ranger Co-Investment Fund III as an investment partner. The fund acquired a stake in the companies’ joint venture established in February with Morgan Stanley Alternative Investment Partners (AIP). The investment will help GuardeAqui grow its operating portfolio, company officials said in a press release.

Ranger Fund III is managed by LaSalle Investment Management Inc. It’s part of the Ranger Fund Series, representing capital from the Teacher Retirement System of Texas (TRS). The Ranger funds invest in real estate opportunities around the world.

“We are very pleased to partner with GuardeAqui’s impressive operating team, led by their CEO, Allan Paiotti,” said Dan Witte, managing director of LaSalle. “We are equally confident in Equity International’s experience as an active shareholder of several other real estate companies in Brazil and their identification and execution of this untapped sector in such a large economy.”

The storage operator’s current portfolio includes 10 facilities comprising about 60,000 square meters of leasable space. Seven properties are already operating in Belo Horizonte, Campinas, Ribeirão Preto, Rio de Janeiro and São Paulo. Three additional properties are under development in the São Paulo metropolitan area, officials said.

GuardeAqui estimates there are about 90 facilities currently operating in Brazil, mostly servicing residents and businesses in São Paulo. “The self-storage sector in Brazil is currently characterized by growing demand and product awareness, yet limited competition consisting largely of single-store operators with mixed-quality properties and insufficient capital for meaningful growth,” officials said in the release.

Its partnership with Morgan Stanley AIP has enabled GuardeAqui to acquire, renovate and develop storage properties in Rio de Janeiro and the São Paulo area, according to the release.

“LaSalle Investment Management and TRS are distinguished for their active global investment approach,” Paiotti said. “We are delighted to welcome them as a partner, and together with Morgan Stanley AIP and Equity International, we will continue to execute on our pipeline and expand GuardeAqui’s footprint in Brazil.”

LaSalle is a global real estate investment manager, a member of the Jones Lang LaSalle group and an adviser to Jones Lang LaSalle Income Property Trust. The firm has approximately $53 billion in assets under management. The company is active across a range of real estate capital and operating markets. Its clients include public and private pension funds, insurance companies, governments, endowments and private individuals.

Established in 2000, Morgan Stanley AIP specializes in assisting institutional and high-net-worth investors through the design, integration and management of alternative investment programs. AIP has $36.4 billion in assets under management and advisement and employs more than 200 professionals. It has investment offices in Hong Kong, London, New York and Philadelphia.

Equity International is an institutional real estate investment company led by Tom Heneghan and Sam Zell. Founded in 1999, it looks for high-growth opportunities with companies in emerging markets outside the United States. It has raised more than $2 billion and invested in 26 portfolio companies in 15 countries.

By Warren Lieberman

Will reducing the price of your 10-by-10 storage units increase the number of move-ins you receive this month and lead to an increase in revenue and profit, or will you get the same number of move-ins and simply make less money?

Will increasing the monthly rental rate of a current customer by $12 instead of $8 result in that customer moving out more quickly, or will you receive an additional $4 a month from that customer without affecting the amount of time he rents with you?

How well are you able to answer these and other questions relating to your self-storage pricing decisions?

Taking a systematic, data-driven approach to pricing has enabled companies across a variety of industries to increase their revenue and profit. Now these state-of-the-art pricing capabilities are coming within reach of many self-storage businesses, and not just the largest ones. In the United States, such tools appear to be yielding revenue improvements of as much as 4 percent to 10 percent, and even more for some operators.

Combining data-driven pricing with innovative distribution methods and the appropriate organizational structure to execute pricing decisions gives storage operators significant advantages over their competitors. Knowing what to do to reap the benefits of improved pricing is extremely valuable. Let’s discuss three important aspects: start rates, move-in concessions, and rate modifications for existing customers.

Start Rates

Compared to other businesses where pricing analytics have been applied, the storage industry doesn’t have a very good environment for forecasting demand with much accuracy. A typical store might have 30 to 40 move-ins per month, divided among various unit types and sizes. Not only does each facility have a relatively small market, it often exhibits distinct local characteristics. Demand estimates for a specific unit type will often vary by location.

When it comes to setting your facility’s start rates, the accuracy of forecasting models can be limited by data scarcity and variability. The transaction volume at each store is generally much lower than what has proved suitable and desirable for pricing analytics and revenue management. Further, the underlying mathematical models tend to require a high degree of support—attention from staff as well as statistical knowledge that may not be readily available. Finally, if the business environment changes, the models may not adapt well. Consequently, self-storage companies that rely on demand forecasts to determine their start rates get mixed results.

Another approach with varied success is the use of rules-based pricing capabilities like those offered in some management-software systems. This approach allows a facility operator to specify the business conditions that produce price changes. For example, he might stipulate that rates for climate-controlled, 10-by-10 units increase by 8 percent when occupancy reaches 85 percent, and by another 5 percent when occupancy exceeds 95 percent.

At first glance, this may seem reasonable. However, when you start changing these parameters by seasonality, store location, total number of units and other factors, effectively managing and updating these rules becomes quite challenging and can take significant time and effort.

Here’s a different approach. Start with the question, “Is my monthly start rate for unit-type X at the right level?” This leads to other questions:

• Do I need to lower my rate to receive additional inquiries or move-ins?
• Is my closing rate (i.e., my ability to turn inquiries into move-ins) satisfactory?
• Am I losing too much business to my competitors? How should my price compare to theirs?
• Is my inventory in a particular unit type low enough that I should increase the rate?
• Do I anticipate a seasonal increase in inquiries in the near future (e.g., from college students)? If so, should I proactively increase rates now even though I have many units available?
• Has the occupancy level of this unit type been increasing or decreasing recently?
• How long has it been since I changed my rate? Have I given the market enough time to react? If I made a recent change, have market or competitive conditions fluctuated sufficiently that another modification is appropriate?

These questions naturally lead to a review of current conditions and an incremental pricing strategy through which rates are adjusted gradually. These increases or decreases are made in response to observed and anticipated changes in the business environment. Modeling an array of business factors and providing recommendations on how to adjust prices yields a dynamic, multi-signal approach that’s more easily managed than specifying and adjusting static rules. In addition, giving price analysts access to the conditions that drive price yields a far more intuitive approach than complex mathematical formulas that are difficult to adjust.

Many storage customers are more service-sensitive than price-sensitive. Giving them a range of options in which the more conveniently located units are priced slightly higher has proven to be a very effective way of increasing revenue. Some operators have implemented such programs using static unit assignments—that is, specific units have premium prices. A more successful approach, however, allows for dynamically pricing units based on those that are available. Although this may require a change in store-level business processes and IT systems, revenue increases of 4 percent to 7 percent appear attainable.

Move-In Concessions

It’s not uncommon for 40 percent or more of a store’s customers to rent units for at least a year. When such a high percentage of month-to-month renters are longer-term customers, it’s easy to believe that offering a “free month at move-in,” “50 percent off the first two months” or some other aggressive promotion is an acceptable concession to ensure long-term business. Although it may not be easy to quantify the extent to which rentals are increased by discounts, under certain conditions, it’s giving up revenue unnecessarily. At worst, it may result in replacing profitable, long-term rentals with less desirable ones.

An analysis of historical rental data has allowed us to quantify the extent to which length-of-rent distributions vary based on the type of promotion the customer receives. Knowing the percentage of renters who stay one, two or three months, etc., allows us to estimate the impact of various concessions, especially for highly occupied unit types. This knowledge has led operators to revise their discounting policies and practices.

Rate Modifications for Existing Customers

Some self-storage operators rarely change their rates for existing customers. Others raise rates annually but won’t increase them to more than the current “street” or “market” rate. Providing general guidance on the extent to which rates can be increased is tricky because local conditions can be important in determining the best strategy. While some customers move out shortly after receiving a rate-increase notification, many don’t. When carried out at the right time, increases can create significant incremental revenue.

Market-segmentation analyses suggest that commercial customers are often less sensitive to rate increases than residential tenants. Up to a point, the rate at which customers shorten their length of stay is no different when their rate is increased. Whether that point is 8, 10 or 12 percent, it’s likely to be influenced by local conditions. Customer behavior suggests that increasing rates by relatively small percentages (e.g., less than 5 percent) is frequently the wrong strategy, as it leads to approximately the same number of early move-outs while leaving money on the table from existing customers.

We’ve all heard stories about customers who moved out because of their displeasure with a rate increase, but there are many more customers who accepted the increase or moved out for other reasons. Analyzing or estimating the financial impact of rate increases can be relatively straightforward (if the historical data is available) and extremely valuable. Such insights can drive up several percentage points of additional revenue from existing customers.

By collecting basic pieces of information on lease and store performance, self-storage staff can act selectively on each piece of business. What they frequently lack are structured support tools that could enable them to make better decisions. It’s not easy for managers to evaluate how similar customers have responded to a price increase in the past, and they usually have no tools to understand the potential profitability and risks of future increases. When used well, business-intelligence software, pricing analytics, revenue-management models and decision-support tools that drill down to the individual transaction level can be very profitable.

Take Small Steps

Thinking about systematic, data-driven pricing can be overwhelming, which can easily lead to inaction. But relying primarily on intuition and experience can create a lost revenue opportunity. The potential benefits of systematic pricing are great. Just take small steps. Consider one aspect at a time—website improvements, starting rates, rates increases, etc.—and work on improving your capabilities in that area.

There are many ways to begin. You can use your current staff to develop some basic analytics, subscribe to a service that provides Web-based prices and basic pricing analytics in your market, or leverage the expertise and guidance of pricing consultants. In a year or two, you’ll be looking back and wondering why you didn’t take a more active approach sooner.

Remember, systematic pricing is a journey. Small, incremental steps add up, and so will your revenue and profit.

Warren Lieberman is president of Belmont, Calif.-based Veritec Solutions, which offers a range of consulting services, including pricing analytics, revenue management, sales and operation planning, to self-storage and other industries. For more information, call 650.620.0000; e-mail [email protected]; visit www.veritecsolutions.com.

Self-Storage developer Scott Johnson and Laramie County, Wyo., planners are at odds over a storage facility Johnson wants to build on a 2-acre parcel on Southwest Drive near Cheyenne. While Johnson received a planned urban development (PUD) agreement with the county to build his desired project on the property, officials have objected to his insistence on including a U-Haul truck-rental business.

While the PUD allows for the construction of self-storage on the site, it expressly prohibits outdoor storage and all other commercial business types, according to the source. County planners deem the truck-rental business a separate commercial use on the property, while Johnson believes it should be approved as part of the self-storage business plan.

"I can't compete if I can't offer the same services that other storage facilities in the county offer," Johnson told the source.

Johnson has argued that the U-Haul rental component was part of his plan when he applied for the initial PUD more than a year ago. He told the source he has worked with four individual planners since he started the approval process, and he believes some of the details have been lost due to departmental turnover.

"It has been an administrative nightmare," he said. "The churn in the department is a major cause of this issue. All my intentions were known by people who have either passed away or are no longer with the county."

County officials contend Johnson made the process more difficult by not following recommendations to submit comments and updates together, choosing instead to “piecemeal” revised submissions, the source reported.

Johnson has applied for a temporary-use permit and requested a PUD modification that, if passed, would enable him to open the truck-rental business in conjunction with self-storage. The county planning commission will vote the requests in the coming months, according to the source.

Johnson called the process “cumbersome” and told the source he has considered selling the Wyoming property and starting his storage project in Colorado.

Less Mess Storage Inc. (LMS), which operates self-storage facilities in Prague as well as Warsaw, Poland, has refinanced €8.5 million, the majority of its debt, through Poland-based Bank Zachodini WBK S.A. (WBK), a lender that is part of the Santander Group, a banking group based in Spain.

Prior to closing the refinancing, LMS carried bonds and vendor financing of €3.5 million and €7 million, respectively, that were used to purchase five City Self-Storage properties earlier this year. The annual interest on the bonds was 18 percent, while the vendor financing had an interest rate of just below 4 percent, company officials said in a press release.

Under terms of the refinancing, €3.5 million was used to redeem all of the bonds, and €5 million was used to pay down the vendor financing. LMS now has €2 million remaining on the vendor financing. The interest cost on the refinancing loan is split into two equal tranches, with one the Polish equivalent of €4.25 million and the other the Czech Republic equivalent of €4.25 million. The former is a three-month Warsaw InterBank Offered Rate, and the latter is a three-month Prague InterBank Offered Rate. There is also a margin of 2.85 percent, officials said.

Seventy-five percent of each tranche is subject to a five-year interest rate swap transaction resulting in blended, fixed-interest cost of 4.43 percent. The 25 percent floating portions of each tranche currently have a blended cost of 4.04 percent. The remaining €2 million tranche of vendor financing currently costs 3.8 percent and is capped at 5 percent, according to the release.

The refinanced loan term is five years, with amortization of principal over 25 years, or 4 percent a year. The bank has also agreed to provide an additional €2 million of senior-debt financing if LMS can raise at least €5 million in financing, either as equity or subordinated debt, by Dec. 31, 2015. If LMS doesn’t raise an additional €5 million by the deadline, a cash sweep will be triggered, which would essentially allocate most of the company's free cash flow generated after Dec. 31, 2015, toward repayment of the principal.

"This long-term financingthe first time a bank has invested in self-storage in Poland and the Czech Republicis excellent news for the company, and speaks volumes about the positive economic environment in Poland and the Czech Republic,” said Guy Pinsent, CEO for Less Mess. “In replacing the bonds-bridge financing, we have halved our weighted average cost of debt to 4.2 percent. We have also hedged our exposure to interest rate fluctuations by concluding five-year interest rate swap transactions for 75 percent of the bank financing, effectively fixing most of our interest cost at the current low rates. Our bottom line is expected to improve significantly, and the company now has a stronger balance sheet from which to expand."

LMS last week announced the restructuring of its storage holdings from under six subsidiaries to two.

Less Mess owns and operates five self-storage properties—four freehold, one leasehold—encompassing more than 180,000 square feet of net rentable space. The company reported $4 million in revenue in 2013. Though its records office resides in Vancouver, British Columbia, Canada, it also has a headquarters in Warsaw and offices in Prague. Its common shares are listed on the TSX Venture Exchange under the stock symbol "LMS."

Amazing Spaces Storage Centers, a self-storage operator with four facilities in Texas, recently donated $5,106 to Shriners Hospitals for Children in Galveston, Texas. The company collected funds from Sept. 1 through Oc. 31 as part of the annual “Starfish: Make a Difference" campaign, launched in 2001 and operated by the Texas Self Storage Association, of which Amazing Spaces is a member.

The campaign encourages self-storage customers, associates, friends and families to donate money to the cause. Amazing Spaces received $2,553 in donations, and then matched the amount. The company has raised more than $42,000 since it joined the effort in 2004.

“We are always so excited each year to help this magnificent charity that has been providing a wonderful service to children in our area since 1960,” said Kathy Tautenhahn, vice president of Amazing Spaces.

The 2014 Make a Difference campaign concluded during the TSSA’s annual convention in October. A charity poker tournament during the event also raised funds for Shriners. To date, more than $500,000 has been raised by the TSSA and its members.

Shriners Hospitals for Children is a healthcare system of 22 hospitals dedicated to improving the lives of children by providing pediatric specialty care, innovative research and teaching programs for medical professionals. Children up to age 18 with orthopedic conditions, burns, spinal-cord injuries, and cleft lip and palate are eligible for care and receive all services in a family-centered environment, regardless of the patients’ ability to pay. Of the hospitals comprising the network, the one in Galveston is one of only four that specialize in pediatric burn treatment.

Established in 1986, the TSSA is a non-profit trade association dedicated to enhancing the quality of the self-storage industry in Texas. It provides opportunities for members to increase their industry knowledge through education, research, discussion and the exchange of information.

Open since 1998, Amazing Spaces has locations in Houston (2), Spring and The Woodlands, Texas. In addition to traditional self-storage units, the facilities offer RV and boat storage, wine storage, and more.

 

SpareFoot, an online marketplace for self-storage consumers, has partnered with Uboxes, a supplier of factory-direct moving boxes, to create a website where people can purchase packing supplies. SpareFoot users can now buy moving boxes and other supplies at https://supplies.sparefoot.com.

Uboxes has distribution centers in Florida and Kansas, and will ship purchases for free within three days or less anywhere in the continental United States, according to “The Sparefoot Blog.”

“Our new partnership with Uboxes makes things much simpler for DIY [do-it-yourself] movers,” said Chuck Gordon, co-founder and CEO of SpareFoot. “The partnership between Uboxes and SpareFoot will definitely help some of the millions of customers each year who need both moving supplies and self-storage.”

“The SpareFoot and Uboxes partnership offers a convenient one-stop solution to consumers’ storage and packaging needs,” said David Holt, owner of Uboxes. “SpareFoot clients will appreciate Uboxes’ prices, along with our free shipping to their home or business, to help prepare for moving their goods to a storage facility.”

Uboxes.com offers a full line of moving supplies, including boxes, packing tape, stretch wrap, bubble wrap, packing paper, moving kits, blankets and pads, and other packing supplies.

Founded in 2008, SpareFoot.com helps consumers find and reserve self-storage units, with comparison shopping tools that show real-time availability and exclusive deals. With a network of more than 7,000 storage facilities ranging from mom-and-pop operations to real estate investment trusts, the company reaches prospective storage renters though partnerships with brands including SelfStorage.com and Penske Truck Rental.

AMERCO, the parent company of U-Haul International Inc., reported financial results for the quarter ended Sept. 30, the second quarter of its 2015 fiscal year. Self-storage revenue increased $7.4 million, or 16.3 percent, year over year to nearly $53 million. Average monthly occupancy was 84.1 percent during the quarter, up from 82.5 percent for the same period the previous year. U-Haul has added approximately 2.3 million net rentable square feet during the last 12 months, company officials said in a press release.

Companywide, AMERCO reported net earnings available to common shareholders of $156.2 million, or $7.98 per share, compared to $138 million, or $7.06 per share, for the same period in 2014.

"Our team is building on the momentum of the plans we put in motion over the past few years to better serve customers," said Joe Shoen, chairman of AMERCO. "The core business lines of the company continue to show improvement. The environment remains extremely competitive."

Operating earnings at the company’s moving-and-storage segment increased $34.4 million in the quarter compared to the previous year. Total revenue climbed $63.9 million but was partially offset by a $29.5 million increase in total costs and expenses.

The company held its investor call for the second quarter of fiscal 2015 on Nov. 6. A replay can be accessed by visiting the “Events and Presentations” area of AMERCO.com.

AMERCO is the parent company of U-Haul International, Oxford Life Insurance Co., Repwest Insurance Co. and Amerco Real Estate Co. Established in 1945, U-Haul has 40 million square feet of storage space at more than 1,000 owned and managed facilities throughout North America.

Dutton Ventures LLC recently purchased Red Barn Mini Storage in Newaygo, Mich., for $620,000. The property at 10209 Mason Drive encompasses 27,210 square feet of storage space in 152 units. It’s about 40 minutes north of Grand Rapids, Mich.

The seller was Red Barn Mini Storage LLC. The company owner was looking to reduce his work load and ultimately retire, according to a press release from Pogoda Cos., which brokered the transaction. Mark Floria, a commercial real estate advisor for Pogoda, represented the seller.

Based in Farmington Hills, Mich., Pogoda Cos. is a self-storage operator with 38 facilities and approximately 3 million square feet of space in Michigan and Ohio. The firm also provides brokerage, management, investment and consulting services to the self-storage industry through Pogoda Group Inc. and Pogoda Management Co.