A wrongful-sale lawsuit has been filed in Los Angeles Superior Court against Public Storage Inc., a self-storage real estate investment trust (REIT). Case BC562265 alleges the REIT auctioned a tenant’s belongings in violation of California’s Self-Service Storage Act. The dispute also accuses the property at 3625 S. Grand Ave. of poor sanitary conditions. The suit claims there was a breach of contract, negligent infliction of emotional distress and unfair business practices by Public Storage. The plaintiff is seeking punitive damages.

An e-mail correspondence from Public Storage’s district manager Denise Aguirre and regional manager Kathleen Jarnagin was submitted to the court by the plaintiff to show the unit’s contents were sold after she submitted a Declaration in Opposition to Lien Sale. Although a hearing on the lien sale was scheduled for Dec. 30, 2014, Public Storage auctioned the plaintiff’s property ahead of schedule.

The California Self-Service Storage Facility Act outlines a timeline storage operators must follow once a declaration in opposition to the lien sale is received, according to the lawsuit.

Based in Glendale, Calif., Public Storage has interests in 2,234 self-storage facilities in 38 states, with approximately 144 million net rentable square feet. Operating under the Shurgard brand name, the company also has 188 facilities in seven European countries, with approximately 10 million net rentable square feet.

Storage 2000 and Storage Central, a four-property storage and RV portfolio in the South, recently sold to a self-storage real estate investment trust. The portfolio encompasses more than 383,000 rentable square feet of storage space in more than 2,540 units. It includes the Storage 2000 properties in Cayce, S.C., and Fredericksburg and Stafford, Va., and Storage Central in Raleigh, N.C., which opened in 2010 as an RV- and boat-storage center.

The portfolio is comprised of 30 storage buildings on more than 30 acres. Several of the facilities have undergone expansions over the years. In addition, Storage Central and the Storage 2000 property in Cayce offer additional expansion opportunities. Property features and services include drive-up and climate-controlled units, enclosed RV and boat storage, video cameras, computerized gate entrance, onsite truck rental, and moving and packing supplies.

The properties sold for more than $100 per rentable square foot, according to a press release from Midcoast Properties Inc. Dale C. Eisenman, president and broker-in-charge of Midcoast Properties, brokered the transaction.

Midcoast Properties offers brokerage services to self-storage owners and investors in Georgia, North Carolina and South Carolina.

As the self-storage industry basks in its recent success, once again we’re on the upward swing of an improving, if not peaking, investment market. This leads me to recall maybe the most relevant statement made to me over the years by my company’s founder, real estate expert Mike McCune: “It’s easy to get in a dealyou write a check. But it’s how you get out that matters.”

As the industry has matured and sophisticated, facility owners now have a number of exit strategies available to them. Below are just a few to consider when selling or repositioning your self-storage assets.

Outright Sale/1031 Exchange

This is the old-fashioned way of capitalizing on your investment. You engage an expert in selling self-storage properties to advise you on recent sales comparisons and the market value of your particular asset. You then market the property to a wide range of investors and choose from the most-qualified and well-capitalized buyers. This allows you to sell your property, pay the required capital-gains tax and move on to your next investment. This is still a valid and very good option for most investors and typically results in the highest rate of return for the property owner.

However, many sellers don’t want to pay capital-gains taxes, so they consider a 1031 exchange. This is a section of the IRS tax code that provides a process for sellers to defer their capital-gains taxes if they buy a like-kind property of equal or greater value. The 1031 process has many rules and regulations a seller must obey, but it can be very lucrative if done right and the exchange property performs well in the years to come.

However, I must offer a word of caution. It seems many sellers today feel so strongly about this tax deferral that they’ll only sell their property if they can participate in a 1031. The determination of whether an exchange makes financial sense is complex, so contact your tax advisor to analyze your particular situation and understand the current market conditions and risks. Below are just a few points to consider when contemplating a 1031 exchange:

• Will you overpay or make a poor decision with regard to the exchange property due to the time limits involved and the current market conditions?
• Will you lose bargaining power in the sale of the relinquished property or acquisition of the exchanged property due to the time pressures associated with the exchange process? Inevitably, it comes to the forefront that the buyer/seller is in the 1031 process, and this will have a meaningful impact on the deal.
• The adjusted tax basis of the relinquished property is carried forward into the exchanged property. What is the effect of the lower cost recovery (depreciation) available as a result of the 1031 exchange?
• How much flexibility could be lost by participating in a tax-deferred exchange, and what will the capital-gains tax rates be when they’re ultimately paid?

A thorough analysis of the 1031 process and overall market is of great value in deciding whether to pursue a tax-deferred exchange.

Refinancing

The values of all storage properties have surged to record levels over the last 12 to 24 months. This has put many owners in a position to have their cake and eat it too! Depending on when you acquired your property and what your cost basis is today, you may be able to use some structured financing to achieve the best of both worlds. If you purchased your facility before 2004 or between 2008 and 2011, you’re most likely in a position to capitalize on the very fluid debt market and take advantage of a once-in-a-real-estate-cycle opportunity.

With values increasing 30 percent or more in most cases from 2010 to 2014, many owners who purchased properties in the above-mentioned window are in a positon to refinance their assets, receive cash out in the amount of their initial capital investment and still own the properties. If you’re fortunate enough to have purchased a facility that experienced greater than 30 percent appreciation due to capitalization-rate compression and improved net operating income, you may actually receive financing proceeds that exceed your invested capital.

Refinancing proceeds are tax-deferred. This allows you to take the cash and grow your portfolio by purchasing another property, developing a new one or paying off high-interest-rate debt—all while continuing to own and operate your original asset.

This probably sounds too good to be true, so here comes the “fine print.” Much like a 1031 exchange, the money you receive on cash-out financing will be subject to taxes at some point in the future. My advice is to consult with your tax advisor and fully understand the situation before buying that new car or second home.

UPREIT/OP Units

The self-storage real estate investment trusts (REITs) are growing very aggressively, and most have the ability to offer operating partnership (OP) units as compensation to a seller in lieu of cash. When a REIT operates as an umbrella partnership (UPREIT), investors have the ability to own OP units, which represent limited-partnership interests in an operating partnership that owns the properties. Typically, OP units are convertible to common shares and have the same dividend and stock-price volatility (up or down) as common shares of the REIT.

The benefit of OP units is the structure allows the seller to defer the tax liability until exchanging it for REIT shares or cash. In most cases, you must wait a year to redeem OP units. This creates diversification, gives sellers some flexibility in regard to how to receive proceeds from a sale— all cash, all OP units, or a mix of cash and OP units—and allows for a liquidly event in a defined time frame, which allows for tax and estate planning.

Taking this topic one step further, OP units can be used in a variety of ways, such as being pledged as collateral for a loan, much like margin account. For larger and more complex deals of $20 million or more, it’s also possible to structure a hybrid of common and preferred OP units.

Obviously, the devil’s in the details, and you should speak with your tax advisor if you’re considering an UPREIT or OP-unit deal. These types of deals have shown there’s a more valuable currency than cash, and that is an ownership interest in a very well-run and growing company. We’re fortunate to have several of these in the self-storage industry that can provide you structures such as those mentioned above.

As we continue to enjoy and experience the latest run in self-storage values, one thing to remember is timing is everything in the real estate business. It’s better to be a year too early than a day too late!

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail [email protected]; visit www.argus-selfstorage.com.

The four publicly traded, U.S.-based self-storage real estate investment trusts (REITs)—CubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self Storage Inc.—have released financial statements for the quarter that ended Sept. 30. In general, all four entities showed gains in key areas, particularly funds from operations (FFO) and net operating income (NOI), while also achieving increases in occupancy levels.

“We are pleased with another quarter of solid earnings,” said Andrew Gregoire, chief financial officer for Sovran. “Our revenue-management system has been driving exceptional top-line growth. The system made pricing adjustments during the third quarter in anticipation of the off-peak season, and we are well positioned for strong year-end performance.”

Extra Space CEO Spencer F. Kirk expressed similar optimism. "We continue to expand our portfolio and leverage our operating platform, making us increasingly competitive in the self-storage industry,” he said. “Steady demand, muted supply and pricing power drove another quarter of double-digit FFO growth."

CubeSmart

CubeSmart reported FFO per share of $0.28, a 12 percent year-over-year increase. Same-store NOI at its 346 facilities grew 10.8 percent year over year. The company attributed this to 7.7 percent growth in revenue and a 1.1 percent increase in property operating expenses.

The operation gained 180 basis points in physical occupancy compared with the same quarter the previous year. The same-store physical occupancy was 91.7 percent as of Sept. 30. The company’s total-owned portfolio, representing 390 facilities comprising 26.4 million square feet of rentable space, had a physical occupancy of 91.5 percent at the end of the third quarter.

CubeSmart acquired three self-storage properties during the quarter for $38.9 million, including two in Florida and one in Massachusetts. The company also invested $26.7 million in four joint-venture development properties under construction. Officials anticipate they will invest a total of $79.9 million related to these projects.

On Aug. 5, the company declared a dividend of 13 cents per common share. The dividend was paid on Oct. 15 to common shareholders of record on Oct. 1. The board of trustees also declared a dividend of $0.48 for the 7.75 percent Series A Cumulative Redeemable Preferred Shares that was paid on Oct. 15 to holders of record on Oct. 1.

CubeSmart owns or manages 562 self-storage facilities across the United States and operates the CubeSmart Network, which consists of more than 800 additional self-storage facilities.

Extra Space Storage Inc.

Same-store revenue increased 7.2 percent and NOI rose 9.3 percent compared to the same period in 2013. FFO was 72 cents per diluted share, resulting in 26.3 percent growth compared to the third quarter the previous year.

Same-store occupancy grew by 100 basis points to 91.7 percent as of Sept. 30, compared to 90.7 percent at the same time in 2013.

The company purchased three properties during the quarter for approximately $26.7 million. The assets are in Florida, Georgia and Texas. Since the quarter ended, Extra Space acquired two other properties in Colorado and Georgia for approximately $17.5 million.

The company paid a quarterly dividend of 47 cents per common share on Sept. 30 to common shareholders of record on Sept. 15.

Headquartered in Salt Lake City, Extra Space owns or operates 1,081 self-storage properties in 35 states; Washington, D.C.; and Puerto Rico. The company’s properties comprise approximately 720,000 units and 80 million square feet of rentable space.

Public Storage Inc.

Revenue for same-store facilities increased 5.5 percent, or $24.7 million, in the quarter, as compared to the same period in 2013, primarily because of higher realized annual rent per occupied square foot and higher average occupancy. Cost of operations for the same-store facilities increased by 0.8 percent, or $1.1 million, in the quarter as compared to the same period in 2013.

FFO was $2.08 per diluted common share, compared to $2 for the same period the previous year. NOI increased $46.1 million during the quarter compared to the same period in 2013, including $23.6 million for same-store facilities.

The company acquired 25 self-storage facilities comprising 1.8 million square feet during the quarter for approximately $239 million. Nineteen of the assets are in Florida, three in Maryland and one each in New Jersey, North Carolina and Virginia. The REIT has four additional facilities under contract for $63 million. The acquisition of these properties is expected to close by the end of December.

The company reported a regular common quarterly dividend of $1.40 per common share. It also declared dividends with respect to various series of preferred shares. All the dividends are payable on Dec. 30 to shareholders of record as of Dec. 15.

Based in Glendale, Calif., Public Storage has interests in 2,234 self-storage facilities in 38 states, with approximately 144 million net rentable square feet. Operating under the Shurgard brand name, the company also has 188 facilities in seven European countries, with approximately 10 million net rentable square feet.

Sovran Self Storage Inc. (Uncle Bob's Self Storage)

Total revenue increased 21 percent over the previous year's third quarter, while operating costs increased 16.4 percent, resulting in an NOI increase of 23.1 percent. Same-store NOI increased 9.2 percent year over year. FFO for the quarter was $1.12 per fully diluted common share, compared to 98 cents for the same period the previous year, a 14.3 percent increase.

Net income available to common shareholders for the third quarter was $25.6 million, or 77 cents per fully dilated share. For the same period in 2013, net income available to common shareholders was $19.7 million, or 62 cents per fully diluted common share.

Revenue for the company’s 385 wholly owned facilities increased 7 percent year over year, helped by an increase in average occupancy of 140 basis points and 4.4 percent increase in rental rates. Average overall occupancy was 90.9 percent, with units renting for an average of $12.19 per square foot, an increase of 8.7 percent.

Sovran acquired five self-storage properties during the quarter for $46 million. The properties are in Florida, New Jersey, Tennessee, Texas and Virginia.

The company paid a quarterly dividend of 68 cents per common share.

Sovran, which operates facilities under the brand Uncle Bob's Self Storage, operates 506 facilities in 25 states, with a large presence in Texas.

The city council in Anoka, Minn., last week unanimously approved a conditional-use permit for a self-storage conversion project after turning down several other proposed uses. The property at 500 Bunker Lake Blvd. has been vacant since 2011. In April, the council turned down a permit request from an asphalt company after neighbors voiced concerns about noise, traffic and possible odors. Residents near the site were notified of the conditional-use permit hearing for the proposed storage development, but none raised concern about the project, the source reported.

Dennis Sharp of Sharp & Associates plans to purchase the property, which includes a 10,700-square-foot building. The conversion will include retrofitting the existing building and adding seven new ones to house 202 climate-controlled units, some of which will be large enough for boat storage. The council reduced the setback from 50 to 30 feet to accommodate the new buildings, which will border the residential areas on the south and west sides of the property. In addition, city staff will work with Sharp on the architectural design for the new building that will face Bunker Lake Boulevard, the source reported.

City Planner Crystal Pauman told the source self-storage is a “low-intensive commercial use of the property,” which is the type of business the city had been seeking for the past eight months. Council member Jeff Weaver told the source there had been “angst” over the sale of the property. He also said broker Gary Dehn of Premier Commercial Properties has been working with the city’s planning commission to meet the city’s new standards for development, which were adopted by the council last month.

Sharp & Associates is a commercial real estate and property management company. In addition to managing several business parks, it operates Ramsey Mini Storage, a 210-unit facility in Ramsey, Minn.

Prospect Capital Corp., a business-development company, recently acquired seven self-storage properties in Michigan for $10.6 million. The real estate purchase was part of three separate transactions totaling $55.4 million and 16 properties, including self-storage and multi-family apartments.

The acquisitions were made through Prospect’s private real estate investment trusts (REITs) with three different co-investment property managers. Two of the transactions included nine multi-family garden-style apartment real estate properties for a combined investment of $44.8 million.

Prospect structures its real estate property investments as investments of debt and equity into multiple REITs. The company currently has three such REITs, each of which works with different operating managers and co-investors to close and manage real estate acquisitions.

"These real estate investments continue Prospect's strategy of selectively acquiring stabilized properties at a discount-to-replacement cost in markets with limited new-construction pipelines and positive demographic and economic trends," said Ted Fowler, managing director of Prospect Capital Management LLC. "These rent-producing properties generate attractive and growing current yields with long-term fixed-rate financing, long-term capital-appreciation potential, inflation-protecting income streams, and diversification across geography, construction vintage and operating manager."

Over the past two years, Prospect has invested $365 million in 16 separate transactions across 48 properties, including 38 multi-family apartment properties, seven storage properties, and three single-tenant net lease facilities, totaling approximately 15 million rentable square feet. The company may invest in other REITs in the future to make additional real estate-related investments in a tax efficient manner, company officials said in a press release. Prospect has more than $7 billion of capital under management, and has closed nearly $3 billion of new originations this year.

By Andrea Hewitt

Reprinted with permission from the StorageAhead blog.

With all the different tasks and responsibilities that must be juggled, taking a position as a self-storage manager is much like becoming a circus performer. Your list of responsibilities might look something like this:

• Delegating facility maintenance and cleaning
• Handling move-ins and move-outs
• Providing exceptional customer service
• Ensuring the property’s security
• Managing unit auctions
• Reporting to the owner
• Managing other employees

You also have to deal with a variety of customer types, which makes customer service tricky. Plus, if you’re a resident manager, you may feel as though you can’t leave the stress of work, even when you go home. Here are just a few tips to becoming a successful self-storage manager:

• Start your career by building rapport with your customers and employees.
• Be quick to follow through on promises and proactively address people’s needs.
• Always take a diplomatic approach to any situation by using good judgment. This will help you establish credibility.
• Always be ready to tackle conflict, whether it’s between employees, customers or both.
• Quickly find a solution that everyone is happy with, or you could end up losing a customer or dealing with a negative online review. This starts with honed communication skills.
• Make sure you’re a strong, effective communicator by being transparent and firm.

Overarching advice on how to be a great manager is definitely valuable, but the best thing to do is learn from the mistakes and advice of others who are already succeeding in your field. We asked six seasoned managers at three facilities what they wish they’d known going into their careers, the most valuable thing they’ve learned, and their advice for novices. Our participants were:

• Vickie and Mike Dzubinski, who’ve been self-storage managers for 15 years. They currently manage Noah’s Ark Self Storage in San Antonio.
• Jim and Gerry Lewis, who’ve managed Noah’s Ark Self Storage in Buda, Texas, for the past five years.
• Joe and Catt Mullican, who’ve managed Noah’s Ark Self Storage in Apopka, Fla., since 2010.

It’s easy to feel overwhelmed when you start a new job, so hopefully this insight will take off some of the edge.

Looking back, what are three things you wish you knew before you started managing self-storage facilities?

Dzubinskis: We wish we’d learned right away how to appropriately deal with customer conflict. The second thing we wish we knew was how important it was to exercise patience during interactions with renters. It can get frustrating, but we keep cool by relying on the virtues the Bible taught us. We also think having degrees in counseling would be beneficial during those more difficult client interactions!

Lewises: We were aware of marketing strategies in general, but it would have been great to know how to market for self-storage specifically. We also wish we had tips for figuring out what size units renters need.

Lastly, we wish we’d be given cleaning ideas. We learned tips over the years from different managers, like using cat litter to clean up oil and mothballs to ward off snakes. It just would’ve been great to know those things upfront.

Mullicans: The first thing we wish we knew was Spanish. We have a diverse clientele, and that would have made communication much easier. Overall, be conscious of the market you’re working in. That’ll help you with your marketing and customer-service efforts.

We also wish we were more versed in computers because that would benefit our marketing efforts. Our lack of computer skills requires us to lean on others to locate target areas.

The last thing is how attached we became to some clients. We assumed it would be more of a revolving door. We have come to learn that if you treat people right, they will stay. You’ll see people marry and people die. You’ll encounter some losing their homes, and some will finally buy a new house. Babies will be born and children will graduate. You become a part of their lives.

What's the most valuable thing you've learned as a manager?

Dzubinskis: Customer service is the most important aspect of your job. It didn’t take long to learn that, which shows just how crucial it is to provide great service.

Lewises: The most valuable thing we learned was definitely to practice patience and empathy every day. It took us a year to perfect that.

Mullicans: We always say, “Every day is a training day.” We hope we never stop learning and growing. We think listening to the customer is the most valuable way we continue to learn. Listening will help you give the tenant what he needs. By asking the right questions and listening, you get to know him on a personal level, and that helps you meet his needs.

What advice do you have for someone stepping into a managerial role?

Dzubinskis: The best things you can do is listen to customers and get to know each and every one of them.

Lewises: Go into every situation with a great attitude! Learn to listen to customers more than merely talking to them. Lastly, make sure you become active in your community.

Mullicans: You must have patience and the ability to communicate. A rule of thumb we use to train people is to tell them how to do it, show them how to do it and watch them do it. Utilize this training regime at your facility and, remember, when given the right tools, anyone can succeed if they want to.

More Important Tips

As you take on your new role in self-storage management, remember the following:

• Know your market and its needs.
• Be prepared to become attached to customers.
• Embrace every opportunity for improvement.
• Practice patience and empathy with customers and employees.
• Remember that service is key to keeping happy tenants.
• Learn how to market your self-storage facility.
• Approach every situation with a great attitude.

Accept that you’re not going to be an expert right away. Our interviewees admitted it took a while to learn the tricks of the trade. As the Mullicans said, anyone can be successful as a self-storage manager if he has the right tools and a strong desire.

Now that we’ve provided you with this expert advice, take these tips and use them to become the best self-storage manager you can!

Andrea Hewitt is a writer for StorageAhead, a Web-marketing company, and StorageFront, a self-storage lead-generation website. Through her blogs, she provides facility owners and managers tips to better themselves and their business.