Update 1/22/18 – SmartStop announced the winners of its video-commercial contest. Los Angeles resident Joseph Binetti was awarded the $10,000 grand prize for his video, “The SmartStop Rap.” Second-place and $5,000 was presented to Sean Brown of Atlanta for “Stuff.” Three contestants were named runner-up and awarded $1,000: Dana Zikria of Danville, Ga., creator of “Little Rapper Boy”; Samuel Wolfe of Sammamish, Wash., for “Life Happens Outside the Box”; and Christopher Allison of Los Angeles for “Treasure.” All the winning videos can be viewed on the contest winner’s page.

The company received nearly 40 commercials, “each demonstrating its own unique cleverness and imagination," Schwartz said. The judging panel reviewed the 10 videos that received the highest number of likes on SmartStop’s various social media platforms, along with additional videos they felt were worthy of consideration based on the criteria.

“Each submission told an original story for SmartStop, and we thank all participants for their entry,” Schwartz said. “Ultimately, Joseph Binetti was chosen as the winner for his original commercial that incorporated exceptional creativity, artfulness and messaging to memorably convey the SmartStop Self Storage story."

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11/16/17 – SmartStop Asset Management LLC, a diversified real estate company that manages 108 self-storage facilities in Canada and the United States under the SmartStop Self Storage brand, has launched a video-commercial contest in which participants will vie for a $10,000 grand prize. Cash prizes of $5,000 for second place and $1,000 for three third-place finishers will also be awarded, according to a press release. Any submissions could be used in connection with corporate advertising and marketing promotions. The deadline to enter is Jan. 2.

"We are excited to launch our new video contest and open the door to boundless creativity from artists and free-thinkers throughout the United States," said H. Michael Schwartz, CEO. "Our 2011 jingle contest attracted hundreds of creative, talented submissions, and we encourage every individual or group to submit their video.”

Video submissions should be no longer than 30 seconds and incorporate the SmartStop logo and tagline. They may be in the form of animation, jingles, stop-motion, live acting and other presentations.

The public will be able to vote for their favorite entries online until Jan. 2. SmartStop will consider public voting in narrowing selections and choosing the winners, the release stated. Prizes are scheduled to be awarded on Jan. 8.

SmartStop has approximately $1.3 billion of real estate under management. Its self-storage portfolio comprises about 7.9 million rentable square feet in 17 states and Ontario, Canada. It’s also the sponsor of Strategic Storage Growth Trust Inc., Strategic Storage Trust II Inc. and Strategic Storage Trust IV Inc., all public non-traded REITs focused on self-storage assets.

Sources:
PR Newswire, SmartStop Self Storage Launches National Video Commercial Contest with Grand Prize of $10,000
PR Newswire, SmartStop Self Storage Announces Winners of National Video Commercial Contest with Grand Prize of $10,000
SmartStop Self Storage, SmartStop Commercial Video Contest

Update 11/28/17 – MCSS has partnered with real estate investment firm Cypress Equity Investments LLC (CEI) to launch a joint venture as Pacific Storage Partners. The new entity will target development opportunities in Los Angeles and Northern California, with its first project being the W. Hyde Park Boulevard project near Hollywood Park, according to a press release.

“This strategic venture significantly expands our West Coast, urban storage-development coverage,” Massirman said.

“Over the past 15 years, our company has applied innovative strategies to real estate investments and developments,” added Sorochinsky, founder and CEO of CEI. “We see this venture with MCSS as another example of that approach. There is an untapped demand for vertical self-storage facilities in dense urban areas.”

Founded in 2001, CEI focuses on ground-up and value-added real estate projects in several asset classes, with specialization in the multi-family sector. Since 2010, the company has amassed a portfolio of more than 6,000 apartment units across the United States. Its commercial ventures have included bank, office-building, restaurant and retail projects, according to its website.

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9/21/2017 – Jernigan Capital Inc., a merchant bank and advisory firm serving the self-storage industry, has committed $28.7 million toward a proposed 120,038-square-foot self-storage facility in Inglewood, Calif. If approved, the multi-story, climate-controlled facility would be built on W. Hyde Park Boulevard. Construction is expected to begin during the first quarter of 2019, with completion scheduled by mid-year 2020, according to a press release.

Inglewood Self-Storage LLC will serve as the project’s developer. The entity is comprised of several investors including Bruce Fairty, Stephen Garchik, Jay Massirman, Stephen McBride and Michael Sorochinsky. Garchik, Massirman and McBride are founding principals with Miami City Self-Storage (MCSS). Jernigan and MCSS have previously co-invested in three storage projects, the release stated. The development is the first for Jernigan in California.

The target site is along Interstate 405, with visibility to nearly 300,000 cars per day. It’s less than two miles from the Hollywood Park District, which eventually will be home to entertainment and sports venues; hotel, retail and office space; 25 acres of parks, pedestrian walkways and bicycle paths; restaurants; and 2,500 residences. The former home to the Hollywood Park horseracing track is being transformed with a new 70,000-seat stadium that will host NFL games for the Los Angeles Chargers and Rams. The venue is also slated to host the opening and closing ceremonies for the 2028 Olympic Games. The NBA’s Los Angeles Clippers also have a new arena approved in the district.

“The company and the developers anticipate significant gentrification of Inglewood as the Hollywood Park area is developed,” Jernigan officials said.

Since Jan. 1, Jernigan has closed 22 self-storage investments totaling $281.7 million. The lender typically holds a 49.9 percent profits interest in its joint-venture transactions, according to company officials.

Launched in 2015, MCSS owns 11 self-storage facilities in Florida comprising more than 880,000 square feet.

Jernigan Capital is a commercial real estate finance company that provides financing to private developers, operators and owners of self-storage facilities. It offers financing for acquisition, ground-up construction, major redevelopment or refinancing. The firm intends to be taxed as a real estate investment trust and is externally managed by JCap Advisors LLC.

Source:
BusinessWire, Jernigan Capital Inc. Closes Initial Los Angeles Self-Storage Development Investment

 

By Molly Wiley

Mobile storage has evolved rapidly in Australia. Since the first operators launched approximately seven years ago, we've seen the introduction of PODS (Portable on Demand Storage) as well as a bunch of new operators who seem to offer more of a drop-box model.

There are about 15 companies operating nationally, predominantly in Melbourne and Sydney. Four of them - Gobox, PODS, Smartbox Australia and TaxiBox - have expanded to multiple cities. There's been a ramp-up of entrants in the last three years, with new operators in Adelaide, Brisbane and, recently, Perth.

The Australian mobile-storage business is split into two main models. In the drop-box model, the storage unit is dropped at the customer's location, where it is packed at his leisure. Delivery methods include truck/modular delivery, trailer delivery and container drop-offs.

In the removalist model, which functions similarly to a U.S. moving company, the module-delivery service has been integrated into the existing removals business. Delivery is normally done by a removalist truck with modules on it or containers left on the back of trucks. This model has been around for years, but only recently has it been referred to as a mobile self-storage service.

The majority of these businesses follow a company ownership structure, with a few operators following a franchise-type model. It appears the large success enjoyed by U.S. mobile-storage franchisers is yet to reach the Australian market. This may be due to the country's population or market size and the associated limitations in creating viable franchisee regions. Perhaps mobile storage hasn't thoroughly penetrated the market yet.

Click here for an overview of Australia mobile-storage operators.

 

Growth

Accompanying the growth of mobile storage in Australia is the emergence of interstate (long-distance) moving. Some operators, including PODS and TaxiBox, offer a direct interstate-delivery service. Although this market is in its infancy, it is growing fast and will continue to do so, as there are distinct advantages to this hassle-free, cost-effective service.

A 2012 report produced by the Self-Storage Association of Australasia revealed that, overall, self-storage facilities had been experiencing flat growth over the previous few years. While it's not widely documented, mobile storage seems to have enjoyed significant growth over the same period. Questions arise as to whether mobile is cannibalizing traditional self-storage or if these truly are flat times in the industry as a whole.

Another explanation might be the way consumers use mobile vs. traditional self-storage. For example, mobile storage caters to a more residential customer base, whereas commercial tenants comprise as much as 30 percent of a self-storage facility's clientele. This demographic, combined with a strong softening in overall business sentiment, may be contributing to the slowdown in traditional storage growth.

 

Looking Ahead

The outlook for the Australian mobile-storage industry remains positive, although further competition is beginning to squeeze margins for some facilities. We have yet to see the emergence of a clear leader in the industry, and this space is still to be explored. That said, some operators have begun to make headway toward the top of this growing niche.

Molly Wiley is the marketing manager for TaxiBox, a mobile storage company with locations in Melbourne and Sydney, Australia. For more information, visit  www.taxibox.com.au. 

Appraisal is the process of formulating an opinion of real estate value as of a given date. The appraisal itself is an economic model that analyzes all factors that bear upon the value or worth of a real estate asset, such as a self-storage facility. The problem is defined, the property described and the data involved acquired, classified, analyzed and interpreted into an opinion of value. All property is analyzed according to the highest and best use, as though it were vacant and improved.

Three primary valuation approaches have evolved in the appraisal process:

• Cost approach: Considers the value of the land as vacant, plus the cost of the improvements including profit, less accrued depreciation from physical, functional and external causes
   
• Sales-comparison approach: Considers the recent selling price of similar properties compared to the subject, broken down into common units of comparison, with adjustments being made for differences
   
• Income-capitalization approach: Considers the economic or contract rent (earning capacity) of the land and improvements, less vacancy and landlord expenses, with the resulting net income stream being capitalized by an investment yield or capitalization rate that would be reasonable to a prudent investor

The approach a professional appraiser uses depends on the type of property, the availability and suitability of the market data on which the approach is predicated, and other judgment factors. The use of two or three approaches will generally result in a range of values for the subject property. Those values are then correlated to a final value conclusion. This article emphasizes and analyzes the sales-comparison and income-capitalization valuation approaches to self-storage real estate.

 

Sales-Comparison Approach

Sometimes called the market approach, the direct sales-comparison approach involves investigating recent sales of similar self-storage properties and comparing them with the subject facility. Its based on the premise that an informed buyer would pay no more for a facility than the cost of acquiring an existing property with the same utility.

The weakness of the approach lies in accurately accounting for the variables among self-storage building sales. For example, as a test of reasonableness, several tools of analysis are warranted. On this basis, the sales-comparison approach is generally given secondary consideration in the final value conclusion. The accompanying table, "Summary of Improved Self-Storage Sales," presents a brief analysis, beginning with comparable sales data.

The data analysis centers around property and transaction characteristics affect the price of real estate. According to The Appraisal of Real Estate, 13 Edition, produced by the Appraisal Institute, there are 10 common elements of comparison that should always be considered in the sales-comparison analysis. They are summarized in the table below.

View "Summary of Improved Self-Storage Sales."

The sales data indicates a value range from $35.13 to $57.60 per square foot, with an average of $45.28. Two units of comparison are used in this analysis: the effective gross income multiplier (EGIM) and an adjustment grid. Both value indications are correlated to a final estimate of facility value under the sales-comparison approach with a comparison to the range of price per unit and price per square foot from the data set.

The sales used in this analysis were the best available comparables to the subject property. The major points of assessment are:

• Property rights conveyed
• Financial terms incorporated into the transaction
• Conditions or motivations surrounding the sale
• Changes in market conditions since the sale
• Location of the real estate
• Physical traits of the property
• Economic characteristics of the property

We've made a downward adjustment to those comparables considered superior to the subject facility and an upward adjustment to those comparables considered inferior. Where there expenditures upon sale, they've been included in the sale price. It's very difficult to accurately derive a dollar or percentage adjustment for each variable. For example, the data shows a value range (unadjusted). Further, the data does not specifically demonstrate adjustments for all the variables.

This technique compares each sale to the subject facility based on the net operating income per square foot of rentable area. This results in an absolute difference, accounting for all the variables, in terms of one percentage adjustment. This absolute percentage variance between the comparable and the subject is directly applied as a net adjustment to the price per square foot. The analysis is summarized in the tables, "Improved Sale-Adjustment Grid" and "Percent Adjustment Method Summary."

View "Improved Sale-Adjustment Grid."

 

EGIM

The EGIM is calculated in the transactions by dividing the sale price by the effective gross income (EGI) at the time of sale. All other things being equal, the lower the income, the lower the sale price. However, there are other variables that affect the price/income relationship such as the condition of the property, the vacancy at time of sale, the stability of the income stream, the likelihood of near-term change (up or down), and the ratio of operating expenses to EGI.

As all of the sales are very similar to the appraised property in terms of physical condition, access and visibility, and the prospect for continuation of the income stream at or near current levels, the expense ratio is the most significant variable of difference. It affects net operating income and, by implication, the overall capitalization (cap) rate and sale price. The higher the expense ratio, the lower the EGIM.

As support for this EGIM, we've checked it against our concluded cap rate of 7.75 percent and the subject facilitys estimated expense ratio of 37.49 percent.

• Equation: 1 - [Expense Ratio / Cap Rate] = EGIM
• Calculation: 1 - [37.49% / 7.75%] = 8.07

Based on this calculation, we conclude the indicated value by the analysis to be as displayed in the following "EGIM Summary."

View "EGIM Summary."

In conclusion, the two indications of value for the subject sales-comparison approach are:

• EGIM: $3 million
• Price-per-square-foot analysis: $3.2 million

Income-Capitalization Approach

The income-capitalization approach considers the market value of the subject property from the perspective of a typical investor. In this regard, direct capitalization reflects the market. It demonstrates the expectations of the market based on a static (stabilized scenario) cash-flow model. Therefore, the income-capitalization approach conclusion is given primary emphasis in the final value conclusion to be consistent with the self-storage investment market and most probable buyers.

The potential gross income consists of rental and other income. Rental income is derived from the self-storage units. The only reliable way to calculate it is by individual unit as outlined in the table, "Market Rent Forecast - All Units." Analyzing rent per square foot can be very misleading and cause erroneous results because rental income is dependent on the unit mix.

View "Market Rent Forecast - All Units."

Ancillary income includes late fees, administrative fees, retail sales, truck rentals and other miscellaneous items. It's typically 2 percent to 5 percent of gross income. In our example, other income is derived from all these sources except truck and equipment rentals. The forecast rent roll, detailing potential gross income, is summarized in the table.

 

Vacancy

Vacancy is comprised of three main components: stabilized or physical vacancy, collection loss or credit, and concessions. In the subject analysis, all three are combined to form a long-term vacancy factor. Considering the subject facility's competitive position and typical turnover, a physical-vacancy factor of 20 percent is concluded. As to credit loss, the market will remain over supplied. This prediction is consistent with the forecast of market equilibrium, long-run vacancy trends, and the subject competitive position within the market.

 

Operating Expenses

The subject self-storage facility operates on a full-service or gross basis, meaning all operating expenses are paid by the owner, including fixed and variable expenses. Fixed expenses do not vary with occupancy and include real estate taxes and insurance. Variable expenses vary with the level of occupancy. They include repairs and maintenance, administration, on-site management, off-site management; utilities, advertising, and miscellaneous.

Self-storage property rarely incurs reserves for replacement in direct capitalization. Due to a relatively low breakeven point with respect to occupancy, self-storage expenses tend to be relatively inelastic or stable (in terms of total amount).

An expense forecast should be based on the market. Historical expenses should be analyzed in relation to the market and can be arrayed in a graph to illustrate variances. In the current market, buyers are particularly cautious about tax risk at the time of sale and adjust for market-based management expenses.

Overall Cap Rate

The overall cap rate is calculated by dividing the net operating income by the sale price. According to The Appraisal of Real Estate, 13th Edition, the basic direct-capitalization formula can be described as IRV or I/R = V, where I is income, R is cap rate and V is value. Ideally, the overall cap rate is selected from the market through sales of similar properties. Several techniques are summarized in the "Cap-Rate Conclusion" table.

 

Direct Capitalization

Direct capitalization considers the income from one stable year of operation of the subject facility and capitalizes it into an indication of value. Under these parameters, the direct capitalization and the income summary are detailed in the tables, "Stabilized Year for Direct Capitalization" and "Prospective Value Upon Stabilization."

View "Stabilized Year for Direct Capitalization" table.

 

Discounted Cash-Flow Analysis

Due to increasing sophistication in the self-storage asset class, discounted cash-flow (DCF) analyses are being used more by investors. This involves a forecast of cash flow over a typical holding period (usually 10 years). It's ideal as a tool of projects in absorption because the DCF analyzes as is and prospective stabilized scenarios. For the subject self-storage facility in our example, this analysis is presented in the following table.

View table.

 

Correlation to Final Value Conclusion

The significance, applicability and defensibility of each approach conclusion are weighted in the determination of the final value conclusion. On this basis, the value conclusions from the three approaches are summarized in the "Final-Value Reconciliation" table.

View "Final-Value Reconciliation" table.

A powerful economic model, an appraisal is an excellent tool to determine the value or worth of an individual self-storage asset. Appraisal is complex and requires experience to understand and use properly, although the model is simplified for illustration in this example. As the self-storage asset class has risen in sophistication, so must the tools to analyze the market.

Christian Sonne is the executive managing director of the Self Storage Industry Group of Cushman & Wakefield, which offers facility valuations, industry analyses and investor surveys. Prior to joining C&W, Chris was a real estate appraiser serving financial institutions, government agencies, industrial and commercial firms, the legal profession, and the development industry. He has been a featured speaker at many self-storage conferences and is author of the Self Storage Economics and Appraisal seminar sponsored by The Appraisal Institute. To reach him, e-mail [email protected] .

The implementation a self-service kiosk at a self-storage operation, like any other business initiative, takes owner commitment, planning, manager buy-in and some willingness to change.

The good news is, if done correctly, the venture will pay off handsomely. Self-storage kiosks rented more than 23,000 units in 2011 and processed more than $21 million in rental payments. For you facility operators out there, here's a step-by-step guide to choosing, installing and managing a self-storage kiosk. It's not as daunting as you may think.

Step One: Choosing the Right Kiosk for Your Business

There are several different models of self-storage kiosks, each with different levels of functionality. All of them rent units, process payments, access gate codes and allow customers to complete reservations made over the Internet or by phone. They range in price from $2,000 to $18,000.

In addition there's a setup, training and customization service that costs around $1,000, and an ongoing service program that includes hardware warranty, software upgrades, technical support, monitoring and a real person to assist your customers at the kiosk. This can cost from $95 to $250 per month. The three top considerations for selecting a kiosk are:

 Where will it be installed?
 What level of functionality do you desire?
 How much do you want to spend?

There are kiosk models for indoor or outdoor use, some that install through an exterior wall or mount on a pedestal, and even one that sits on the counter in your office. Once youve decided where to install the kiosk, you can narrow the choice to the features you want. Options include various sizes of printers or no printer at all, a fingerprint scanner, drivers license image capture, physical keyboard, bill acceptors and check readers. Price, while an important factor for some operators, ends up being less important than choosing the right kiosk for the facility.

Step Two: Installing Your Kiosk

Kiosk installation can be done by you, a local contractor or by the company that sold it to you. A typical installation should cost less than $2,000. Where you install your kiosk is critical. It should be close to the normal traffic pattern to your office. Traffic patterns for prospective tenants and current customers may be very different. One suggestion is to install the kiosk as close to the front door of your office as possible.

The kiosk area should be well-lit and have clear signage, making it easy for a prospective tenant to see that he can rent a unit and move in now. (To see an excellent example of kiosk presentation and signage, click here.) Outdoor kiosks are built to withstand the normal weather conditions, but consumers are not. Make sure your kiosk customers are protected from the weather with a canopy or some type of overhang from your building.

All kiosks will require a 110-volt power source and connection to your Internet service. While local area wireless (WiFi) is an option, it tends to be unreliable. However, cellular data cards have proven to be a good alternative. Some models of kiosks include a high-end digital color camera with high- and low-light filters. These kiosk cameras come with the proper connectors so you can hook them to your DVR system and be used as another security camera on the property.

Step Three: Integrating the Kiosk Into Your Operation

Here are a few areas of your self-storage operation that will need to be reviewed when integrating a kiosk.

Property-management software. For a kiosk to work, it must communicate to your property-management system at all times. This means if you've been turning off your office computer in the evening, youll have to change that process.

Kiosks come with specially designed software that integrates seamlessly with property-management systems. Ask your software vendor if there are any fees related to operating a kiosk at your facility. Once the setup and customization service has been completed, your kiosk will have your company brand, use your specific lease, communicate in real-time with your software, and operate according to your business rules.

Staff training. The implementation of a self-storage kiosk may make your staff feel like some of their value is being diluted. Its critical that your staff understands the purpose of the new tool, learns how to use it as a competitive weapon, and is given recognition and even rewards for supporting it.

The initial service includes training for your managers. Theyll be taught how the kiosk works, how they can adjust the business rules controlling it, how to run transaction reports, and who to call if they need help in the future. This training should be digitally recorded so it can be used for training new hires.

Maintenance. A self-service kiosk is a machine and requires regularly scheduled attention. Managers should review transaction reports daily, check to ensure the kiosk has paper and the lock trays are filled, and any cash or checks collected by the kiosk is deposited promptly. On a weekly basis, the exterior of the kiosk should be cleaned. Similar to your restroom, nobody will use it if its dirty.

Step Four: Implementing Self-Service Best Practices

Over the years, self-storage operators have discovered several best practices that will significantly increase their kiosk return on investment. This is where the commitment of the owners and the engagement of the managers make a measurable difference. Having a kiosk is of little value if you dont treat it like a competitive advantage and market it like an amenity of your business.

Make sure prospective and current customers know you have invested in a tool that makes doing business with you more convenient. To do this, you'll want to post information about the kiosk on your website and in your newsletters. You should even create a video explaining how to use the kiosk and post it on your social-media channels.

A simple and effective best practice is to leave lights on in your office even when its closed. This will not only highlight your facility when your competitors offices are dark, it will attract prospective tenants to the front door where the kiosk and a connection to a live person (provided as part of the ongoing service) are waiting to rent them a unit. A kiosk can only serve a customer who's standing in front of it; by implementing the best practices, youll get a much higher value from your kiosk.

Once you've purchased a kiosk, its like any other business initiative you've implemented in the past. To get the highest return on your investment, you'll need management attention and engagement, proper planning, and a willingness to change the way you operate. The next time you go to the dry cleaners only to find its closed, you can smile and rest assured your customers will never experience that frustration at your facility.

Robert Chiti is president and CEO of Phoenix-based OpenTech Alliance Inc., the developer of the INSOMNIAC line of self-storage kiosks, now with seven models. The company also offers the INSOMNIAC Live! call center and the INSOMNIAC Self Storage Network for online storage reservations and rentals. For more information, call 602.749.9370; visit www.opentechalliance.com.

By Jerome H. Kootman

Many self-storage owners are becoming increasingly familiar with the powerful cash-flow improvement concept of accelerated depreciation deductions resulting from cost segregation. Recent developments, including 50 percent and 100 percent first-year bonus depreciation, continue to enhance the opportunity to generate significant additional cash flow during these difficult economic times. This additional capital can be used for renovations, buying new property and strengthening the balance sheet.

This article will discuss the latest developments on the lucrative first-year bonus depreciation regulations and provide examples on how to increase cash flow through optimal year-end tax planning.

What Is Cost Segregation?

Cost segregation is a cash-flow improvement strategy that maximizes depreciation deductions for all buildings. Dramatic cash flow benefits can be achieved by reclassifying components of the building into their proper depreciation schedules of five, seven and 15 years, using accelerated depreciation methods. While this may seem to be inconsequential at first, the cash-flow effect of this reclassification is significant and immediate.

Benefits of cost segregation include:

• Accelerated depreciation expense
• Reduced corporate and/or individual income taxes
• Increased cash flow
• Quicker return on investment

This is not simply a matter of classifying equipment to a five- or seven-year recovery period. Items typically reclassified include land improvements, such as paving, curbing, storm drainage, fencing and landscaping, as well as personal property like signage, security systems, movable partitions, certain floor coverings and special climate-control systems. The list is extensive and requires a cost-estimating background and familiarity with tax regulations to maximize the benefit.

First-Year Bonus Depreciation Update

The federal government reinstated first-year bonus depreciation for eligible properties (recovery period of 20 years or less) acquired after Dec. 31, 2007. The goal of this initiative was to incentivize growth and stimulate capital expenditures. The bonus depreciation rate was originally set at 50 percent, which meant half of the cost basis could be written off in the first year, with the remaining balance recovered over the typical depreciation period of five, seven or 15 years, depending on the particular asset.

The bonus depreciation rate increased to 100 percent in September 2010 but reverted back to 50 percent as of Jan. 1. Any purchase of equipment, or in-process construction/renovation projects, needed to be in service prior to Jan. 1 to take advantage of the more favorable regulations.

The next milestone is Jan. 1, 2013, when the 50 percent rate expires altogether and bonus depreciation will no longer be permitted. While, it is possible the federal government will move to extend the expiration date as it has in the past, this warrants monitoring for future developments. Knowledge of the various first-year bonus depreciation scenarios is crucial for proper capital expenditure planning.

Case Studies

I recently completed several cost-segregation studies of self-storage properties (see Table 1). It is important to note that these studies generate opportunities to use first-year bonus depreciation by identifying property components with recovery periods of 20 years or less. The second property listed in the table took advantage of the 50 percent first-year bonus depreciation to generate tax savings of $208,834 in the first year. Not all properties are eligible for this lucrative incentive. Cost-segregation specialists can identify opportunities for these and other special cases.

Table 2 illustrates the annual depreciation deductions for the first facility in Table 1. The total additional depreciation of $734,721 over the first five years generated tax savings of $299,990 during the five-year period. The annual change in depreciation over the life of the property is included in the accompanying chart.

 

To see the image, "Self-Storage Acquisition: Additional Depreciation and Tax Savings Over the Life of the Property," click HERE.

Retroactive Studies

Although the best time for a cost-segregation study is when the self-storage property is acquired or constructed, its also possible to obtain these benefits for properties that have been owned for up to 15 years. A retroactive study can be performed without amending prior-year tax returns. You can claim the difference between the allowed depreciation and what you actually claimed in prior years all on your current tax return.

The third property listed in Table 1 is an example of a retroactive study. The first-year tax savings are usually tremendousin  this case, $251,851 for the 2010 tax return.

Its important to note that a cost-segregation study is typically economically feasible for properties with a depreciable cost basis greater than  $1 million and should be considered by any self-storage owner who has recently acquired property, started or completed a construction project, or acquired property within the last 15 years that didnt already have a study performed.

Cost-segregation professionals make it simple to determine if a property is a candidate for a study. Based on a brief discussion with you or your accountant, they can provide a free projection of benefits and projected depreciation schedule so you can see how it will affect your tax return.

Jerome H. Kootman is managing tax director for Cost Recovery Solutions LLC, a specialized engineering and tax consulting firm that provides cost-segregation services. He has completed cost-segregation studies for hundreds of clients, ranging from small businesses to Fortune 100 companies. He can be reached at 732.548.3855; e-mail [email protected] .

By Frank G. Relf

Whether designing a new facility or converting an existing structure, today’s self-storage owners and developers are seeking innovative ways to increase a property’s rentable square footage. Adding more rentable space from existing areas can also help offset the increased construction and development costs associated with the current building market.

There are unique solutions for accomplishing this goal with both new construction and conversions. With ground-up development, there’s a chance to design from scratch and, therefore, build to the maximum square footage possible. With conversions, existing property conditions have a large impact on design, and there’s typically lower net rentable space than with new construction. However, these buildings will often contain areas such as large elevator lobbies or electrical rooms that can be redesigned and designated for storage units.

Most facilities built or converted today are designed to industry standards in terms of the office and retail areas, loading bays, and elevators. However, failing to think beyond these standards could mean you’re overlooking potential rental opportunities. This article highlights innovative ways architects, developers and owners can create as much net rentable square footage as possible through smart facility design.

 

Finding ‘Free’ Space

It’s important to consider innovative ideas during the design phase of any proposed self-storage project, starting with the due-diligence period. During this phase, a review of the zoning code applicable to the site has criteria that dictates bulk size, land-area coverage or floor-area ratios (FAR), which typically dictate how much gross floor area is allowed.

One innovative way of increasing the net rentable square footage is to determine if other “free” gross square feet can be generated by adding cellars, which may not count in FAR calculations. Another method is to increase the height of the floor level and highest floor to allow for the construction of upper lockers. This provides more rentable square footage without adding floor area, which would count against zoning allowable limits.

With building conversions, the ratio of gross square footage to rentable square footage is usually less efficient, with higher losses due to existing structure conditions such as stair or elevator core placement, structural column grids, building configuration or other factors. One way to find new space is to convert old, unused mechanical rooms by removing abandoned equipment, then using the irregular spaces for storage units. Other places to look for extra space are stairwells and elevator lobbies, which may be larger than required by storage-industry standards.

Additional rentable square footage can be obtained by infilling shaft ways that may no longer be used for mechanical systems, elevators or plumbing chases. It’s surprising how much this can add up in a multi-story building.

Another consideration that involves more capital construction is to build into underutilized areas at the rear or side yard of a site that aren’t readily accessible but offers expansion possibilities. This may require site-plan review and approvals, or potential variances for setbacks or lot coverage, but it offers the potential to increase rentable square footage and could be worth the time and expense.

 

Changing Current Space

At existing storage facilities of older design, a change in unit mix—such as converting larger units to smaller ones—may often be required to meet local demand. This could mean converting a standard 5-by-5 with 8-foot ceilings to two stacked lockers. This is common in our industry and often the most cost-effective way to meet market demand. Likewise, 10-by-10 units can be split into two 5-by-10 units, and so on.

Many office and retail areas are large and may offer the potential for adding units by reducing the size and redesigning a more compact space. Although this seems contrary to the current trend of providing a retail-store feel, in areas of the country with high development and purchase costs, it may make economic sense.

Manager’s apartments are becoming less desirable due to the increased technology in security systems and online services. Converting an empty apartment to storage units can add to your property’s net rentable area. Also, because the apartment is typically close to the entrance, operators can potentially rent these units at a higher rate.

To see an example of converting existing space (in this case, extra offce space) to additional storage units click here.

 

Consider Cost vs. Reward

Although it may seem like the possibilities to add more rentable square footage are limitless, there are some things to keep in mind when designating these new rental areas. First, consider how your customers will access these “odd” spaces as well as the impact these spaces will have on building-code exit requirements.

When stacking lockers, such as sets of 5-by-5 units, on top of one another, think about how tenants will access the top lockers. A rolling step ladder will help them gain access, but you also need a place to store it when not in use.

One of your biggest concerns should be the impact on building and fire codes. If your city requires sprinklers, for example, how will you accomplish this for your new units? You also need to contemplate the impact these new units will have on your building’s structural, mechanical and electrical systems.

The most important factor to consider is the cost requirements to make innovative use of these spaces as well as the income stream that could be generated. A complete economic analysis is needed to determine if what’s proposed is feasible to pursue. These decisions have to be made on a case-by-case basis, depending on the market in which you’re operating or developing. Not all options work in every market. Your team of professionals is there to help you investigate any and all opportunities to gain net rentable square footage in any location or type of building.

Frank Relf is president and owner of Frank G. Relf Architect. He has more than 30 years of experience providing professional architectural and engineering services to the self-storage industry. His services include site acquisitions and planning, unit-mix analysis, zoning and municipal approvals, construction documents, bidding, and construction management for new construction, conversions, remodels, expansions and specialty-storage designs. He is a licensed architect in multiple states. For more information, call 631.271.4432; e-mail [email protected]; visit www.fgrelf.com.

Attending a self-storage tradeshow is exciting but can also be exhausting. On one hand, it’s a chance to refresh your skills, learn about new products and services, and meet with fellow professionals. On the other, the days move so fast, you can be left feeling like you missed something important.

To ensure you get the most from the upcoming Inside Self-Storage World Expo, April 6-9, at the Paris Hotel & Resort in Las Vegas, consider the following tips. Hint: It’s all in the preparation.

 

Have a Strategy

How will you take advantage of all the events and resources the ISS Expo has to offer? It can be overwhelming. Over the course of four days, the show will present 45 seminars, six workshops, 140-plus exhibits, vendor presentations, four sessions in Spanish, and several networking events. It may be tough to accomplish everything on your to-do list. That’s why it’s critical to decide how you’ll spend your time before you arrive on site.

Here's a link to the ISS Expo Pre-Show Planner. It’s time to map out the activities that interest you and create an action plan. So grab paper and a pen, create a digital document, or open your favorite scheduling app and get ready to make some notes.

First, realize there’s no way a single attendee can participate in everything the show has to offer, particularly on the education side, where seminars are organized into concurrent tracks. If you’re attending the show with another person or a group, it’s best to divide and conquer. If you miss a seminar or attend one you particularly enjoy, you can purchase copies through the Inside Self-Storage Store. DVD pre-orders will be available through the Inside Self-Storage Store. You can also visit the ISS Store sales kiosk in the main education corridor or the ISS booth on the show floor (#635).

Think about which events will give you the most value. What do you really need to learn? What might you like to share with your employees, supervisor or co-workers? What will help you immediately improve your business? Base your decisions on the content that’s most relevant to your role, whether you’re a manager, owner or investor.

Next, get familiar with venue. Know where to pick up your show badge on the first day, the location of events you plan to attend and even the restrooms. To avoid wandering aimlessly during exhibit hours, decide ahead of time which vendors you plan to visit, and then create a logical course so you’re not backtracking or wasting valuable time. To preview the show floor, visit the the expo website choose “Interactive Floor Plan” from the “Exhibitor Info” drop-down menu on the top navigation bar. For a map of the education rooms and other key show areas, click on the “Attend” tab and click the link to the PDF.

 

Tradeshow Tips

If you’ve properly prepped for the event, you’ll be calm and ready to learn. Here are some pointers to get the most from your ISS Expo experience.

• Get plenty of sleep. These are very long days.
• Wear comfortable clothes (think business-casual). Layering is a good idea, as the temperature can vary from room to room.
• Wear comfortable shoes. You’ll be amazed at how many miles you put in during the course of the event.
• Eat good meals so you’re not distracted by hunger. Keep snacks and water handy.
• Stay hydrated, but avoid drinking too much, or you’ll be in constant need of a restroom.
• Come prepared with other health essentials like cough drops, tissue, Band-Aids, pain reliever, antacid, etc. All it takes is one small ailment to create great discomfort when you’re away from home (or your hotel room). 
• Don’t forget your pens, a notebook and business cards. You’ll want to network and take notes during sessions.
• Wear your show badge proudly. It’s a great conversation-starter!
• Don’t skip the tradeshow floor. After sitting in seminars, the walking is good for you, and you don’t want to miss the sights.
• Interact with fellow attendees, speakers and exhibitors as much as you can. This is an opportunity unlike any other you’ll have during the year.
• Use social media to connect with other storage professionals before, during and after the show. This will help orient you to the event and keep the experience alive even when you’re not on site.
• Set appointments in advance with anyone you know you want to meet during the show. Once on site, things move fast; a pre-arranged schedule will keep you on track and ensure you don’t miss important meetings.
• Every evening, take a few moments to collect your thoughts. Jot down important notes about sessions or people you met as well as your follow-up plans.
• Take the freebies. Grab those pens, totes, brochures and business cards from the vendor booths. You can pilfer through them later.
• Relax and have a good time. Sure, you’re there to learn and network, but you should also have fun. Maybe take some time to explore the city. It’s Vegas, after all!  

 

Set Appointments

If there’s a particular speaker or vendor you’d like to meet, it can be helpful to set up an appointment before the show. Speakers will be swamped with questions, particularly after their seminar presentations, and exhibitors will be busy meeting customers and providing demos. No one likes to waste time on the fringe of a crowd awaiting their turn.

Instead, be proactive. Call or e-mail the person ahead of time and ask if you can arrange a time to meet. You can opt for something very casual, like meeting in a seminar room or booth, or invite the person out for cocktails or a meal.

If you do manage to schedule some meet-and-greets, be respectful and understanding of the other person’s time constraints. Do your best to be on time for your meeting, but don’t get overly disgruntled if he’s a few moments late. A lot of unexpected things can happen at an event of this size; sometimes you have to just go with the flow. It’s wise to exchange cell-phone numbers and e-mail addresses in case plans need to change.

When you finally meet, understand that a tradeshow is typically not the best place for a long conversation about a project or problem. It’s a place to open a discussion. Have your questions ready and be prepared to follow up with more communication after the event.

Speakers and vendors will always have business cards at the ready and are more than happy to chat with you if they have the chance. Don’t be offended if someone can’t speak to you immediately. People are sometimes being pulled in multiple directions at a tradeshow. Get the person’s contact information and reach out after the expo. Once everyone returns home and the chaos dies down, you’ll be able to get the attention and information you seek. This may be infinitely better than waiting in line to steal two minutes of a harried person’s time and energy. 

 

Follow Up

Once you’re back home, it’s time to work your post-show game plan. You’ve amassed a wealth of knowledge and made new connections. Don’t let them go to waste!

Consider which speakers, vendors or peers to contact for follow-up and what other resources to seek. Make a list of action items. Did you perhaps learn a new marketing strategy or a way to increase rental rates? Is there a new product you’d like to try or some websites you should visit? What wheels should you set in motion? Pull out those business cards, notes and brochures and make the connections.

Remember the adage, “What you put into it, is what you get out of it.” You’ve spent time, money and resources to attend the biggest conference and tradeshow of the year. Take the time to prepare for your ISS Expo experience, follow these guidelines, and put your plans into action.

To get show details and register, visit www.insideselfstorageworldexpo.com.

By Molly Bilker

In a world of natty legal restrictions and restraining licensing laws, self-storage operators may be limited in the types of products and services they can sell at their sites to create add-on revenue. But as they say, it never hurts to dream! Inside Self-Storage recently asked facility operators to think outside the boxes, locks and mattress bags and tell us what they would sell in a world where legal issues dont count and they could sell anything they wanted at their facility to make more money. We received a variety of creative responses, and more than a few that are pretty doable in the real world.

Responses were gathered through Self-Storage Talk (SST), the industry's largest online community, as well as an online reader poll at insideselfstorage.com. See what our participants had to say. There are some fresh ideas that just might work for you!

 

Everyone Eats It, Everyone Needs It: Snacks and Sweets

 

SST senior member BroadwayStorage took a practical angle when it came to thinking of a service or product beyond the storage norm. Vending machines are not only something you can offer at your facility despite the legal hoops, they help you avoid collecting sales tax if you contract with a soda company like Coca-Cola or Pepsi. The soda giants will fill and maintain the machines, while you receive a cut of the profit.

While most people crave carbonated beverages, there's one sweet that's a must-have for many: chocolate. It's easy to imagine a reception counter with a display of truffles piled high on trays. Gina6k reminisced about her days selling chocolates to make a living. "I have a cherry cordial that is to die for and a shamrock stir stick for Irish coffee and ... just shy of 1,000 molds for almost anything imaginable," she says.

Not a fan of chocolate? There's always cookies. If you aren't one who would want to bake and sell them, you could always help out a daughter or local Girl Scout troop, as SST moderator MusicCity Gal did for a number of years. "We didn't make any money off of it, but the Troop did. I had customers that came every year to get them," she says. Don't forget about the Boy Scouts; they sell popcorn every year as regularly as the girls take orders for cookies.

 

Poll: Which of the following add-on profit centers do you think would work well at your facility? View the results here.

 

Artisan Income

 

While the thought of selling jewelry or local arts and crafts only received a whopping 3 percent of votes in the ISS poll, it was much discussed on SST. Senior member geraldine1051 had a couple ideas. One was to sell jewelry such as earrings, which she sold for a local company. "A few tenants would buy a pair or two of earrings each time they came in to pay rent. A few other tenants bought earrings from time to time, she says.

A second idea was to offer calendars, particularly those locally made. This is a great go-to item  around the holidays, as youre tenants are on the hunt for calendars. "A friend has created a beautiful calendar with each month featuring a local artist," geraldine1051 says. "I have already bought one for the office."

Another great item for any holiday is greeting cards, which junior member jsnstorage makes and sells on occasion. "I thought about making a line of them to announce a new mailing address or 'we're moving' for tenants," she says. "I also send cards to tenants from time to time, and make the Christmas cards we send out from the company. Just a little personal touch."

 

Fuel to Drive Up Sales

 

Senior member Lisa T says if she could sell anything in the world, it would be two-gallon containers of gasoline. With a store in the middle of a six-mile stretch of road with gas stations at either end, she says, "You would be surprised at how many people run out of gas because they don't know the road and just assume they can ride on the fumes a little while longer. At least once a day I have someone walk in the office asking where the nearest gas station is (three miles either way), or see them pushing their car down the grass on the side of the road.

 

Other Ideas

 

Some other notable ideas from the ISS poll include Red Box DVD rentals, which received the highest number of votes (19 percent), drive-thru car wash (15 percent), car-rental company (12 percent) and lottery tickets (10 percent).

In an ideal world, what would your facility offer? What are your hobbies and strengths? The dream is your space to shineand you never know, you might just hit on something attainable. After all, someone created mattress bags and dish-packing kits. Stay creative. Stay positive. Keep dreaming.

Molly Bilker is a sophomore journalism major at Arizona State University (ASU) in Phoenix. She is part of ASU's Barrett Honors College and completing a minor in Spanish. She comes from an arts-focused middle and high school with a creative-writing background. She actively participates in the arts, including creative writing, guitar and vocal music, theater, photography, ballroom dance, drawing, and film. To reach her, e-mail [email protected].