Developers with existing self-storage assets and plans for diversity in services can find no better model than nontraditional records management, which can be adapted to a low-cost model with little or no new capital and very low manpower requirements. A recent calculation by informed industry sources estimates there are 40 million records-storage cartons in existing self-storage facilities, which may be a low number. A box averages 1.5 cubic feet, which means there are at least 60 million cubic feet of records stored in passive self-storage.

AS A SELF-STORAGE OWNER, YOU HAVE THE OPPORTUNITY TO PAINLESSLY convert existing storage with single-month contracts to active records management with permanent revenue. Over the past six years, many self-storage operators have successfully provided these services with simple systems, and little or no new capital or staff.

Self-storage developers and entrepreneurs have an amazing business opportunity in their reach. If you are in a startup mode or have an existing facility, you can leverage your existing assets into a companion business that will add value and improved revenue to your existing business plan. If you have at least one full-time employee, you already have the primary components of a nontraditional records-management business: storage space, a site manager, a computer system and existing clients. Let's take a look at each one and how nontraditional records management works:

• Storage space--Existing storage units are simply and easily converted to rental by the cubic vs. square foot. The addition of standard storage racking in a predefined design is added one unit at a time. Racking can be leased or purchased and depreciated.
• Site manager--You must have at least one employee to make records management work. That employee becomes responsible for coordinating the outsourced resources you need, selling records-management services across the counter, contracting clients and billing.
• Computer system--Your present computer system can be used for records management as well. There are several records-management software packages designed for use in self-storage operations.
• Existing clients--Some of your existing clients already have business records stored at your facility. A simple conversion-marketing plan can migrate them from monthly passive storage to permanent active storage.

Marketing Components Nontraditional records management uses a simplified marketing approach. These ingredients lead the prospect through the decision-making process without a pushy sales pitch. The ingredients include: 1. A training process for your site manager, usually an hour, including a reinforcement video. 2. A step-by-step process manual. 3. A flip-card marketing presentation with a script that leads the client to the correct choice. 4. A simple cost-benefit sales card. 5. A brochure listing the services and fees. 6. A simplified records-management agreement that protects you and locks customers in as permanent clients. 7. An outsource resource guide.

Revenue Strategy

The nontraditional revenue strategy is quite different from the traditional records-management model. The storage and service revenue components are viewed from a different perspective:

• Storage revenue--Storage revenue must be viewed by examining yield rather than price per cubic foot. The difference between yield and price can be huge. The revenue strategy starts with selecting an appropriate minimum monthly fee for the records- management storage. As a rule of thumb, the minimum should be approximately 75 percent of the 10-by-10 storage unit rental. For example, if a 10-by-10 earns $100 per month, the records-storage minimum should be $75.
• The average self-storage unit may contain about 100 boxes or 150 cubic feet of records. Even if your contract states a charge of 25 cents per box, the client must meet your minimum. On a $75 minimum, each box yields 50 cents. That's twice the yield of the contracted fee. In addition, about 5 percent of boxes are out of storage at any one time, but their rent must still be paid. This yields up to an additional 5 percent for each storage unit. Finally, it is a common industry practice to round the cubic footage of odd-size boxes to the next cubic foot, e.g., a 1.5-cubic-foot carton would be charged as 2 cubic feet. These three ingredients may improve the yield to as much as 75 cents per cubic foot.
• Service revenue--Your first marketing approach should be to identify clients with low service requirements. For those with higher requirements, outsourcing is easy. Examples of outsourced services include courier, retrieval and indexing. In nontraditional records management, it is advisable to offer only a handful of services and outsource them all with a residual profit.
• Box-sales revenue--One of the added values of providing records-management services is you will get most of the box sales. As you already know from your self-storage experience, boxes are high-margin items. You should sell high-quality records-archive boxes that can be purchased in relatively low quantities.

Revenue and Volume Potential

Many self-storage owners have exceeded their revenue and volume expectations when converting to nontraditional records storage. Some have moved their business into a more traditional model as they grew. Others maintained the simplicity of the nontraditional model. The choice is yours. The results will be improved revenue and product diversification regardless of which you choose.

Regular columnist Cary McGovern, CRM, is the principal of FileMan Records Management, which offers full-service records- management assistance for commercial records-storage startups, marketing assistance, and sales training in commercial records-management operations. For assistance in feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail [email protected]; www.fileman.com.

YOU ALREADY OFFER GREAT STORAGE AT COMPETITIVE PRICES. SO WHY IS YOUR NET REVENUE SO LOW? In prior columns, I have detailed several capital expenses that increase your closing ratios. In this issue, I talk about giveaways--memorable "tech" gadgets that convert your tenants into facility advertisers.

When it comes to using a giveaway to increase occupancy, rental discounts remain the industry standard. The most popular discounts are the $1 move-in and the sixth month free. Both of these treat the giveaway month as an advertising expense. If your average monthly rental rate is $60, giving away a free month represents a very real loss of $60. This is a significant and unnecessary impact on your bottom line. Alternatively, giving each renter a premium gift can be more valuable, cost far less, and demonstrate how much you value his business. Best of all, your tenants will appreciate, and proudly display, your advertising material.

I shopped dozens of companies that offer promotional products self-storage owners can use as fun giveaways. To make the final cut, each item had to be:

• Useful and unusual.
• Printed with a company logo and contact information.
• Cost under $19 per unit (including all imprinting fees).
• Be deliverable within four weeks.

This one really impressed me. It is a compact radio that does a surprisingly good job of receiving distant stations. Raise one flipper to turn the radio on and adjust the volume. Move the other flipper to select an AM or FM station. Add your personalized company logo, and still spend less than $16 per radio.
I remember seeing these binoculars at a tradeshow a few years ago. I thought the distributing company had spent about $40 a piece for them. These binoculars have an adjustable armored roof prism and include a respectable 8x21 lens system. I found two promotion companies offering personalized versions of these treasures for less than $17.
An upscale self-storage site might prefer a stylish silver or gold tin box filled with six plain pretzels and six fancy pretzel rods. I found this item for $19 including the personalized lid.
Here is a fantastic, 48-piece tool set that features assorted socket nuts and screwdriver bits. The kit includes a socket adapter, magnetic bit adapter, electric driver and even batteries. The plastic case feels sturdy, and I found several sources offering the entire set, including a label with your company information, for less than $18. Hand this to every tenant that prepays a six-month lease and you will see an immediate return on your investment.
I found this stylish, multifunction gadget at five different promotion houses. It's a best-seller--and for good reason. This compact unit is an LCD clock, digital alarm, accurate room thermometer and a bright-blue glowing display. The batteries, custom logo, instructions and a gift box were all included for the reasonable price of $18.

These five items represent only a small sampling of the thousands of creative products you can give to new tenants. Due to their low cost, each giveaway represents only 5 percent of a typical six-month lease. This is far less than giving away a free month's rent. A customized giveaway will dramatically increase your advertising presence and customer good will. It's truly a great way to reward your tenants.

An upcoming TechTalk will suggest products and gadgets that can improve manager efficiency and tenant convenience. Please e-mail me if you use an item you would like included in that column.

Doug Carner is on the Western-region board of directors for the Self Storage Association. He is also the vice president of QuikStor Security & Software, a California-based company specializing in access control, management software, digital video surveillance and corporate products for the self-storage industry. For more information, call 800.321.1987; e-mail [email protected]; visit www.quikstor.com.

 

IT IS NOT OFTEN SOMEONE IN THE REAL ESTATE BUSINESS WILL OFFER A GUARANTEED PREDICTION OF THE MARKET, but here it is: It will be different from 2002! I realize this doesn't seem like much help in planning for the future, but if you spend 10 minutes reading the balance of this article, you will find the prediction to be more helpful than you might have thought at first glance.

Since you now have a guarantee things will be different in the real estate market in the new year, let's look at what the last months of 2002 were like and divine some insight into specific distinctions. In general, 2002 was a great year for self-storage owners and buyers. There was an unusual confluence of economic factors that created this very positive circumstance. Let's take a look at what some of these economic forces were and explore the possibility of them continuing this year.

Interest Rates

In 2002, the real estate market saw its lowest interest rates in 40 years. It is almost impossible to overstate the positive impact low rates have on real estate. With rates where they are, the cash-on-cash returns on self-storage deals are up by 50 percent or more in some cases. Clearly, this situation is good for potential buyers as well as sellers. The sellers have more cash flow after debt service, which is what buyers ultimately are purchasing.

The question, of course, is what happens this year? The Federal Reserve (Fed) has indicated it will not raise interest rates, but on the other hand, it has not lowered them recently either. Even if the Fed lowered rates again, it isn't clear rates for self-storage loans would go down much because most of the lenders would not make loans at lower rates. A reasonable conclusion is--given 40 years of history--rates are probably more likely to go up than down; and if they go down, they won't go down much.

Liquidity

In 2002, banks and other lenders were eager to get money out and make loans. Real estate was a favorite, including self-storage. At the end of the year, we were beginning to see lenders becoming more cautious about lending on real estate in general. Other forms of real estate have not performed as well as self-storage, causing lenders to become more critical in their evaluation of real estate loans. Office buildings have been very soft, retail is overbuilt, apartment vacancies are up dramatically, hotel occupancies are lower--all of this causing lenders to become more wary.

While I would, of course, argue self- storage is different, lenders will say they have heard this before and continue to lump real estate all together. When the senior bank officers say to curtail real estate loans, they won't add the caveat "except for self-storage." In the Oct. 26 issue of The Economist magazine, the head of syndicated loans at a large American bank said, "Two months ago, I would have said the chances of a credit crunch were too small to measure. Now, they are better than even."

Another problem for self-storage loans is they are usually small by real estate standards, and most lenders are somewhat reluctant to fuss with them if they have a good, larger alternative. Since liquidity was not a problem at all in 2002, any change in liquidity is going to be negative in the new year. This is a very important issue because, while low interest rates make deals work well, liquidity (loans) makes them possible.

General Economy

The general economy was thought to be in a recession during a couple of quarters in 2002. However, most self-storage properties seemed to fare reasonably well for at least the first part of the year, although there are reports of higher vacancies in recent months. We are encouraged because government economists continue to tell us the recession is over and recovery is well on the way. However, as I write this, The Wall Street Journal reports consumer confidence is at a nine-year low. It appears the future isn't very clear, and for now, neither boom nor recession is ruled out by the data at hand. Until the base economic direction becomes clear, it is likely the real estate market will react negatively to this uncertainty in the early part of 2003.

Overbuilding

The rental market for self-storage has been strong enough to encourage development in many areas, pushing some markets into an overbuilt situation. The attractive elements of self-storage in 2002 made developers a bit overzealous in their development programs. Chasing the apparent high returns may not have killed the Golden Goose, but certainly, some shot was put in the air.

For example, one southern market has 13 facilities in a seven-mile radius, with 11 more under construction. This year will certainly be different from last for those properties competing in that market. Several other markets are reported to have many new facilities coming on board. The national statistics do not yet forecast a general problem, but anecdotal information indicates overbuilding is occurring in many local markets and is likely to impact many more over the coming year.

What Should You Do?

Most self-storage owners do not sell their properties because of a downturn in the market, but for personal reasons such as retirement. This is a good long-term approach if your property is well-located and competitive. If these basic elements are in place, it's hard to find a better investment for the long run than self-storage.

However, if you are planning to sell in the near term (i.e., the next two or three years), or your property is not competitive in the current or forthcoming marketplace, it may be time to sell. The market remains strong for sellers, and there are many people discouraged with the stock market who think self-storage would be a great investment--and it will be. But if too many things change in 2003, the industry may transform dramatically. If you think about how unusual recent years have been and the potential changes that could take place, the time for action may be now.

By the way, if you plan to hold your property for a few more years and haven't done so already, consider refinancing. The rates available are truly once-in-a-lifetime deals. One of the great things about lower rates is they also reduce your breakeven point, which reduces your exposure to any downturns in the economy.

Michael L. McCune has been actively involved in commerical real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In January 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real estate brokers dedicated to the buying and selling of self-storage facilities. For more information, call 800.55.STORE or visit www.selfstorage.com.

An increasingly popular alternative method for storing boats is dry-stack storage. This involves the vertical storage of boats in rack systems that can store them with the same density-storage philosophy as in the warehouse industry. The underlying concept for dry-stack storage is to develop structures that can stack boats from two to six levels high. The predominant method of handling these boats is with large marina forklifts capable of lifting them to rather dramatic heights. These facilities are generally located on or near the waterfront. The systems are used for in-and-out launching and retrieval of boats, as well as winter storage.

The Driver

There are many reasons for the increasing development of boat-storage facilities. The supply-and-demand equation for water access is the main driver for dry-stack storage. Boating has long been a source of recreation for many people; but in the past, it was often viewed as entertainment for the wealthy or other specific groups (i.e., fishermen). Boating has become far more attractive and attainable to a greater number of people in the last couple of decades. A combination of factors is responsible for this positive development, including:

• Improved standards of living.
• Increasing waterfront development.
• Renewed focus on quality-of-life issues.
• Alternatives for recreation and vacations.
• The coming of age of the baby-boomer generation.
• The willingness and ability of boat manufacturers to expand their product mix to fit various boating lifestyles.

This increase in boating popularity has resulted in a dramatic increase in the demand for water access, too. Many boat owners live in newer neighborhoods that have established covenants precluding the storage of boats on trailers at their homes. Other owners live in townhouse or condominium developments that have no space for boats. There is also a limited amount of wet slips available. Dry-stack boat storage is a logical answer to this increased demand.

Because the overall number of marinas is decreasing, not all dry-stack facilities are located at marina sites on the water. As the demand continues to exceed the available slips, off-water dry-stack facilities become attractive alternatives for boat owners. This is particularly the case for areas that have a high population of boats on trailers, which is also common in regions that offer multiple bodies of water for boating. In these areas, boaters may go to one lake one day, another lake the next, or the beach on yet another occasion. These boaters want flexibility in addition to storage for their vessels.

Even though traditional self-storage can provide some relief of this demand, it is limited to ground level. By using the marina forklift to handle boats, off-water sites can accommodate double, triple or even quadruple the quantity of stored boats as the ground-level storage lot. And these facilities can be constructed on land at a far more affordable price than premium waterfront property.

Attractive ROI

While it is admirable to address the issue of water access, what is the incentive for developers to do so? Well, just like any other commercial property, the dry-stack facility must provide an attractive return on capital investment (ROI). Let's take a look at some possible figures for pro forma analysis.

The capital investment in dry stack is similar to a typical self-storage operation. In fact, the two applications could be integrated, with self-storage on the ground level and boats stored in covered racks in upper levels. The cost to install and erect a dry-stack shed (based on at least 60 boats) will traditionally fall in the range of $2,000 to $2,400 per boat. This is a shed that has a roof with sheeted endwalls. The structure is open on the stern side of the boat, as the forklift picks the boats from the rear. The forklift to service the operation can be purchased on the used market anywhere between $30,000 and $50,000.

For illustration purposes, we'll assume we have a building lot measuring 150 feet wide by 160 feet long. Allowing for setbacks, we can erect two structures, each 25 feet deep by 120 feet long. We would like to construct our sheds to store boats up to four levels high, which will require a low-side eave height of 35 feet. These two sheds will provide total storage for up to 96 boats. Our capital investment in the sheds will be about $230,000 (96 boats at $2,400). For this example, we will assume the forklift will cost $45,000. The commercial property will cost $65,000. Engineering, architectural and miscellaneous site-improvement costs will be $25,000. Our total investment is $365,000.

Now we need to establish a storage fee. A reasonable rate, based on national averages of boats in dry-stack storage, would be $130 per month. This means the average customer will pay $1,560 annually to store his boat in our secured, convenient facility. We will assume our occupancy rate is 80 percent. The annual storage income we can anticipate is $120,120.

Obviously, we have other costs that need to be factored into the model. Unlike at a self-storage facility, we need a full-time (or on-call) forklift operator at the site, as customers must depend on someone to access their boat. We also have typical administrative costs, utilities, maintenance, insurance and taxes to consider. If these items total $65,000 (approximately 55 percent of revenues), we have an annual NOI (net operating income) of $55,120, before depreciation and debt service.

Of course, like any commercial facility, the axiom "location, location, location" will be crucial to the success of the boat-storage operation. If the site is in a good area with plenty of visibility, the occupancy rate should exceed 90 percent. If the project is marketed and managed well, the revenue stream can be even more positive than we have outlined in the example above.

From our illustration, it is easy to see the potential ROI in a dry-stack system is quite attractive, even if the facility is installed off the water. For those commercial-storage business owners who are willing to look upward, it can be a positive investment.

Patrick Farrell is the owner of Coastal Marine International Inc., a manufacturer of dry-stack boat-storage systems. The company has provided storage for more than 35,000 boats to marinas and storage operations throughout the world. For more information, call 704.948.6895 or visit www.boatracks.com.

Jim Chiswell, President, Chiswell & Associates LLC

WE HAVE SEEN A REDUCTION IN NEW STARTS THIS PAST YEAR. This is reflecting a number of factors in the overall economy as well as the reality that finding a new site to develop has become much more difficult. I feel 2003 will actually see an improvement in new starts. Part of the increase will be from project developers who have been getting final approvals and financing for over the past year. The other factor is the continued increase in visibility the industry is receiving. I feel very strongly that the impact of General Electric's ownership of Storage USA will be truly felt this year in drawing even more attention to this asset class.

Many communities are beginning to understand that self-storage is, in reality, a service business that has a positive impact for residents as well as small and home-based businesses. Planners are starting to appreciate the fact a self-storage store has a benign impact on municipal services and infrastructure. This enlightened attitude will help development. I also feel we have dispelled the idea a self-storage store will bring down real estate values in an area. Local residents trying to block construction of new stores have used this unfounded argument for years.

Another area of growth I foresee in the next several years is in the area of third-party management. We will see many owners turning over the reins of the day-to-day management of their stores to professionals. This is a very positive trend in upgrading the customer-service aspect of our industry, which has been sorely lacking.

Chiswell & Associates will continue to promote the self-storage industry whenever possible and maintain its focus on upgrading the professionalism of all its employees. Our goals include encouraging potential developers to build intelligently, ensuring they fully understand the micro-market area they will serve. There have been a number of stores built across the country by entrepreneurs who still believe we are operating in a "if you build it they will come" business climate. We all face a much more competitive environment today.

Mike Burnam, CEO, StorageMart

I SEE SELF-STORAGE DEVELOPMENT SLOWING DOWN IN THE MAJOR MARKETS but continuing at the same pace as 2002 in the smaller secondary and tertiary markets. Local banks are still the main source of financing, and they have plenty of money to loan. I have begun to hear about some self-storage foreclosures. When this news trickles down to the smaller lenders, I suspect the credit will tighten.

We have seen many new entrants into the industry, and they are beginning to ask why their projects are not full after 18 months. I expect their lenders to begin making cash calls--they will make the first one or two and then begin prospecting for buyers. When some of these people start having to sell, we will see a wave of sellers hit the market, which will probably depress the prices slightly.

The slowdown is mainly due to economic rather than political reasons. We have been in a mild recession for the past five quarters and, although our product is as recession-resistant as any, we are beginning to feel the pinch. Yes, people use us when they are moving up as well as down in life, but unless we have a major up-tick in the overall economy, we will continue to see lagging occupancies and, more particularly, the inability to raise rents. This does not mean new, well-located properties will not continue to do well to the detriment of the out-of-position, older properties. Newer, better-located product will always outsell older and will do comparably better in growing NOI.

We need to exercise patience. We have always made more money in bad times than in good. Save some powder for the deals you know will be there. Get our operational shop in order. We need to make sure we are doing everything we can to attract and sell every phone call and customer. We need to learn more about our customers--where they come from and what needs they have--to ensure we are the best at providing the services required.

Michael Kidd, Executive Director, Self Storage Association (SSA)

MOST LIKELY, THE TREND OF DECREASING NEW STARTS WILL CONTINUE FOR A FEW MORE QUARTERS. There are also a number of sizable securitized portfolios maturing in the next six quarters that may inspire some ownership consolidation. If interest rates remain low, it is an ideal setting for the market share to change toward being less fragmented without experiencing radical expansion.

I also expect more economic schizophrenia. Over the past five quarters, the national and global economies have suffered some extreme swings; yet capital for self-storage development has remained available and attractively affordable. As most investors are aware, the decreases in interest rates have prompted a lot of new commercial loan and refinance activity. This type of transactional activity is difficult to classify as a slowdown. As a matter of fact, I think it is very healthy that capital continues to circulate through the industry.

The SSA will continue to focus its attention and resources on supporting members with educational and communication services and products. We will also continue to advance the industry's message to public officials until the self-storage industry is regarded with the same respect and prestige as that of the multifamily, office and retail real estate sectors.

RK Kliebenstein, President, Coast-To-Coast Storage

INITIAL INDICATIONS SHOW A SLOWING OF DEVELOPMENT as great sites become harder to find and zoning becomes more difficult. This is not necessarily a bad trend, as it may allow for the market to become stronger, push occupancies upward and, hopefully, drive stronger rental rates. The trend among banks seems to be a higher equity requirement for inexperienced developer/owner projects. It seems more first-time developers are seeking the advice of consultants for feasibility studies, and looking for experienced management companies to get their projects off on the right foot when they open their doors.

Unfortunately, economic and political forces are working against self-storage. As an industry, we have not done enough to further our own cause. Banks barely respect us, and few understand who we are and what we do. Cities and municipalities are clearly in need of education. We are being targeted as no other business type. In what municipality are there distance requirements between one furniture store or restaurant and another? In what cities are they creating zoning restrictions against fast food as a business type (other than for traffic reasons)? So why are we allowing cities to dictate that self-storage is not an acceptable use? It is humorous, but there are many cities where it would be easier to build and operate a topless bar than a self-storage property.

Our firm is committed to be the No. 1 resource for self-storage developers and owners, whether it be for feasibility or financing.

Gerry Gotfrit, CEO, StorageMAXX Canada Inc.

WE DO NOT FORESEE A LOT OF DEVELOPMENT in self-storage in Canada, but do believe there will be a consolidation by the three or four major owners in the country. Unlike in the United States, Canadian cities are under-stored. Canadian lending institutions have not supported the storage industry and have not been directly funding self-storage development in recent years.

Our mission in the upcoming year is to acquire as many existing storage facilities in Canada or convert industrial buildings in the right locations to self-storage. Our goal is to become the largest self-storage company over the next three years. Our stakeholders include the Deutsche Bank, along with some prominent real estate investors and developers. With the General Electric debt program provided us, I believe we can achieve our goal.

Len Kosar, President and CEO, Storage USA

SELF-STORAGE DEVELOPMENT IN 2003 ALL COMES DOWN to investment options and interest rates. If the stock market starts to come back to life, the economy starts coming back a little bit, and interest rates start popping upward, that's going to have a real dampening effect on the aggressive development we're seeing, which is a good thing. When you have a tough economic environment, there's a lag effect before the recession-resistant nature of our industry starts to kick in.

Those people who are foreclosing on houses are moving into apartments. People in bigger apartments are moving into smaller apartments. People in smaller apartments are moving back in with mom and dad. In the commercial environment, you have businesses focused on reducing their office space. When you get businesses downsizing office space, we benefit. Those lagging effects of a tough economy can potentially hit us in a positive way in the next six months.

We'll likely see improving occupancies because the new capacity is getting absorbed. It will feel like demand went back up. Some of these areas got so heavily overbuilt, they may never come back. But, on a national level, there's going to be natural absorption of this capacity into the market and we'll start to see things get a little better.

With Storage USA, we need to get faster, leaner, more efficient through the use of digitization. We need to take nonvalue-added work off our people and have them focus on the higher-level, value-added work. Whether it's a property manager, district manager or division VP, we've got to get the mundane tasks off employees and get them automated through better information systems. That's a big piece of what we're trying to do.

Also, we've got to get better at dealing with the commercial customer base. We tend to think of the homeowner when, in reality, a big piece of our business is the commercial customer, the small business owner. What types of good marketing and value-added services can we point in their direction and serve them better? Lastly, we'd like to be much smarter in our revenue management and manage our rates with a revenue-management approach, rather than with an off-on promotion-type program.

Jim McNamee, Regional Vice President, Shurgard Storage Centers Inc.

OVERALL, I WOULD EXPECT A SLOWDOWN IN DEVELOPMENT. OCCUPANCIES AND RATES have eroded in our markets. Typically in this environment, especially when the overall economy is slow, land costs also come down. We are not seeing a decrease in land costs, largely due to low interest rates. As a result of lower rates and occupancies and no decrease in the cost of land and development costs, I do not foresee the same level of development over the next two to three years.

We have seen a slowdown due to overall economic factors since 9/11. While I do not think it will get a lot worse, recovery will be slow, and the slump we are in will continue at about the same pace in 2003. If we go to war, the environment could get even worse, particularly if the war is prolonged.

Shurgard plans to invest in its stores to make the older ones more competitive. We also plan to lengthen our operating hours to take advantage of the few inquiries we are receiving. We plan to add services such as truck rental at most or all of our stores. We plan to modify some of our store functions to enhance the role of our sales center as a selling tool over the phone and reduce turnover at the stores.

We are a self-storage development company and always will be. We will find new ways to fund and/or partner development, but we will continue to develop stores domestically. We may not add as many stores as in past years, but we remain committed to development--domestically and internationally.

Paul McFadzien, Immediate Past President, Self Storage Association of Australasia

BASED ON ASIA'S POPULATION, SIZE AND DYNAMICS, YOU HAVE TO believe it will become a very strong growth market for the industry. The Australia and New Zealand market will continue to expand, although there will be a slow down in certain segments as capacity outstrips demand.

Our major focus for the coming 12 months is membership, education and training. A pilot training session was held late last year in New Zealand and proved very successful, with further pilot schemes to be held in Sydney, Melbourne and Brisbane. By the end of 2003, the Association is planning to have established a fully certificated management-training program for the industry that will be recognized by the tertiary training operators.

Brian Perry, President, Steel Storage Group

IN AUSTRALIA, DEVELOPMENT WILL CONTINUE AT A RATE SIMILAR TO 2002. However, it will be mainly by the established middle- and upper-sized facility owners/groups, with fewer new players in the market.

As far as Asia is concerned, the big name companies, such as Shurgard and GE, are all trying to get in, but with no obvious success at the moment. They will keep trying and will eventually succeed. The main players that are succeeding are Chinese (Singapore- and Hong Kong-based), high-flying developers that have become interested in self-storage. The Asian market will grow slowly and any supplier or builder who thinks he can make instant money off it is very wrong. It is the Asian way to do business slowly but surely, and they must grow to trust you before even thinking about it. However, when you gain their trust and prove yourself, the door is wide open.

In the minds of many Asians--particularly Southeast Asians--Australia is considered part of Asia. Therefore, it is one of Asia's main trading partners in most goods and has quick shipping turnarounds--five to six days for Singapore and seven to eight days to Japan and Hong Kong, for example. The high price of American steel will also have an effect, as Australian and Asian steel is currently more economical. The difficulty U.S. suppliers will find is acceptance and challenges with shipping times. They will also have to expect initial rejection. Remember, in some parts, Asians are also mainly Muslims and have no great feeling for American companies at this time.

In Australia and New Zealand, Steel Storage wants to keep its majority share and keep out those trying to emulate it by copying its operations and systems. In Asia, we hope to control our section of the market by giving clients the best possible design and service. In the United Kingdom and Europe, we want to double our sales with the steady increase in market. Overall, it is our group's resolution to offer new, exciting products to the partitioning/building sector of the industry, with new products and design coming online at all times.

Ken Myszka, President, Sovran Self Storage

WITH THE OVERALL WEAKENING OF THE INDUSTRY DURING THE PAST YEAR--declining occupancies and rental rates in some instances--I would think the pro forma results of comparables would begin to discourage new development. It would only make sense.

We have already seen that slowdown and, hopefully, we are at the bottom of that curve. Sovran has, and always will, strive to improve and strengthen its relationships with customers. Our Customer Care Center is now fully operational, taking calls seven days a week. Additionally, we have introduced our moving trucks to assist all new and existing customers. We hope to have trucks at all of our stores by the end of 2003, and also plan to continue to introduce innovative products. But most important, we will focus on delivering exceptional customer service through the training and education of our sales associates. All the amenities in the world can't help you if you lose sight of the customer.

Ken Nitzberg, President, Devon Self Storage

I EXPECT TO SEE A CONTINUATION OF THE SLOWDOWN of new construction and a continuation of small decline in overall occupancy. Many markets are oversaturated, but there are still many opportunities in the right niche markets for well-capitalized and knowledgeable owner/operators. The very easy days of 1998 to 2001 are definitely behind us.

We already have a slowdown due to economic factors. The slowdown in the economy has not missed the self-storage sector, although it has not been anywhere near as hard hit as some of the other real estate sectors. Again, it is very dangerous and potentially reckless to overgeneralize about the self-storage market as it is so localized. Thus, it can be very bad in one market and very good in another--sometimes in the very same city--as a result of saturation, market demographics, employment, etc.

Devon wants to generate the best financial results possible for its investors. We want to provide the best storage facilities and services for our clients. We want to provide the best workplace for our employees in the self-storage industry, and we want our company to achieve its profit targets.

WHEN BILL SWEETSER, PRESIDENT OF SWEETSER LTD., decided to enter the self-storage industry, he was up against a tough challenge--convincing the zoning commission his project would enhance the area. A licensed general contractor, he knows the commission of Fayetteville, Ark., is reluctant to approve zoning changes that allow commercial enterprises, such as self-storage, into residential communities.

"In our community, in the past, the planning commission was not very receptive to self-storage. So the zoning was the key," Sweetser says. But fate smiled on him. Not only did he find a piece of property with the right zoning, it is happily situated on a main road with high visibility in the center of town. The 10-acre site, bought at auction, was previously owned by the county to store road-maintenance vehicles.

With property secured and zoning assured, Sweetser was able to build his facility in seven months. Arkansas Self-Storage LLC is comprised of 18 buildings totaling 155,000 square feet. The site offers 800 units, plus a small area for outdoor storage. Currently, the facility has 100 climate-controlled units, but as Sweetser points out, he didn't build nearly enough and plans on upgrading some of the other buildings soon.

Each storage building is constructed of metal with a standing-seam roof. The two-story combination office and living facility is all brick. The aesthetics of the site sets Arkansas Self-Storage apart from its competitor, Sweetser says. Mindful of the marketing power of excellent curb appeal, he incorporated extensive landscaping, wrought-iron fencing and a lift gate supported by pillars of native rock.

"We wanted this facility to appeal to the mother in the minivan, to feel safe to women any time of the day or night," he says. The elements of safety and an upscale image not seen previously in Fayetteville appear to be working. Arkansas Self-Storage opened at the end of August and was already 37 percent occupied two months later.

Danny and Carla Butler are the full-time managers. Their day-to-day responsibilities are supported by Acorn Products/DCAL Computer Systems' Unitroller management-software system. Customers may access the facility seven days a week using DCAL's Unikey access- control system. A separate Unikey entry system is used for access to the climate-controlled units.

Sweetser's construction company is involved in diverse areas including roads and highways, residential, industrial plants "and pretty much anything else you can build." So, why did he choose to add self-storage to his already thriving business? "I wanted to diversify," he says. He began investigating the industry from every imaginable angle, attending conventions, searching the Internet, speaking with facility owners and reading industry publications such as Inside Self-Storage. Sweetser also credits his smooth transition to the new enterprise to Gary Trook, vice president of DCAL, who asserts you can't do too much research.

Arkansas Self-Storage establishes a new image for self-storage in his community, Sweetser says. "I feel I have raised the bar for self-storage facilities in Fayetteville." He plans on adding two new facilities this year.

For more information, call 479.443.3026.

Nine years of hard work and an uncanny business savvy propelled Carl A. Svensen and Lasse Hoydal from simply building their own self-storage facilities to being owners in a company with 20 facilities across Europe. Svensen worked part-time at a self-storage facility while a graduate student at SeattleUniversity. He immediately realized the potential for self-storage in his homeland, Norway.

"I was with a friend of mine at a self-storage site in Seattle and, later that day, we began to discuss the possibility of doing this in Europe," he says. "My friend was none other than Michael Fogelberg, now the president of Shurgard in Northern Europe."

The two were fellow students, and today are responsible for the introduction of self-storage to more than 10 European countries. Svensen and Fogelberg immediately began market research for the feasibility of European projects and quickly realized how new the concept was throughout Denmark, Norway and Sweden. The pair contacted Charles Barbo, chairman of Shurgard, which conveniently had its headquarters a few blocks from Svensen's Seattle apartment.

"We hung around Shurgard's office and visited its sites all the time," Svensen says. "We probably had more than 1,000 photos, and several notebooks full of information when we went back to Europe." Svensen's immersion in self-storage even included a part-time job at another self-storage site while finishing his master's in business administration.

"We got totally brainwashed," he explains. "The people we met at Shurgard told us how wonderful a business this was, and after a while, we could not understand why anyone would want to do anything else." Fogelberg even got his father, Ake, working for Shurgard in Europe. Today, he is chairman of the company.

"When I got back to Scandinavia, I contacted Lasse Hoydal, another friend from the university in Seattle," Svensen says. "I talked him into joining the company, and I think he has not regretted that he did."

Doing It All

In 1993, the partners started European Mini-Storage S.A., which at the time was one of only three self-storage companies in continental Europe. The first sites the young founders established were small, and their lack of capital meant they had to be involved in all aspects of the business. "We almost broke our backs building units at night, while working as managers renting them during the day," says Svensen. It was the only way to expand, since they could not get any financing. But doing it this way, the partners had a debt-free company and very good understanding of all sides of the business.

"In the beginning, nobody knew the concept, and a great majority of the potential customers thought the price was way too high and did not rent," says Svensen of those early years. "When there is a totally new product available, people have no way of comparing the price, so it took a long time before we got good at selling the units on the merits and not on the price."

The seasonal demand was also unfamiliar to the partners who worked hard during the summer of 1993 to break even on their first self-storage site, almost succeeding by November. But suddenly, customers started moving out again. "We were really depressed when, by February of the next year, almost 50 percent of the customers had moved out during the first winter, and we had leased out very few new units in those months," Svensen says. It was especially tough since the partners had already signed a long-term lease for their second property.

"We were really nervous that spring. We had to get more tenants or we would go bankrupt. We were flat broke," says Svensen. Fortunately, the good spring and summer season saved the small company, which has prospered ever since. Now Svensen reports his facilities, which have an average of 600 units, usually maintain a 95 percent occupancy rate. "After a few years, the banks also started to understand the concept, and financing became easier," he says. The company was able to buy several previously leased properties, allowing it to rapidly expand.

Major Expansion

After establishing four sites in and around Oslo, Norway, the company formed a partnership with the Selvaag Group, a private real estate and investment conglomerate, to become a large international self-storage operator. European Mini-Storage changed its name to Cron Industries, and the partnership decided to rebrand all its self-storage facilities with the new City Self-Storage name. Today, the company has 20 facilities throughout the Czech Republic, Denmark, Norway and Spain, and a minority share of a Swedish chain with three sites in Stockholm.

According to Svensen, the volume of stores will be more than doubled in the next two to three years. "We have worked for several months on a new financial structure, and are now almost ready to jump into new markets," he says.

City Self-Storage recently entered a new expansion agreement with the The Selvaag Group to strengthen its position for heavy expansion in several countries. To further show its international commitment, the headquarters was recently moved to London. The new CEO in the London office is Per Linder, a Swede who recently came from a top managerial position at Regus Office Centers.

Cron currently owns 40 percent of City Self-Storage. The group is involved in investments throughout Europe, with operations in Barcelona, Spain; Copenhagen, Denmark; London; Nice, France; Oslo and Praha, Norway; and Stockholm, Sweden.

In addition to its long-term ownership in City Self-Storage, Cron also owns a local chain of three self-storage facilities in Oslo, and has recently established EuroBox, a container-storage company. This company will open its first facility in France later this year. "We see an increased demand for storage services among the industrial users, and this is why we are diversifying into the industrial storage market by establishing container parks," Svensen asserts. "Of the different areas surveyed, France had a particularly big need for industrial storage, and this is why we are entering this market first."

Svensen owns 75 percent of Cron Industries, while Hoydal holds the rest. As chairman of Cron, Svensen sits on the board of all the daughter companies and those companies in which Cron has a strategic ownership. He also works with different operational projects for City Self-Storage. Still, his vision of where he wants his company to be is not yet fulfilled. Although Svensen has been building a self- storage chain for almost 10 years, he is still enjoying himself.

"Self-storage is an industry I really like working with. Many outsiders may think there are many other areas of the real estate market that are much more sexy and exciting than self-storage, but I think most of the people who are active in this industry disagree with this," he says. "There are not many industries where you combine real estate and retail and get to meet so many interesting people, as tenants, partners and colleagues."

For more information, call +47 (0)22 72 87 00; visit www.cron.cc or www.cityselfstorage.com.

On a recent business trip, I accidentally left my razors at home and made a necessary stop at a convenience store. The same razors that would have cost $2.88 for a bag of 10 at Wal-Mart were $3.89 for three. What does this have to do with self-storage? It's a prime example of how price is driven by demand.

Self-storage is a demand-driven business. When customers need self-storage, they typically need it in a hurry. Sure, some are price shoppers, but mostly, consumers are looking for ease and availability. Is there not some way to learn a lesson from the convenience-store example? I am not suggesting we rent our spaces for three times market value. I am contending that if we are bold enough to be aggressive in pricing, we'll make better odds. It's a win-win situation for tenant and owner.

Calculating the Odds

In a true market economy, the function of pricing is driven by supply and demand. Your understanding of these two economic forces is the difference between expecting to roll "box cars" (sixes) with two or three dice. Most of us would not bet we could roll three sixes, but we have probably all, at some point, rolled a pair. If you set your prices in accordance with an outdated business plan or budget, you just added a third die to your game. If you annually raise your prices by X percent, you have just added a fourth. Your odds of coming up a winner are exponentially reduced.

To even the odds, start with some basic research. You should conduct annual competition studies, visiting each of your competitors and verifying square footage, occupancy and rental rates. You should also perform a critical evaluation of their managers and the condition of the properties. Maybe even go one step further and mystery shop three or four primary competitors.

I can only imagine there are a number of you out there who do all this by the seat of your pants. Perhaps you are the same folks who gamble at the airport in Las Vegas or expect to knock over the milk bottles at the carnival. Even up the odds and apply a careful analysis of market forces as you structure rent increases. Use this information to calculate the rewards of winning the pricing game.

Develop a Poker Face

Never, ever offer a discount until a prospect has raised a specific objection to your price. You will never know if he would have paid full price once you offer a discount. If you are an owner, you should carefully measure your on-site staff's closing percentages for standard and discount rentals. If your staff is giving away the store, you are adding another impediment to winning the pricing game.

By the same token, if your prices are the highest in the market and you have an employee who is consistently closing sales at full price, you should be prepared to share your winnings with him. Your employees should never indicate--by facial expression, posture or tone of voice--they have any lack of confidence in the price. I would even consider giving a special bonus to staff who can secure prices higher than the "board rate." I assure you the convenience-store owner made no apology for the price of his razors. He looked me right in the eye and said, "That will be $4.21 with tax." There was no talk of discounting, only a few words about whether I needed a bag for my purchase.

Selecting the Right Game

If you think Roulette, Black Jack and the slot machines all have the same level of risk, beware your naivetÈ--they are, in fact, very different. The mark-up on different size units should also vary, being driven by demand. I recently visited a self-storage property where an extremely wide aisle of 10-by-20s was called "Prestige Row." It was closest to the gate and office, and had the widest drive and most light. I was told there was a waiting list in the winter for these spaces. Imagine my shock to find these units were priced the same as the narrow-drive units in the back of the property! The savvy owner would have realized how great those odds were and adjusted prices accordingly.

What have we learned? Convenience stores base their success on convenience, read demand. The same applies to self-storage. For example, consider that climate-controlled spaces are in higher demand during some times of the year than at others and adjust your prices as a result. Manage your inventory, and sell it. Consider "bundle" pricing to achieve the highest level of convenience and price. Be bold.

I recently mystery shopped a self-storage property. When I asked about price on the phone, I was told the facility's prices may be higher than others in the market, but I needed to visit the store to understand why. When I took the property tour, I was told I could be put on a waiting list for the size I wanted, as the facility had a "full house." If I wanted to save money or store somewhere else, the nearest competitor had vacancies in the size I needed. I was then asked if I wanted to secure my reservation with a credit card or cash deposit. This owner obviously knew the odds. Rolling with a pair of dice, he was likely to roll those double sixes.

RK Kliebenstein is the president of Coast-To-Coast Storage and was a long-time resident of Las Vegas, where he made it a personal practice not to gamble. He urges self-storage owners to even up the odds and seek the assistance of a consultant in gathering market data and setting prices. He can be reached at 877.622.5508; e-mail [email protected].

IN PARTS OF THE UNITED STATES THAT EXPERIENCE EXTREME WINTER WINDS, rain and natural disasters, it is not uncommon for storage facilities to experience roof damage. The elements are a common threat to your facility and your customers' stored goods, so it is essential to prevent winter-storm damage by properly maintaining and repairing your roofs.

Far too frequently, the cause of a roof failure during a storm is lack of proper maintenance. Storage owners often attempt to repair roofs themselves to save money. If the job is not done right, the final outcome may cost a lot more than if a professional had done the work.

According to Patricia Barthen of Flexospan Steel Buildings Inc., people who aren't roof-repair professionals usually don't know the entire process to prevent leakage, which is one of the most important factors in roof maintenance. Poor repair jobs can range from something as small as overtightening screw fasteners to using the wrong sealants.

A perfect example would be a claim made by a storage owner who experienced roof damage to his buildings after a severe winter storm hit his area. When a claim like this is made, it is typical for a roofing engineer to inspect the damage and determine if it was caused by the elements or the result of poor installation or maintenance. In this case, the storage owner hadn't properly cared for his roof, and the damage was considered regular wear and tear. For building repairs to be covered by your insurance policy--and for you to avoid liability for damage to customer's stored goods--the damage must be a direct result of a storm and not regular deterioration, which is more than likely excluded from your policy coverages.

Call it insurance, or call it foresight--the best way to avoid simple mistakes and costly damage to building roofs and contents is to properly maintain your property with regular inspections. Have repairs done correctly. Periodic visual inspections and consequential maintenance can greatly increase the life of any roof. When inspecting a facility, always check the ceilings of units for any evidence of water leakage. It isn't a bad idea to have a consultant inspect your roofs every couple of years and provide a report of their condition. Necessary repairs should be made immediately. Even the tiniest problems will become big if not addressed right away.

If you hire a professional to inspect and repair damages to your roof, you'll want to feel comfortable with your choice. Here are some helpful tips for finding the right roofing contractor, supplied by the Roofing and Sheet Metal Contractors Association of Georgia (www.rsmca.org):

• Ask friends and associates for the name of a roofing contractor with whom they have had good experiences. There are many roofing contractors specific to the self-storage industry.
• Call your local, state or national roofing association and ask for referrals. Also consult your self-storage association or other self-storage owners.
• Get more than one estimate/proposal and insist on details.
• Ask about the various options for roofing materials.
• Obtain references from the roofing contractor and make sure he has knowledge of self-storage facilities. Ask for a listing of jobs he has done in your area in the last year or two, then go and see them. Ask for the names of vendors the contractor uses.
• Insist on a certificate of insurance naming you as the certificate holder. If the contractor does not have property-and-casualty (general-liability) and workers'-compensation insurance, you may be liable for damages he causes or injuries to himself or his employees.
• Ask for a copy of the roofing contractor's warranty for materials and workmanship, usually for one to two years. This binds the contractor to repair any leaks caused by his workmanship or failure of the materials for the most critical period. Many problems with a new roof will show up in the first year or two.

After Choosing a Contractor

• Don't pay in full until the job is done. Then, if you're unsure of the quality of the job, you can hire an independent inspector to check the work.
• Have the roofing contractor look inside your buildings. If you have ceilings that are immediately below or part of the deck, fasteners could possibly penetrate them.
• Watch the application of the new roof and ask questions when you see anything that doesn't look right.
• If the contractor has included debris removal in the contract, insist it be done promptly. Ask for a magnetic sweep of the area to remove any stray nails. You don't want to find them the hard way later.
• Make a roofing file. Keep a copy of the proposal, the certificate of insurance, the manufacturer's warranty, the contractor's warranty, and a copy of a receipt for the materials from the supplier or the affidavit from the roofing contractor stating he paid his suppliers for the material used on your project. This greatly reduces the chances a supplier can perfect a lien against you if the contractor doesn't pay for the materials. Also keep a piece of one of the shingles. Wrap it in aluminum foil very tightly. This will prevent weathering and will allow you to make a close match many years later, if necessary.
• Maintain your new roof. Keep it clear of leaves. Keep gutters and downspouts clear. You should inspect your roof at least twice a year, in the spring and fall.
• During the warranty period, call the contractor and ask for repairs as soon as a problem is detected. If you don't get proper response, write a certified, return-receipt letter specifying a time in which you expect repairs to be made.

Universal Insurance Facilities Ltd. offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; call 800.844.2101; fax 480.970.6240; e-mail [email protected]; visit www.vpico.com/universal.

The ever-increasing power of computers and printers creates a perpetually escalating amount of physical and electronic documents that must be managed and stored. Recent trends in litigation have emphasized to corporate America the importance of professional records management. At the same time, there has been a significant amount of consolidation in the industry, as two large national companies acquired a significant percentage of privately owned commercial records centers. As is to be expected, the operations of the acquired companies have been modified to conform to the standards of the buyers. The result has been the elimination of a significant amount of competition in the records-management market.

Opportunities

There is no magic formula for operational success. The one common factor associated with all successful record centers is their dedication to customer service. Centers willing to cater to the specific needs of their customers have a greater level of customer satisfaction and higher gross margins. The size of a national company makes personalized service nearly impossible. Requests for service are handled at a centralized location usually very remote from the customer.

In terms of customer service, independent records-management companies have a distinct advantage over larger ones. A national company must limit the services it offers to a set of standard options. It also lacks the flexibility to meet unique customer requirements. A privately owned records center can tailor its services to meet the individual demands of its clients and maintain personal interaction with them.

Marketing

Marketing records management is one of the most important aspects of developing a successful business. A successful campaign will include a program that combines Yellow Pages advertising, telemarketing and face-to-face sales. In addition, you will need to develop professional brochures and other collateral. A professional website can also be a great marketing tool.

Records management has very high recurring revenue. When marketing this business, price is not always the most important consideration. Many sales people focus more on price than service. A successful marketing plan will emphasize great customer service that matches a client's specific needs as much as--or more than--pricing.

Growing the Business

To grow a records center, it is necessary to have a dedicated sales effort. Sales cycles can be quite long, typically three to 18 months. However, a client generally signs a long-term contract for three to five years or longer. The cost of switching from one vendor to another makes it less likely a customer will move, as long as he is receiving good service.

If service is a key component in operating a successful records business, good references and happy customers are your best sales tools. Many new record centers focus on acquiring large accounts, but smaller accounts offer much better profit margins. You should know national operations generally do not put a lot of effort into pursuing small accounts.

A commercial records center that has many small to medium accounts is more stable and less susceptible to the financial risk associated with losing one key account. It also has a much greater business value. On the other hand, larger accounts can allow a records center to grow more quickly. In the case of larger accounts, there will likely be more price competition; but even so, clients increasingly are searching for attentive personalized service. They are often willing to pay more for service tailored specifically to their needs.

Digital Imaging

Over the last few years, there has been a significant increase in the conversion of physical documents to digital images. Until recently, most companies did not consider this a viable option. The process of converting documents to digital files is still a very expensive alternative to storing boxes of files, but demand is increasing. Many people considering the commercial records-management business worry this will make the storage of documents obsolete. This is not true.

It is important to understand even though the cost of storing images has reduced drastically over the last few years, imaging still requires a large amount of manpower. This makes the cost much higher than storage. In addition, most corporations continue to store hard copies of documents converted to digital. There are still many issues relating to the admission of digital images as a substitute to physical copies in legal proceedings, for example.

In short, the increased volume of digital imaging is not likely to negatively affect the records-management business. Commercial records centers should not look at digital imaging as competition to records storage, but an additional service they can offer. In fact, some industry software allows the center to track and manage physical documents and digital images.

Pricing

Pricing in records management includes two components: storage and services. As a rule of thumb, you can expect service revenue to be approximately 60 percent to 100 percent of storage revenue, depending on market size and competition. Typically, a records-management company charges for pulling, putting away and transporting items to and from the client; adding new items to inventory; destroying items; and faxing, copying and indexing items into a computer system. Commercial records centers also sell boxes and other tangibles.

In some cases, records managers charge consulting fees for assisting companies in solving their records-management issues and establishing regular procedures. The following is an overview of the typical categories of services offered by commercial records managers:

Adding items to inventory. The first step in receiving an account is adding the new items to inventory. This involves entering the item into a software program designed to manage records operations. These software systems are designed to track items as they move about the facility and are returned to the client. At the time an item is entered into the computer, it is given a number converted to a bar code for electronic tracking with portable hand-held devices. A bar-code label is attached to the item. As the item moves around the facility, it is scanned, and the location is automatically updated in the computer system.

Storage. Once an item is received by a commercial records center, the center bills for storing the item. Storage is typically billed in advance at rates ranging from $0.15 to $0.50 per cubic foot per month. Some commercial record centers bill storage quarterly, semi-annually or annually. The fees are generally higher when items are stored in a climate-controlled center.

Retrieving and transporting items. Commercial records centers charge clients for pulling items from storage. Charges for pulling a box or file are approximately $1 to $3. In most instances, the item is then transported to the client. In other cases, the client may wish to view the items at the center. For these situations, a viewing room is provided.

The charges for transportation vary based on the type of request. Centers offer standard, rush and after-hours deliveries. Normally, standard deliveries are scheduled based on cut-off times. For instance, if a customer makes a request by 4 p.m. one day, the item is delivered on the next morning's run. The fees typically charged for a standard delivery are $6 to $35.

A rush delivery is where a client can call any time during normal business hours and schedule a delivery within a specified number of hours. A rush delivery is generally made within two to four hours from the time the client makes the request. The fee charged for a rush delivery is $15 to $100.

An after-hours delivery occurs when the client makes a request for delivery after normal business hours. The fees typically charged for this type of service range from $25 to $250. Not all commercial record centers offer after-hours deliveries. Centers serving medical accounts generally must offer this type of service.

Refiling items. Refiling items is the reverse of retrieving them. Typical charges for refiling a box or file are $1 to $4. This charge is in addition to any fee associated with transporting the item from the client's facility to the record center.

Permanently removing items. This is one of the most controversial areas of commercial records management. This is a charge associated with permanently retrieving an item from a center. Some centers charge the same price for this service as retrieving an item, but most commercial records centers charge a surcharge for permanent removal.

Centers that charge these fees are likely to have a higher level of customer retention because of the additional expense associated with switching from one vendor to another. Those that charge these fees argue there are costs associated with permanently removing items from their facilities and computer systems. The fees also help protect the center from the negative financial impact of losing an account. It might be viewed as a type of business-risk insurance.

Record retention and destruction. Most corporations have records-retention policies that dictate when records should be removed from storage and destroyed. Depending on the nature and confidentiality of the records, the client may wish for them to be destroyed in such a way that they are no longer legible. Typical retrieval fees will then apply, and many centers charge for destruction by the pound. It is not uncommon for centers to subcontract the destruction services to a third party that specializes in this business. It is worth noting commercial record centers can generate additional revenue by selling the shredded materials to a paper-recycling firm, and they do not generally apply the permanent-removal fees discussed above to the removal of items by destruction.

Other services. Examples of other services provided by commercial record centers include faxing, copying, selling boxes and hourly services.

Profit Potential

In the business of records management, EBITA (earnings before interest, taxes and amortization) of 25 percent or more of gross revenues is not uncommon. Generally, the larger a records center grows, the higher EBITA grows. Records management also has one of the best recurring revenue streams of any business venture. For the most part, clients sign long-term agreements and stay with their service provider as long as they receive good service. Existing clients grow 5 percent to 15 percent each year.

Off-site records management is much more cost effective than a corporation storing and managing it's own documents. Consequently, the records-management business does well in a bad economy. Furthermore, when it is time to sell the business, there is a ready, willing and able market always interested in purchasing existing businesses. These buyers include national and regional companies and scores of smaller operations looking to grow more rapidly by acquisition.

Contracts

One of the key elements of the business relationship between the records center and its client is the contract, which details the terms and agreements under which the records center will provide services. It is generally for terms of three to five years and covers such topics as pricing and service parameters.

Another important factor to consider is loss liability for boxes. Typically, these contracts indicate the record-center liability is limited to $1 per box. This risk is then covered by insurance purchased by the record center. It is important to find an insurance agent with experience insuring records management.

Consultants

There are several experienced consultants who specialize in assisting commercial records centers. These professionals can ensure your success by helping you make the proper decisions and reducing the cost of entry into the market. Make sure the individual has experience in the records-management industry and skills that match your needs. A consultant should be able to:

• Conduct a market survey to assess the existing competition and determine the pricing for the market.
• Assist in the development of a business plan and the setup of a new facility.
• Assist in the creation of a marketing plan.
• Accompany you on some initial sales calls.
• Help locate the best sources and pricing for software, racking, equipment, vehicles and supplies.
• Assist with facility evaluations, security analyses, sales training, telemarketing and operational procedures.
• Help you understand and develop alternative types of records- and information- management offerings.
• It is important to select a consultant with whom you can work cooperatively and who has sufficient background in the business to provide the required level of assistance. Consultants are not only beneficial to new records-business owners--they can also benefit existing businesses that would like to increase market presence and size.

Summary

The commercial records-management business is a great one, but it does require commitment. Growth takes time, but once you have acquired customers, the revenue is recurring and always growing. The business also performs well in poor economic times and provides a diverse income stream that can help insulate your balance sheet against other businesses that do not perform as well.

Steven J. Hyman is president of DHS Worldwide, a software-development firm that markets three editions of its Total Recall^TM records-management software. These products are designed to cater to the corporate and commercial records-management industries and are available worldwide. They are state-of-the-art, multilanguage-compatible, and web- and barcode-enabled. For more information, call 800.377.8406 or visit www.dhsworldwide.com. E-mail [email protected].