Self-storage is proving to be resilient under economic uncertainty, despite having supplied enough storage units to satisfy the pent-up demand it had been building toward for 40 years. The industry has now reached a fork in the road to maturity, similar to the one the hotel industry reached following the Great Depression. One road offers opportunities while the other has challenges.

The opportunities will be for those with professional management skills and access to operating capital necessary to compete in todays marketplace. These travelers include the public companies, larger operators and institutional investors. The challenge will be for the owners and operators who have enjoyed a relatively safe, secure and profitable investment that required only minimum management skills and little operating capital.

Pockets of Recovery

If weve learned one thing about the performance of self-storage during this recession, its that we can no longer generalize about anything, including the rate of recovery. There are pockets of revival, and the rate varies from one location to another, even within the same metropolitan area.

Pockets that were hit the hardest by the downturn, for instance Florida and Michigan, are slower to recover than other areas. Some markets, such as California and Texas, were slower to feel the impact of the recession, and are slower to recover. The hardest hit areas of the country are those that experienced the most overbuilding and the greatest loss of jobs. Markets like Washington, D.C., with its large number of government employees, has felt the recession the least.

Supply and Demand

No discussion about the state of the self-storage industry would be complete without addressing the issues of supply and demand. Nationwide, self-storage went into this recession without having an excessive oversupply of new facilities. However, there were pockets of overbuilding that have hadand will continue to havea negative impact on performance for a period of time.

Contrary to popular belief, the decline in the operating performance was not caused by a recent huge amount of new construction. It was caused by the gradual but fairly steady addition of new space to the existing inventory over many years. (See accompanying graph, Value of Self-Storage Construction.")

The current nationwide inventory of storage equates to one storage unit for every eight to 10 households. This takes into consideration commercial users. Many markets have even fewer households for every existing unit. When put into those terms, future demand takes on a whole new meaning.

The good news is theres been a 23 percent decline in the number of projects in the pipeline, according to the latest statistics from The Dodge Project Center, which tracks construction projects. Any new construction has been limited to additions, alterations and few new starts.

Based on the rental activity of more than 900,000 units tracked monthly by Self Storage Data Services (SSDS), a Los Angeles-based provider of self-storage operating-performance statistics, demand for storage started to increase in April 2009 and continues at a fairly consistent rate. The increase in net absorption has been the result of a slowdown in the number of tenants moving out and an increase in new tenant move-ins.

The accompanying graph (Monthly Net Absorption Nationwide) illustrates the long-term trend in net absorption of units based on the net difference in the ratio of move-ins to move-outs. In September 2010 (the latest data available at the time of this writing), there were 3 percent more tenants moving into storage than moving out. In estimating the future demand for storage, consideration must be given to the impact of 79 million baby boomers hitting retirement age and not knowing their propensity to use storage in retirement, or their ability to afford it.

Operating Performance

The national operating performance of facilities peaked in 2006 as demonstrated by the decline in the rate of change in rental income compared to the historical average. In the first quarter of 2006, facilities were operating at 10 percent above their historical seven-year average. The rate of change in rental income compared to the historical average became negative in the second quarter of 2008 and reached a low point a year later.

Today, facilities nationwide are operating at about 5 percent below their historical average. The degree to which facilities are operating below or above their historical average varies by location, which accounts for the varying rates of recovery. For instance, in the third quarter of 2010, Washington, D.C., was operating at 10 percent over its historical average, whereas Las Vegas was operating at 10 percent below. Considering the industry has satisfied the pent-up demand, serious questions arise regarding the future rate of rental increases and the impact it will have on facility value.

Performance Indicators

The impact of changes in asking rental rates and concessions is evidenced in a facilitys physical occupancy and rental income. The majority of operators have tried to hold rates as high as possible during the recession; as a result, physical vacancy has increased, but not as much as it might have without concessions. The type and cost of concessions varies from location to location, and today approximately two-thirds of facilities offer them. The good news (and another sign of recovery) is the number of operators offering concessions has started to decline, as has the dollar impact they have on rental income.

The accompany rental-income graph illustrates how income stopped declining in the second quarter of 2009 and has been trending upward. However, in the third quarter of 2010, the markets softened compared to the third quarter of 2009, reflecting consumers continued concern over the pace of the recovery and the creation of jobs.

Based on the trend in rental income at more than 6,000 facilities nationwide, it appears self-storage is in recovery. However, like the overall economy, it will be slow and steady.

Investment Market

The self-storage investment market has returned, and those investors who retrenched during the downturn are embarking on an aggressive but selective acquisition strategy. There are many more buyers in the market than investment-quality assets. All four real estate investment trusts are active, as are the larger operators and some newcomers to the industry.

Investors sense the rich opportunities that await and believe the worst is over, but are frustrated at the lack of quality investments. As such, they are becoming more aggressive in their pricing. At the same time, owners are becoming more concerned with the speed of the recovery and worried about the uncertainty surrounding their debt. They are, therefore, starting to accept the new reality of the marketplace.

There are still too few closed transactions to define capitalization rates by geographical area and facility type. The best indicator of the cap-rate range comes from the analysis of current listings supplied by the most active self-storage brokers. The accompanying table (Implied Cap Rates Based on Asking Prices) illustrates the implied rate based on asking prices and net operating income, sorted by facility size. The implied cap rate sets the lower limit of the range, considering the properties will most likely sell for a price less than asking.

There are very few high-quality, investment-grade (class-A) facilities available today, and the few that have sold did so with cap rates in the 7.5 percent to 7.75 percent range, or sometimes lower based on the trailing 12 months net operating income. Investor pricing takes into consideration the potential upside for revenue even on otherwise stabilized facilities once the economy totally recovers, which means the anticipated overall return will be higher.

A Look Ahead

The current state of the U.S. self-storage industry reflects the continued economic uncertainty of the overall economy. Self-storage is in slow but steady recovery, and it appears it will be one of the firstif not the firstreal estate sectors to pull through.

All markets are in constant flux given all the uncertainty in the job market, and so the successful operators are the ones who are keeping a close eye on ways to gain the competitive advantage. For most, that means effectively employing the use of concessions to help drive revenue.

Self-storage is entering a new era that offers challenges and opportunities. The biggest opportunities are for external growth through acquisitions, as new construction will be minimal. The challenges for the smaller operators will be met by some with the use of third-party management companies and self-storage call centers.

Self-storage has proven its ability to outperform most other real estate sectors and has made a giant step toward becoming recognized as a core asset. 

Charles Ray Wilson is the founder of Self Storage Data Services Inc., an independent research firm that maintains the nations largest database of self-storage operating statistics. Hes an internationally recognized leader in providing independent research on the self-storage industry. For more information, visit www.ssdata.net .

By Rhonda R. Savage

If you've ever been in a management position, there's a good chance you had several pet peeves regarding your staff members and their behavior. What you may not realize is your employees probably have a few complaints too.

It's true that oftentimes these complaints can be unreasonable, and as an owner or supervisor, you need to accept the fact that you can't always make everyone happy. But its also important to know what you can improve on as a leader. When staff members respect you and the way you manage your team, it improves morale. When morale goes up, production goes up. Here are eight ways you can you improve your management style.

1. Change Your Attitude

If you often come to work grumpy, its time to change your tune. Each day depends on your attitude when you walk in the door.  If the moment your staff members see you in the morning, youre rude or give off a negative attitude, it may affect their moods and result in low productivity or bad customer service. Make a mental choice the moment you wake up in the morning to be a positive influence on your staff. Do not complain about the day before or dwell on the traffic you dealt with during your commute.

Heres one way you can change things around: Ask staff to bring in an inspirational thought, humorous anecdote or joke to start the day off on a positive note. 

2. No Micromanaging

Too many supervisors micromanage their staff. Excessive attention to detail can hold back the growth and development of your business and team members. Employees who are micromanaged feel frustrated, lose confidence, become timid and are discouraged. Attention to detail is a positive trait in any supervisor, but if you're correcting every little detail or do everything yourself, you'll hurt your performance and that of the team.

As an owner or a supervisor, you need to delegate, follow up without micromanaging, and hold people accountable. Create a system in which your employees can keep you updated on the projects they've been assigned. This way, they don't feel youre micromanaging or taking over, but youre able to keep updated on the progress.

3. Hold Employees Accountable

On the flip side, supervisors who are too hands off or who don't hold employees accountable are also doing their employees and business a disservice. Good leaders coach and mentor but don't micromanage or let things float along. You know the strengths and weaknesses of your people.

The days of dictatorial leadership are gone. Most employees today thrive on independence, growth and involvement. Yet they also thrive on feedback, accountability and firm, fair leadership. Finding a balance is crucial for the success of your business.

4. Stop Complaining

This is a difficult time in the economy. Your employees care about you and the company, but if you're burdening them with your woes, morale will go down.  Don't share everything. They don't need to know it all. Focus on being positive, cheerful and supportive.

Some people may argue that your staff needs to know the facts. Yes, but do not harangue them daily that their job is in jeopardy. Let them know what the goals are and how important each and every one of them is to the success of the business. If the business is in trouble and youre considering layoffs, first ask yourself these questions:

• Can you be training and encouraging employees to do more and be more in your market?
• How is your customer service?
• Are there other places you can trim before resorting to layoffs?

5. Leave the Personal Life at Home

We all have personal lives outside of our work. It can sometimes be difficult to separate the two, especially as a supervisor. But regardless of whats happening in your personal life, it's important to keep it separate from your professional life.

From talking to your employees about personal problems to having family and friends stop by the office excessively can hugely affect the way your employees view you as a leader. If you overheard your employee talking about her date last night rather than focusing on work, you probably wouldn't be thrilled. It's important to be a good example by setting the standard of behavior.

6. Deal With Problematic Employees

If you don't deal with problematic staff, one (or both) of two things will happen: Other employees will begin acting like them, and you'll lose the respect of the staff. You cannot ignore a problem. It will build and youll lose the respect of the rest of your team if you don't take necessary steps to resolve the issue. Deal with issues early on before they get out of control.

Staying involved in the day-to-day tasks of your staff will help you stay on top of any problems or potential issues that may exist. Make sure youre visible to employees by walking around the office and visiting with each one. Check in with key people to find out if there are any issues you need to resolve.

7. Be There

Theres no doubt emergencies come up. Sometimes, no matter how hard you try, you have to be out of work for personal reasons, whether its a doctor appointment or family emergency. It's important employees can count on you for assistance, guidance and support. An owner or supervisor whos always rescheduling appointments or not available for his staff will quickly lose their respect. If you do need to be away from the business frequently for personal reasons, try to schedule these appointments or meetings on the same day each week. This way, at least your staff will always know when they can reach you.

8. Keep Your Cool

You can be a good leader 90 percent of the time, but if you're losing it 10 percent, that's what they'll remember. Overreacting in any way to an employee bringing an issue to your attention is a bad idea. It's important for the staff to know they can come to you with problems and keep you updated on the business. You don't want to make them feel guilty for doing this; rather you should encourage this behavior.

Your team knows things about the business you may not be aware of sometimes. You need to know what they know, or your business may be in danger. Overreacting to anything your staff tells you will only discourage them from keeping you informed.

Everyone, even management, needs to work at being a better team member. Begin by realizing the strengths and weaknesses you have as a leader and improve on areas that need it. By being aware of the frustrations your staff members have, you can work to change those habits.

You'll earn the respect of your employees, they'll be happier and more productive, and your self-storage business will benefit.

Rhonda R. Savage is a noted motivational speaker on leadership, women's issues and communication. To reach her, e-mail [email protected] ; visit www.dentalmanagementu.com .

By Kay Schaefer

As a self-storage business owner, you took the time to find the right insurance policy to protect your company. You discussed coverage with your agent, and agreed on the property values and liability limits for your specific operation. But when choosing insurance to protect against loss or damage due to theft, tenant claims or injury, many owners dont really think catastrophic events will happen to them.

When the unthinkable occursand it doeswhat do you do? You must file a claim with your insurance carrier, and you must protect yourself and your facility from further damage. Although most claims are handled quickly, they require your attention to detail. Knowing what to expect and how to advance the process will keep you sleeping at nightand isnt that the reason you purchased insurance in the first place? By following the six simple steps below, the claim process should go smoothly.

1. Understand Your Policy

Immediately review your insurance policy so you understand whats covered and what your deductible will be if one applies. The policy is a contract between you and the insurance carrier. Its important to have the protection you want and not find out later that exposures you thought were protected under the policy are ultimately excluded from coverage. If you have any questions, ask your agent to review the policy with you.

2. Be Prompt

File your claim as soon as possible after an incident occurs with your insurance agent or through your carriers claim line, whichever has been provided to you. Be promptmost policies have specific timeframes in which you must file a claim.

The person with whom you speak will have questions. Be prepared with information about the who, what, where and when of the claim. Take a moment to write everything down before you call, and keep a record for yourself. Include any available information on the injured party or witnesses including names, addresses and phone numbers. Good documentation goes a long way toward making the claim process painless.

The person taking the claim report will gather the information you provide and any other pertinent details or documentation. If youre reporting to an agent, hell pass the report along to the insurance carrier.

Some business owners hesitate to file a claim because theyre concerned about the effect it could have on their future insurance coverage or premium. But if an incident has caused damage and timely reporting is not done, you could restrict yourself from ever having coverage for that loss. If youre not sure if you should make a claim, talk to your agent. Hell be familiar with the process for your carrier. He may want to put the carrier on notice but not actually file a claim until more information is gathered. This notice will protect your rights under your policy and meet the carriers time requirements.

3. Gather Documentation

Create any additional documentation needed by the insurance carrier. The more info you can provide, the easier the claim process will be. Different incidents will have specific information needs. Some of these include:

Inventory lists. If theft is involved, start working on an inventory list. The more details you have ahead of time, the easier it will be to create this list after the loss. Consider keeping an inventory on hand or a photo record of whats in your office, apartment or maintenance shed.

Police report. You will need to file a police report in the case of theft, vandalism and, in some cases, accident or injury. Keep a copy of the police report for yourself and make one for your insurance carrier.

Photos. Pictures are beneficial. Take them before you start any cleanup or repairs. Photos taken prior to a loss also may be helpful when theres a fire in the apartment or office. Pictures can help you with documenting whats been damaged or destroyed, and also can serve as a refresher to what you had before the loss.

Historical records. If your claim includes loss of rent, historical records will be needed to document your loss of income. Your facility may have certain times during the year when rental rates go up. It may be necessary to look at prior years records to identify your loss if the incident occurs during a peak period of renting.

If a fire destroys one of your buildings right before your busy season, your rents immediately before the loss will be lower than if you could have rented the damaged building during the upcoming busy season. In that case, the insurance carrier would want to look at the same time period for prior years to verify the increased rent loss.

Tenant leases or lien documentation. If the event involves a potential liability claim related to a tenants stored property, good documentation is critical. The insurer will want a copy of the tenants lease. If its a sale and disposal claim, the carrier also will want documentation of the lien procedure.

Obtain the tenants current address and phone number, if not already on file. You may not be negligent or liable for his goods, but you must work with your insurance carrier to document the claim. This type of documentation is also one of the best ways to protect your business from customer claims.

4. Work With Your Adjustor

Find out what else the insurer needs to move forward with your claim. Your carrier should contact you with details on what it may need. An adjuster may come to your facility to inspect the damages and work with you to settle the claim. Repair estimates may be needed, so the carrier may ask you to obtain an estimate or two bids. Working closely with your carrier or adjuster will help get your claim approved and your check in the mail quickly.

5. Keep Records

Keep records of your costs, including invoices for repairs and additional expenses used to protect your property and reduce the claim. Make copies of everything before you send it on to your insurance carrier. Make a folder and organize copies of your loss documentation. This will make discussions with your carrier easier and help avoid conflicts.

6. Prevent Further Loss

Do everything possible to prevent additional loss from occurring. Whether filing a property or liability claim, its in your best interest to do anything reasonable to prevent another. Most insurance policies include a section addressing your duties after an incident and will tell you how to protect your property from further loss. Make any temporary repairs necessary to protect against greater damage.  If in doubt, check with your insurance carrier about whats reasonable.

Expect a phone call or visit from your insurer within a couple of days of filing your claim. If the loss is due to a catastrophe such as a tornado, there may be a delay due to the number of claims being made at the time.

Have your notes ready and complete any forms requested as quickly as possible, and your claim should be handled smoothly and quickly. By knowing what to expect from your insurance carrier when filing, youll be prepared to handle the unthinkable if it occurs.

Kay Schaefer is an employee of Deans & Homer, an insurance managing underwriter providing specialized coverage for the self-storage industry since 1974. Schaefer has more than 30 years of experience writing unique insurance coverage. For more information, call 800.847.9999; visit www.deanshomer.com .

An empty home-improvement store in Eau Claire, Wis., could be converted into a self-storage facility.

Representatives for Menards, which operates a chain of home-improvement stores, submitted a conditional-use permit application to town officials in mid-December. The proposal requests permission to turn the vacant store into Menards Self Storage. The facility would have 362 units. The proposal also includes constructing five additional storage buildings on the 23-acre site.

Menards vacated building three years ago to relocate to a new 214,000-square-foot site at the corner of state Highway 42 and Interstate 43. The property has been for sale since 2007, but has been unable to secure a buyer.

In an all cash transaction, Strategic Storage Trust Inc., a publicly registered non-traded real estate investment trust targeting the self-storage market, acquired two properties in Long Beach and Hawthorne, Calif., totaling approximately 1,600 units $26 million. The sites will be rebranded under the SmartStop Self Storage trade name.

The first property is at 8150 E. Wardlow Road in Long Beach and contains 87,000 rentable square feet with 830 units on 3.7 acres of land. The facility is in Los Angeles County with easy access to Interstate 405, Freeway 91 and Interstate 605. Built in 1999, it consists of four buildings, one of which is two stories. Amenities include surveillance cameras, individual locks, climate control, keypad entry and an office for onsite management.

The second property is at 12714 S. La Cienega Blvd. in Hawthorne, which is also part of Los Angeles County. The building contains 87,000 rentable square feet with 770 units on 1.7 acres of land. Its adjacent to Interstate 405 access and is within one mile of access to Interstate 105. Built in 2004, the facility has one four-level building and another two-level building, along with a basement with ramp access. Amenities include surveillance cameras, individual locks, climate control, keypad entry and office and apartment for management.

Dean Keller of Bancap Self Storage Group Inc. was the broker in the transaction.

Since its launch two-and-a-half years ago, Strategic Storage Trusts portfolio of wholly-owned properties has expanded to include 38 properties in 15 states.

In the past couple of years, tough times across all industries caused many businesses to scale back or cancel their annual holiday parties. But after a better 2010, many office holiday parties are back again, and self-storage industry pros are turning to Self-Storage Talk to share information about their seasonal soirees.

Member Crystle408 started a thread about holiday parties, expressing her eagerness for steak and lobster tail at her company's event, which will be on a boat. She also asked members to share their favorite memories of company holiday gatherings. The range of fuss made over the holiday goes from simple dinners out to elaborate outings where staffs from multiple sites come together. Some operators have shared that their company doesn't do much, but they don't bemoan or complain. They seem to be grateful for whatever appreciation they get.

Other holiday-related discussions are also on the forum. On these threads, members discuss holiday bonuses and gifts, all of which widely vary. These types of discussions usually happen in the Staffing, Education and Training forum.

Have an opinion on company holiday parties? Feel free to jump in on the threads and post it. If you're not a part of the community yet, you can register for free. The process is simple and takes only a few minutes.

Whatever your company is doing to celebrate the holidays and the end of the year, the Self-Storage Talk team hopes your festivities are joyous. 

Live and growing since 2008, SST is the largest online forum in the industry and the official forum of Inside Self-Storage. SST has approximately 3,850 members, 23 different topical forums, 3,800 discussion threads and 32,400 posts.

By Tony Jones

Despite the hardships suffered by many self-storage owners during the last three years, the flexibility afforded to storage facilities has helped the industry adjust to market fluctuations and avoid the devastating declines experienced by other commercial real estate segments. Low capital expenditures on existing facilities, short-term contracts and frequent rental-price adjustments have enabled many owners to ride the ebb and flow of supply and demand to protect property performance and value.

We have seen rentals start to increase or at least flatten out, and most of the discounting is being slowly squeezed out of the market, notes Ben Vestal, president of Argus Self Storage Sales Network Inc. This is bringing more stability to the investment class and, more importantly, the financing of self-storage investments. As a result, the self-storage real estate segment has teetered but not fallen and emerged from 2009 transaction lows squarely as a buyers market.

A greater number of buyers have emerged for existing facilities, and they have been more particular on the property types they look to own, explains John Barry, vice president of brokerage for Investment Real Estate LLC. They are seeking quality properties in excellent locations and will pay a fair price for these, or they are looking for extremely reduced prices on lesser class facilities.

The crux, of course, is financing remains a challenge for many would-be buyers, and changes in valuation underwriting have made brokering deals more difficult for sellers. Demand and rates appear to be bouncing along the bottom, not knowing whether we are improving, or just holding the line on performance, says Vestal. There are several buyers in the market for well-run, stable investments. The valuations today are subject to new underwriting criteria that are here to stay. The new reality is that the commercial real estate market has more to do with the value of your self-storage facility than the performance of the actual facility.

By most accounts, transaction volume in 2010 surpassed 2009 activity, but that upward movement was tempered somewhat with more properties being moved into foreclosure and lenders accepting short sales, notes Barry. Nevertheless, because more opportunities have developed in the market, more buyers have appeared, and the offers have tightened up quite a bit, he says. I would expect to see that trend continue this year.

Market conditions overwhelmingly favor well-capitalized, experienced buyers and have put a crimp into transactions under $3 million. Large, high-value properties are achieving cap rates 100 to 300 basis points lower than smaller, less valuable properties, Vestal says, creating a gap that makes it impractical for cash-rich buyers to broker smaller deals.

Well-capitalized buyers in the market today are unable to obtain smaller loans at a competitive rate that is necessary to make the smaller deals work, explains Vestal. Additionally, they are unable to achieve the economies of scale necessary to make their new financial model work.

That leaves smaller operators dealing with buyers who either do not have sufficient capital or cannot get favorable interest rates and terms from lenders uneager to jump into smaller transactions.

It is still very difficult to transact a deal today due to the lack of high-leverage financing tools and, more importantly, the lack of liquidity of small real estate investors, notes Vestal.

Conversely, 2010 was marked by several large transactions and portfolio sales. In some markets, like California, transactions were essentially frozen except for portfolios or distressed properties, according to Stephen Grossman, senior vice president, Self Storage Investment Group. Portfolio sales have been occurring more frequently than ever, he says. The motivating factor for these sales has primarily been the need for new financing.

Distressed Market

Single property owners typically have not put their storage facilities up for sale, Grossman says, unless they have compelling reasons to do so. Other than retirement, relocation or an offer too good to reject, single storage owners across the nation simply have had few positive reasons to seek a sale. Many properties are upside down, and owners have little leverage to refinance their loans.

With values down 20 percent to 40 percent in some areas across the country, self-storage owners who are not pressed to sell are holding on and will wait for better times, which may be two to three years in some markets and up to five in others, notes Bill Alter, self-storage specialist, Rein & Grossoehme Commercial Real Estate. Even mature properties with loans coming due are facing problems. Lenders seem reluctant to take many of these properties back and are working to some degree with owners.

Alter is among those who believe transaction volume will continue to increase in 2011, as many mature and distressed properties are expected to find their way to market. Lenders, he says, are poised to move away from the extend and pretend mindset in which banks work with borrowers to extend loans to give owners time for their markets to recover.

Transaction volume has increased significantly in 2010 vs. 2009, and we have yet to really see the distressed or toxic assets come to market from the lenders/special servicers, agrees Nicholas Malagisi, national director of self-storage for Sperry Van Ness/Commercial Realty. They are coming, but slowly.

Owners who have loans coming due from placement five to seven years ago are going to be hard pressed to refinance without bringing new equity to meet the more strict underwriting standards of lenders today in regards to valuation, he continues. There are many other similar situations going to be coming due within the next 18 to 24 months across the country where selling will take precedence over refinancing.

Grossman also agrees distressed properties will move more quickly in 2011. The lenders and note holders have waited almost 18 months to decide how to handle the nonperforming assets, he says. Generally speaking, theyve started foreclosure proceedings at a more fluid pace, and in turn, receivers are being inserted into the management of the asset. Once the properties are stabilized by the receiver and internal controls are in place, the property is put on the market at a discount.

Cap Rates

Despite the volatility of the market, cap rates have held fairly steady, generally running in the range of 7.5 percent to 9 percent for class-A facilities, while class-B and -C facilities have ranged from 8.75 percent to 11 percent, depending on the situation and existing cash flow, according to Barry.

For a quality, stabilized property, the cap rate now is probably 7.5 percent, says Alter. Older, first- or second-generation properties will trade for 50 to 100 basis points higher.

Interestingly, in California, public real estate investment trusts (REITs) have exerted upward pressure on cap rates while nontraded, private REITs have done the opposite, says Grossman.

Determining value has become more problematic behind the influx of distressed properties. Appraisers and buyers are relying on the income capitalization method for valuation, rather than using comparable sales.

Valuation utilizing comparable sales data is dangerous right now, stresses Malagisi. Because there have been so many sales of distressed assets still occurring, it would tend to lower the overall price-per-square-foot comparison to the detriment of stabilized facilities.

It is still unclear how to determine the value of properties built in 2006-07 that are less than 50 percent occupied, notes Alter. In many cases, those properties have little or no net operating income. In those situations cap rates and current income are meaningless. However, buyers like to say, If its three years old, its stabilized.

New Construction

Despite the availability of land, new construction projects have declined four consecutive years in the self-storage industry. The outlook for development in 2011 remains bleak, largely due to a lack of available financing and the number of distressed and mature properties expected to come up for sale in oversaturated markets.

The main problem with new construction is the lack of or nonexistence of construction funding, says Grossman. Until the current supply of distressed storage properties is resolved, new construction will not be in the pipeline.

There are plenty of entitled sites on the market, but nobody wants to build in this environment, agrees Alter. Anyone venturing into new development should be thinking all cash and had better do their homework.

Conversions

Of course, a lack of new builds lends itself to an increase in conversion projects, which can breathe new life into underperforming properties and be attractive solutions for landlords looking for tenants that can generate income.

I believe we will see many of the established operators considering conversions in markets where their properties are performing well. This will be driven mostly by the lack of construction financing and not necessarily because they like conversions, notes Vestal. In urban areas, where the barriers to entry are high due to a lack of available ground or entitlements, we will continue to see conversions play a major role in new storage projects coming online.

Whether or not these projects occur quickly, however, is another matter. [Conversions] will be more common, although it may be longer than a couple of years, explains Barry. With a lot of vacant space in retail properties, more landlords are considering all options, including self-storage. We have seen more inquiries into shopping center locations, especially where these properties need to derive some type of income.

These locations do not offer the same type of main road drive-by traffic, but they do offer community traffic that frequents the local retail outlets, he continues. More property owners will likely consider any other type of vacant building, as well, but unless they are well-funded and cash deals, getting lenders to approve more self-storage development could be tricky for a few years.

Storage Outlet Self Storage will appear on an upcoming episode of Storage Wars, a realty TV show on A&E that profiles the self-storage unit auctions.

During the appearance, the companys Huntington Beach storage facility will be the backdrop for the seasons fourth episode. In this episode, the shows featured buyers, Barry Weiss, Darrell Sheets and Dave Hester all bet big on promising units.

Storage Outlet Self Storage is a provider of self-storage services for personal, commercial, boat and RV services throughout Southern California, including Los Angeles, Orange, San Diego and Riverside counties. The facilities are managed by PRP Self Storage Management Services.

Zippy Shell USA LLC, which offers door-to-door mobile self-storage, was named among the top franchising trends for 2010 in the Moving and Storage Services category by Entrepreneur magazine.

Zippy Shell USA offers mobile self-storage solutions for customers looking to store, de-clutter or move their goods. Zippy Shell mobile-storage containers can be parked as a registered vehicle in and around cities, and are equipped with an alarm and GPS system.

"The Zippy Shell brand was born from a group of franchising industry veterans who saw a market need and are fulfilling it with a unique business opportunity," said Rick Del Sontro, company president. "The Zippy Shell system demonstrated success across Australia, and it was a viable model to be brought to the United States."

Zippy Shell USA, a member of the International Franchise Association and several trade organizations, has a presence in 25 markets across the United States including.

"We've definitely seen an uptick in interest across several major metro areas and expect continued expansion, Del Sontro said.