Don't marketers think like most people? Not necessarily. In the next several columns, I'll present some of the more elusive concepts of marketing. They may seem a bit unusual. You be the judge.

I think of this column's comments on the basic principles of my craft as Marketing 101. I usually stop short of covering more advanced concepts. Why? They make some people nervous. But they are essential to a complete understanding of effective marketing. So I'll finally take the plunge and explain some approaches that go beyond the basics.

Sometimes readers want me to be more down-to-earth. They want suggestions for things to do or actions to take rather than the principles I offer. I agree the most entertaining part of marketing is conceiving and launching programs. Nothing is more exciting--but it is only the final step. Because of the cost of media and the importance of success, it is critical each program be founded on solid ground. Business giants in tough, even brutal markets have honed the concepts I present. General Electric, Procter & Gamble and Coca-Cola are among them.

Too Big?

Because these companies are so big, people may feel their marketing tactics can't apply to small organizations. On the contrary, these approaches are universal and can apply to the process of marketing any business. It's just that large organizations could afford skillful people to identify and codify the tactics. Actually, they had no choice. As manufacturing activity grew from a local to a national scale, media campaigns became very costly.

Something had to change. The larger companies discovered and codified basic marketing maxims. Then the new systems gravitated to business schools to take their place beside other courses of study. It is only in the last 60 to 75 years that marketing has been established as a business discipline taking its place alongside accounting, engineering, law, etc.

Identifying principles allows an operator to predict outcomes. Anytime you can predict, your activities are more valuable. So I tend to stick with principles, knowing they are the foundation of success. For this and the next several columns, we're moving on to Marketing 102.

Here Goes

What the tenant buys is not what he wants. This realization summarizes the difference between how marketers think and how the usual supplier thinks. It is a question of means and ends. A storage unit is the means by which a tenant achieves some end. No product or service is of great interest to him until it is connected with one of his goals.

When you sell storage, you have to appeal to the interests of the prospect. The most effective seller is the one who identifies the tenant's end and proposes the best method of achieving it. While the average self-storage operator dwells on the properties of the units he offers (Are they clean, well-located, climate-controlled, competitively priced, etc?), the marketer focuses on what prompts the prospect's interest in self-storage in the first place (moving to a new home, going overseas for two years, storing records, etc.). The effective marketer weaves the qualities of the product into the prospect's desired end; but first he must find out what it is.

Mind Games? Doubletalk?

We know each product has qualities or features, including size, weight, color, shape, etc. Intangible products, such as insurance or securities, have their characteristics, too. Those qualities create benefits. But where? How?

Benefits are created by the mind. That's where the black arts of media and sales enter the picture. All this talk about perception is what drives some people up the wall, but it's true. Politicians understand. They use polls and focus groups to gather information. We marketers use interviews and various kinds of research to get an idea of the situation we're facing.

Value exists or is created only in the mind. The marketer is the one who has the job of making prospects' minds react correctly to a company's offerings. He deals with creating a desirable perception of the product. When that happens, the prospect is induced to exchange something of value to get it. Marketers master the junction of ends and means by having excellent knowledge of the prospect's situation. That's why I hound you to identify the segments you serve. They have problems you solve. You need to know what they are. That's how you build programs.

Clever, Very Clever

In the absence of firm knowledge of user objectives, some media professionals resort to the absurd. They try to link their product to some universal appeal, such as better romantic success: "Use my double-insulated belt-sander and watch your social life soar!" Is this nutty? Of course. But it's illustrative of a principle. These marketers understand the power of the concept. Substitute soap, cars, cosmetic goo, clothing, travel--they all use romantic appeal as a promise stemming from their use. Some do it very well.

One of the best campaigns I've seen recently is the commercial that suggests a life of elegance and class is yours when wearing the Ralph Lauren clothing line. It says nothing about the quality of the clothing. As a matter of fact, there's no specific mention of clothing at all--just the insinuation that Ralph helps you enter the charmed circle of favored people. And a lot of people buy into this.

My point is the marketers behind the campaign are skilled in attributing values to clothing that have nothing to do with the actual qualities or features of the product. They make the brand synonymous with elegance, but it's not what they actually supply. Now the brand is established, they could attach it to can openers if they wished. What Ralph Lauren gets paid for is not what the customer is buying.

Our task in self-storage is to understand and apply this sort of thinking. While we may not be able to achieve the extreme effects of Ralph Lauren, we benefit by studying its excellent example of the creation of value--not by product design, but by the use of media. We can apply a similar technique, capitalizing more on the prospect's needs and desires than what we actually offer. Direct your attention to the only point where value can be created--the mind. That's thinking like a marketer.

Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.

I'm a big fan of Bettie Page. For those of you who don't know of this legend (gasp!), Bettie is the woman who, in 1955, won the title "Miss Pin-Up Girl of the World." Most renowned for her shiny black hair and trademark bangs, Bettie appeared on the covers of magazines such as Wink, Titter and Beauty Parade and as a character in Dave Stevens' illustrated novel, The Rocketeer. Her image, feverishly purchased by admirers all over the globe, still appears on playing cards, record albums, lunch boxes, t-shirts and more.

What does Bettie have to do with self-storage and legal issues? While recently reading one of her biographies, I stumbled upon an interesting fact: During 1957, while between permanent residences, Bettie suffered an injury that left her wheelchair-bound and unable to work. After several months of depleted savings, she was unable to pay rent on a storage unit she had rented in New Jersey. The owners evicted her and sold all her belongings, including family mementos and her modeling portfolio. According to the author of the biography, Bettie never even had a chance to bid on her items in auction or stop the sale.

Inside Self-Storage has published numerous articles on legal issues, including the charge of late fees, composition of rental agreements and execution of lien sales. (To access these and other articles, visit the online archive at www.insideselfstorage.com.) It is more important now than ever for owners and operators to understand their rights and obligations under the law when dealing with tenants and their goods. It may be Ms. Page could have sued the storage facility for wrongful sale if the manager didn't make sufficient effort to contact her or publish notification regarding the auction of her things. Or it may be Bettie had no justification for recourse.

In his article "Contending With a Lawsuit," page 20, columnist Jeffrey Greenberger discusses the most popular antagonists of litigation in self-storage, as well as ways to avoid being on the receiving end of a suit. He also outlines key steps to take if you are sued and some resolution alternatives to court. Also in this issue, Carlos Kaslow, general counsel to the Self Storage Association, clarifies how to protect yourself and your facility from legal complications related to the dumping and storage of hazardous waste, and David Weissmann explains the ins and outs of the 1031 exchange.

It doesn't pay to be careless. Be aware of self-storage laws in your state and, most important, be active in the creation of litigation that relates to our industry. There is no cure for the disgruntled tenants you will, no doubt, encounter from time to time. But being mindful and cautious will go a long way toward protecting your assets.

Best wishes,

Teri L. Lanza
Editor
[email protected]

Disasters happen. Natural disasters, such as fire, flood, hurricanes, tornados, earthquakes and even volcanic eruptions are a fact of life, and home and business owners have always had to deal with them. That's why, as a responsible self-storage facility owner, you need to have an action plan in place should a disaster strike your operation. Being prepared for the worst can go a long way toward minimizing any disruption you may suffer should a disaster occur.

For example, it's a good idea to keep backup copies of your valuable papers in a secure location off-site. It's also helpful to photograph or videotape your business-personal property to document your claim in the event of a loss. Most business experts also recommend you review your insurance coverage with your agent or broker at least once a year to better protect yourself against changing exposures that occur over time.

What to Do After a Loss

The first thing you should do after a loss--and note that some business insurance policies require you to do this--is take immediate action to protect your property against further damage. Depending on the circumstances of your particular loss, this might include calling a public utility to shut off the power to your premises (as in the case of flooding). Assuming your claim is covered, the cost of any emergency measures should be picked up by your insurance company (be sure to keep your receipts for repairs). Of course, it goes without saying that if a loss forces you to evacuate your premises, you should notify the police department before leaving your facility unlocked and unattended.

The next thing you should do after a loss is to make an inventory of any items that have been lost, stolen or damaged. This serves two purposes: It can help you generate an action plan for getting your facility back in operation and can greatly speed up the processing of your claim. Seeing the destruction of your business and personal property can be traumatic, especially in the case of a fire; but remember you should not dispose of any damaged goods until your claim has been fully investigated by your insurance adjustor.

The third thing you should do is get in touch with your insurance agent or broker as soon as possible after a loss--the more quickly he is contacted, the sooner your claim can be processed. Advise him of any loss or damage, and follow up with a letter detailing your loss (keep a copy of the letter and all other correspondence for your records). In situations where you need to evacuate your premises or have lost access to public services, be sure to give your agent a telephone number where you can be reached. Also try to avoid discussing the circumstances of your claim with anyone except your agent--doing otherwise may actually put your claim in jeopardy.

Filing Your Claim

In order to be reimbursed by your insurance company after a loss, you will need to file a claim. This is the formal document on which payment will be adjudicated according to the terms and conditions of your policy. In most cases, your insurance agent can complete and file the claim for you over the phone, although, in some instances, you may be required to file the form yourself. In either case, supply your agent with as much detail as possible. Remember to give him copies of all police and/or fire reports, repair receipts and other pertinent documentation.

The Role of the Claims Adjuster

Once you have reported your claim to your agent (who represents you), he will immediately contact a claims adjuster (who represents the insurance company). The claims adjuster's job, after thoroughly investigating the nature of your loss, is to make a judgment call on behalf of the insurance carrier to pay all, part or none of your claim, according the the terms and conditions of your policy. While most claims are settled promptly and fairly, some are more complicated and may require some interaction on your part. In such cases, your agent should work with you to help resolve your claim to your satisfaction.

What You Need to Know About Your Deductible

When your claim is settled, the amount the insurance company pays out to you might be subject to a deductible. Choosing a larger deductible allows the insurance company to charge a smaller premium since you have agreed to pay a larger share of any incurred damages. Most self-storage facility owners choose a $1,000 deductible on their insurance policies. Remember, no matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.

David Wilhite works for Universal Insurance Facilities Ltd., which offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information on Universal's coverages, or to get a quick, no-obligation quote, call 800.844.2101; fax 480.970.6240; e-mail [email protected]; visit www.vpico.com/universal.

This month's travels take us to the southeastern United States. The Southeast is a fast-growing area of the country, with lots of new and existing self-storage facilities. Let's hear what our local experts have to say about their respective cities and regions. The Southeast brokers contributing to this survey are Bill Barnhill, Omega Properties, Mobile, Ala.; Rob Czukor, Coldwell Banker, Miami; Art Lancaster, David Treppendahl Commercial Real Estate, Baton Rouge, La.; and Frost Weaver, Weaver Realty Group, Jacksonville, Fla.

1. Have you seen the impact of a recession in your area?

Barnhill: Yes, there has been a rise in unemployment due to the closing of a major paper plant. Additionally, small businesses are reporting a slowdown.

Czukor: Yes, occupancy rates have increased as people who have been "downsized" move to smaller, more affordable housing. They still need space to store their things.

Lancaster: We have not seen any signs of the recession affecting the supply or demand for self-storage in Louisiana.

Weaver: The economic recession does not appear to have had an adverse impact on the self-storage industry in our area. There has not been a decline in overall rental rates or occupancy. The most noticeable impact has been in commercial-office leasing, where occupancy has declined as well as rental rates in most areas of Florida.

2. Are investors still interested in self-storage and, if so, what kind of investors are they?

Barnhill: Investors are still interested in self-storage. In our area, it appears most of the inquiries are from individual investors who already own several facilities.

Czukor: Yes, we have buyers in our marketplace and very few sellers. The buyers who have remained active since Sept. 11 are more professional investors, not the part-time real estate investors who seek short-term properties to flip for a quick profit.

Lancaster: Yes, investors still are interested in self-storage. Most of the investors we have seen are interested in buying and rehabilitating existing facilities rather than developing new projects. Most of the investors are already self-storage owners, so we haven't seen too much new blood in terms of buyers.

Weaver: Inquiries for acquisition opportunities continue uninterrupted. Most of our contacts are individuals or private companies from out of state. Most are current owners of other self-storage facilities, but we also have a considerable number of first-time investors looking to diversify their real estate portfolios. In addition, there is a significant number of individuals looking to relocate to Florida with the goal to acquire and operate a self-storage facility as part of their semi-retirement plan.

3. Are the local banks continuing to make loans in your area? Are the falling rates having any impact on buyers?

Barnhill: Local banks are still actively in- volved in financing self-storage. The falling rates have contributed to enhanced interest from individual investors.

Czukor: Yes, banks are still lending. However, they are looking much more carefully at the buyer and the property. The banks' lending requirements are being followed much more closely.

Lancaster: Yes, local banks are still making loans here, but very carefully. It isn't too easy to get a loan for a self-storage project from a bank here in Louisiana. The falling rates have not had any significant impact on buyers that I have seen.

Weaver: Most of the banks are continuing to seek loan opportunities, including self-storage. There is a strong emphasis on the credit worthiness of a potential borrower. While the declining rates have been favorable to buyers, they have not been a stimulus for new buyers. The lower rates have been a factor in negotiating sales prices because of the positive leverage created.

4. Are you seeing any signs of overbuilding? Is it really a big deal in your respective area?

Barnhill: Certain areas show signs of overbuilding; however, there are still pockets of opportunity in various cities.

Czukor: Maybe. We have seen a lot of new facilities come online this past year, most of which have rented up ahead of schedule. However, we do have in excess of 20 new facilities in all phases of planning and construction. This may cause an overbuilding situation here in the southern Florida area in the future, possibly around 2003-2004.

Lancaster: Yes! The New Orleans market has become overbuilt. The market here in Baton Rouge is getting that way. As I stated before, most buyers are buying rehabilitation projects because they know the market is getting overbuilt and the consequences of that will not be good for business.

Weaver: New construction has slowed down. There has been overbuilding in some of the major market areas, but Florida continues to grow and there is positive absorption.

5. Are there many conversions (i.e., a warehouse to self-storage) in your area? If so, are people concerned this could add too much storage space?

Barnhill: We are seeing very few conversions, but adding space such as this is viewed no differently than addition of traditional new space.

Czukor: No. We see very few conversions in the south Florida area. Most of the current projects coming online or being built are class-A-type facilities.

Lancaster: No, we have not seen any conversions in the Baton Rouge market. I believe there may be a few in New Orleans, but not enough to concern people that there would be too much space.

Weaver: There has been little conversion that I am aware of. There is still land available in most areas where there is growing demand. There is an increasing trend in densely populated areas to develop new properties with two or more stories.

6. Which, if any, REITs are active in purchasing self-storage properties in your area?

Barnhill: We have not seen any REIT activity in southern Alabama.

Czukor: We have seen Stor-All and Public Storage as active players in the past year. U-Store-It has just built two new facilities that opened in 2001.

Lancaster: U-Store-It was the last REIT to buy in this area, and that was more than a year ago. So activity from REITs has been pretty insignificant.

Weaver: There appears to be little REIT activity at the moment in new acquisitions. Most activity appears to be private investors.

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.

Is it always necessary to conduct a feasibility study when developing a self-storage project? If you meet any of the following criteria, you probably do not need to seek a self-storage professional to analyze your project:

• Your great Aunt Martha is richer than God, has only a few days left on earth, and is leaving you her entire estate.
• Your best friend and business partner is Bill Gates, and you happen to have been one of the original investors in a little company called Microsoft.
• Your bank just informed you that because of your track record and borrowing history, any and all loans you seek are preapproved.
• You have controlling interest in Shurgard.
• Your last 15 self-storage projects have been home runs.

If you meet any of the above criteria, consider yourself blessed. If you meet two or more and are open to blind dates, I have several relatives you need to meet! All kidding aside, there seems to be some mystique surrounding the process of conducting a feasibility study. Who should you use? How much will it cost? What should you expect? Let's look at the procedure from the very beginning.

Finding a Feasibility Firm

Referrals. Referrals are great, but if you are referred by someone who just thought he got a good report, it doesn't do you any good. In addition to a referral, seek other references. It is also a good idea to go into the open market and shop your options. I suggest investigating some of the following sources.

Tradeshows. Go to industry tradeshows and visit the exhibits of companies that conduct feasibility studies. A good firm will be highly visible and available to answer questions. A tradeshow is a commitment. On average, it costs a company approximately $5,000 to exhibit (including travel and materials). If a firm is not willing to invest in meeting new prospects, you must wonder why. It could be the company just couldn't make it to a particular show; or it could be it is too busy to take on new business, financially unsound or just generally unavailable.

Articles and seminars. Look for a firm that contributes to the industry in ways other than advertising and marketing and keeps abreast of self-storage developments beyond its particular focus. Seek a well-rounded professional who has experience and expertise in acquisitions, management, brokerage, training, operating, financing and development. Perhaps the firm has written articles or conducted seminars on some of these topics. Not only are these good ways to learn more about the feasibility process, but they may provide insight to the quality of the firm.

Trade associations. It is a good idea to deal with firms that are members of state and national self storage associations--preferably ones active in the associations' activities. Giving back to the industry is an important part of the business process. It keeps consultants in touch with reality.

The Internet. These days, most reputable companies will have a website of some sort. If you search for a firm online, there are some things to look for: How informational is the firm's website? Can you view feasibility reports online? Are there other samples of the firm's work? Are fees listed? What about descriptions of levels of service? Are consultants' resumes posted? What kind of information is the firm willing to share?

Cost

Last year, I had Lasik eye surgery. Tempted as I was to use the doctor with the lowest price, I had to ask myself, is this a price- or quality-driven purchase? I submit that if you are putting millions of dollars at risk (or borrowing that kind of money), saving a few thousand dollars on a study is probably not in your best interest. Here are some hints on what you can expect to receive in the different price ranges. Keep in mind that in addition to the fee, the client is expected to pay for travel and expenses.

$0-$2,999: Fuhgeddaboudit. For that kind of fee, there is not much quality research or analysis a consultant can do. A knee-jerk reaction is the best this kind of analysis can produce. Pay for sufficient research so you can form an educated opinion.

$3,000-$4,999: The average consultant should charge around $75 per hour for his service. For this kind of fee, expect a one-day quickie. By the time travel and report-preparation time is included, the consultant cannot really afford to spend more than 35 to 45 hours total in this fee range. If he loses a day in travel and it takes two days to prepare the report, you might only expect him to spend a day or two on research and formulation of opinion. This fee should get you a decent report with the benefit of the consultant's instincts, but not a lot of documentation. If you are not using the report for a lender or investor, this may be all you need to spend.

$5,000-$8,000: In this fee level, you should expect a very high level of service. The consultant should be spending about 40 hours or more on research alone, and at least two to three days in gathering market information. The report should be very comprehensive and demonstrate to your banker or investor the level of research and analysis that went into the consultant's opinion. At this fee level, you should also get a loan package in addition to the feasibility study. (For more information, see the accompanying sidebar.)

$8,001-$10,000: This fee range should provide lots of follow-on service. The original assumptions should be updated and included at this fee, and you should get some design consulting. A unit mix is a must, so this level of service should include a beginning layout of the site, marketing plan, management plan and plenty of phone-consulting time. The consultant should invest well over 125 hours into the project. You should expect at least three to four days in the marketplace, and a significant amount of follow-up. You should also expect the consultant to offer to interact with engineers and architects in the process.

Getting Started

You should expect the firm will send you a letter of engagement or professional-services agreement. If it uses a one-page agreement, it may say something about the relationship you can expect, i.e., shortcuts throughout the process. While the agreement or contract should not be in volumes, it should address at least the following:

• Who are the parties?
• What is the cost?
• When is the report to be delivered?
• What are the liabilities of the consultant? (Relative to the assignment and the report, the consultant's insurance company is going to want to see strong language in this part of the agreement. If there's no language, there's probably no insurance.)
• How many copies will you receive?
• How are expenses calculated and paid?
• What kind of reliance language is included?
• What kind of controls are there on the report distribution? (A good consultant will be concerned about who will rely on the report and to what extent.)

Consultant Qualifications

You should expect to pay a deposit of approximately one-half the fee, plus expenses or a travel advance at the time you execute the agreement. The consultant should provide quotes for air fares and try to save you money by booking one to two weeks out.

When obtaining a feasibility study, gather the following information about your consultant:

• How many self-storage projects he has developed (not how many has he sold or how many feasibility studies he has done).
• How many feasibility studies he conducts each year. Make sure this is not just a part-time endeavor. Avoid brokers who may have a conflict of interest.
• Is he insured? With whom and for how much? Would he provide a certificate of insurance for errors and omissions or professional liability? Insist on insured consultants.
• What is the consultant's volume of self-storage transactions? A good target number might be something in the $500,000 range.

Where did the consultant receive his training to become qualified to consult? What kind of formal or informal training does the firm have?

• Ask for references. For whom has the consultant worked? Do you know them? Are any of the consultant's clients large firms such as Storage USA, Extra Space, Public Storage, U-Haul or Sovran?
• When was the last time the consultant sat behind the desk of a self-storage facility to know more about customer wants and needs? How does he stay in touch with the real self-storage world?
• In what types of properties does the consultant specialize? If your consultant is limited by geography or size, make certain he has the experience you seek.
• How long will it take to get the report? A good consultant is busy. A great consultant is busy and has depth--a feasibility study is not just a one-man show. Look for a consultant with enough resources to get the job done.

The Report

Subject to its purpose, the report should contain the following essential elements:

Community analysis: How much does the consultant research the local community? What historical perspective does he have? History repeats itself; knowing the roots of a community helps a consultant to know how it can support your project.

Neighborhood analysis: What comments are made about the neighborhood, its growth and composure? How are commercial and retail activity characterized? What does the consultant report about residential activity?

Site analysis: What does the consultant say about the site? What are its strengths and weaknesses?

Competitive analysis: Who are the competitors? Most important, how do they compare to your project? Where are they located? Does the consultant profile their amenities so you can compare apples to apples? Which competitors are primary and which are less important?

Rate analysis: How many competitors' rates does the consultant survey? Do they match your unit mix? What can he tell you about why the rates may be higher or lower? How easy is it to compare profiles of the competition?

Unit mix: How did the consultant derive your unit mix? Some would argue there is no formula that can determine a unit mix. It is an analysis based on market research, competitive data and experience.

Market definition: What are your primary and secondary markets? Does the consultant use nice circles to define a market? Rarely is a market circular--railroad tracks, freeways, golf courses, commercial developments, mountains and major arterials can divide it. A good consultant defines the market by man-made, natural and socioeconomic barriers.

Market analysis: Does the consultant know how you will get to stabilized occupancy? Does he know from where your tenants will come? Has he discussed barriers and competitors relative to the market?

Demographic analysis: A good study will define the primary market and analyze the demographics within it. Ask to see examples of defined market-demographic analyses. A thorough report will not only recognize and analyze the demographics of your site, but will pull reports on competitive sites to determine similarities and differences. Beware of postal counts--they do not tell the whole story.

Economic analysis: What data does the consultant provide to determine the economics of the deal? You should see month-by-month budgets for at least five years. This data will be needed to determine returns on investment. How thorough are the pro formas? Do they allow for expense and income increases? How do they treat the lease-up period? How does the consultant determine what your operating reserve should be to carry the project during negative cash-flow periods? Is this a "plugged" or calculated number?

Exit strategy: How are you going to exit this investment? What kind of guidance does the consultant provide? Does the report define institutional-grade criteria, and how does your project stack up? The consultant should perform three pro forma evaluations: base case, pessimistic (worst case) and optimistic (best case). He should be able to comment on how he stressed the analysis to determine the variances to base case.

Square-foot-per-capita analysis: It is one thing to analyze the square foot per capita, but an entirely different analysis to compare it to others in your market, the top 50 and 100 U.S. markets, then the whole country. How recent is the consultant's data? How many comparisons does the report cover? How does the square foot per capita relate to the market area as defined by barriers, not circles?

Cost analysis: To determine the return on investment, the consultant must determine how much money you are going to invest, which means a rough cost estimate is required. How does he obtain this number? How much detail does the report provide on the assumptions?

Return analysis: How does the consultant determine if the project is viable? At minimum, you should see internal rates of return, developers' yields and cash-on-cash returns for a period of five to seven years. Look at the assumptions and make certain the consultant can tell you how he came up with the returns. Most important, how does the consultant comment on the returns specific to your project?

The accompanying sidebar provides a list of what you should see in your report. There is no substitute for hard work, sound research and prudent analysis. The instinctual, subjective analysis is invaluable when the consultant puts his experience to the test, but a good consultant can only arrive at an educated decision through research. Do not settle for shoddy or minimal investigation. Ensure the consultant avoids shortcuts and gives you the benefit of thorough fact finding and an educated opinion.

For a detailed list of self-storage consultancy firms with contact information and links, visit the Inside Self-Storage online buyer's guide at www.insideselfstorage.com and click "Consulting."

RK Kliebenstein is president of Coast-To-Coast Storage, with offices in Boca Raton, Fla., San Diego and the Washington, D.C., area. Coast-To-Coast is a self-storage consultancy business that assists developers and owners in operating more efficiently and profitably. If you have questions about feasibility studies, Mr. Kliebenstein can be reached by phone at 561.367.9241; e-mail [email protected].   

The Feasibility Report
What it should include:

• Table of contents
• Self-storage industry data
• Area, location and competition map
• Project description
• Photographs of property
• Community data
• Municipality data
• Flood map
• Macro and micro site analysis
• Square-foot-per-capita analysis
• Market demand
• Definition and comments on primary and secondary markets
• Competitive analysis: primary and market
• Unit mix and rental rates
• Absorption analysis
• Exit strategy
• Store-operations commentary
• Insurance quote
• Yellow Pages quote
• Construction-cost estimates
• Five to seven years of month-by-month budgets
• Investment-return analysis
• Conclusion and recommendations

Many people bemoan having to "work for a living" and simply dread waking to the alarm at 6:30 a.m. on Monday morning. It is rare to encounter a person who exudes so much passion and excitement about his work it is contagious. But Mike Parham, founder and president of Noah's G.P. Inc., is one such person. His is a communicable enthusiasm for self-storage development and investment opportunities.

Noah's G.P. is the culmination of Parham's vision for providing a comprehensive self-storage investment vehicle to interested and qualified investors. It is a full-service self- storage development company that provides unique investment and joint-venture opportunities--primarily in the south central and southeastern United States--via its Noah's Ark Self Storage chain. The company currently has five Noah's Ark facilities in operation, with seven more in various stages of development.

"Although my involvement in the self-storage industry dates back to 1980, the first stage of my three-part strategy for a comprehensive investment vehicle really began with the founding of National Development Services [NDS] in 1987," says Parham. Since its inception, NDS has been involved in the design/build aspect of nearly 200 self- storage projects, including projects for institutional developers such as Shurgard, Public Storage, Storage USA, Storage Trust and Sovran.

NDS received the Facility of the Year award from the Self Storage Association and MiniCo Inc. in 1989, 1990, 1991, 1994 and 1996, as well as the Design Excellence award from the Mini-Storage Institute in 1995. NDS President Victor Lopez says, "In the early years of NDS, we spent about 50 percent of our time redesigning every project we received from outside engineers and architects who had never worked on a self-storage project before. Their designs were simply too costly and didn't incorporate all of the features necessary to be cost-effective and user-friendly."

The second phase of Parham's strategy required the formation of Joshua Management Corp., a self-storage property-management company that supervises the Noah's Ark chain as well as other facilities owned by outside clients. "The role of Joshua Management is to completely analyze and understand the operations of every self-storage property in its care, with a view toward minimizing operating costs and maximizing lease-up rates, customer closing rates, overall occupancy rates and, ultimately, the bottom-line cash flow," says Parham.

Commenting on the company's first year of operation, President Donna May says, "Joshua Management reduced its portfolio's operating cost by more than 10 percent, which increased its fair market value and cash flow by the same amount. Properties in the leasing phase have had a net occupancy increase of 8.4 percent per month and a customer closing rate of more than 72 percent--both well above industry standards."

Building on the design/build experience of NDS and the property-management expertise of Joshua Management, the third and unifying phase of Parham's self-storage investment strategy is the implementation of the development role of Noah's G.P. This includes site selection, facilitation of zoning and entitlements, demand analysis, development budgeting, financial forecasting, and the preparation of bank and investor packages.

"Simply stated, the role of Noah's G.P. is to develop the Noah's Ark Self Storage chain," says Parham. "Each Noah's Ark facility is a separate limited partnership, which is typically 50 percent to 60 percent owned by Noah's G.P. and its partners/employees and 40 percent to 50 percent by other investors. These others are interested in the potential returns available in a self-storage project; however, they may lack either the experience or desire to deal with all of the development, design and management intricacies essential to success in this industry. By partnering with Noah's G.P., they can experience the excitement and potential of self-storage without the headaches and risks of starting from scratch and reinventing the wheel."

In a typical Noah's Ark project, investors contribute 20 percent to 25 percent of the cost in exchange for 40 percent to 50 percent of the limited partnership. Noah's G.P. handles all development issues, including financing and providing the personal guarantee to the lender for the construction loan. NDS designs and builds the project for a fee of 7 percent of the construction cost, and Joshua Management runs the property for a 5 percent management fee.

The typical project will involve six months of construction and 18 months of lease-up to 90 percent occupancy. After three to six months of stabilized occupancy, the project is typically refinanced at 70 percent to 75 percent of fair market value, which usually returns 70 percent to 100 percent of the investors' original contributions. Otherwise, the project is sold to an institutional buyer. Cash flows and proceeds from the sale of the project are split in accordance with relative ownership interests.

When asked about the exit strategy for his self-storage investments, Parham draws an analogy to the hotel/motel industry. "Years ago, the vast majority of motels were individually owned," Parham says. "Over the years, we have seen massive consolidation--the top 20 hotel/motel operators probably own more than 90 percent of such properties. The same thing is happening in the self-storage industry. We are definitely seeing growing consolidation, which provides a tremendous opportunity for the savvy private developer that can select the type of location and build the type of properties institutions will purchase."

Parham notes that as a pilot program, NDS developed facilities with a variety of investors between 1994 and 1998, most of whom were its own clients. "All of these facilities were sold in 1998 to two institutional buyers. The sales cap average was 10.2 percent, even with several of the properties having less than a six-month history of stabilized occupancy. The overall return on investment averaged at 36 percent annualized," says Parham.

"The success of this portfolio led to the launching of Noah's G.P. and the Noah's Ark Self Storage chain in late 1998. Our new focus on multiple locations within particular markets as well as our previous experience cause us to have tremendous expectations for both."

For more information about Noah's G.P. and Noah's Ark Self Storage, contact Mike Parham at 800. 847.4992; visit www.noahsgp.com.

We have all heard the saying, "Buy low and sell high." But if investing is this easy, why don't we always take advantage of economic cycles, interest rates, locations, etc., and make serious returns every time we sell? Self-storage owners, like those of other real estate and financial investments, seek to maximize the return on their investments. They evaluate the risk, take a position, make the acquisition, watch their investments mature, and decide whether to keep or sell them. Though the answer to the question of when to sell is not always simple, there are some obvious times an owner should list his property for sale.

Personal Reasons

Whenever we have an illness or personal problem that would prohibit us from active participation in our business, and we don't have a contingency plan for managing the business in our absence, we should consider selling. This would also apply when we seek to relocate or retire to another part of the country. Self-storage is not a passive investment like stocks. We need to be present at our stores often, using a hands-on approach to customers' needs and daily responsibilities.

Financial Reasons

Let's face it. In markets such as Atlanta, Las Vegas or Memphis, Tenn., there are more and more new facilities built every year. The national companies as well as inexperienced, first-time investor groups are building some of them.

If we have a 5-year-old store with occupancy that has consistently hovered around 90 percent, and we have maximized our rents and operated as efficiently as possible, we are making the most of our investment. The only effect another facility in our market area would have would be a negative one. It would likely reduce our annual income and increase vacancy. This would diminish our property value, and our ability to regain our position could take several years.

Another reason to consider facility sale would be if we made some mistakes developing our project. Perhaps we're in a poor location or have the wrong unit mix. Maybe our construction costs are too high, our fixed costs are higher than we imagined or our competitors' rents are drastically lower than ours. As a result of these and other faults, our store never achieved the occupancy we anticipated, and we have not maximized our investment. Instead, we have been suffering losses monthly. Unless a recovery plan has been implemented and our efforts are working, we should consider selling our storage facility to at least recover our initial investment rather than lose the entire property.

Losing a Marketing Advantage

It's possible for a competitor to build a new facility in a better location than ours and take away our consumer traffic. This can also occur by losing a Yellow Pages position to a competitor who then places an aggressive advertising and promotions package. This is more than a signal--it marks an increased cost of doing business, and we need to evaluate the long-term effects and cost.

Offer Too Good...

We may have received an unsolicited offer to purchase our facility or an expression of interest from a qualified buyer. They have made us an offer we can't refuse. The price they have offered is equal to or more than we could expect to receive if we had an orderly sale. We should perhaps consider a sale and reinvest the proceeds through a tax-free exchange.

Minimized Return

All of us are interested in making money through investing in self-storage properties. If we have a stabilized store with high occupancy, our rents are at the top of the market, and we have placed the best assumable financing, perhaps we have maximized our investment and should reap our profits while we can. Certainly no one will fault us for buying low and selling high.

Demographic or Physical Changes

The buildings we renovated or converted to self-storage may have been in the best location when we got into the business several years ago. They were on the main street, near neighborhoods and businesses. But now, the new freeway has been built and our visibility is totally or partially blocked. Or the demographics of the neighborhood have changed so much our customers have to travel through an area in which they do not feel safe. Selling the property before the real occupancy significantly decreases is a wise idea.

Permanent Financing

It is possible the time has come for us to renew our permanent loan, and we are looking at high interest rates or terms that are not attractive from the lending community. What if we can't refinance at acceptable terms? What if there are not enough proceeds, too many points, interest-rate challenges or personal liabilty? The alternative is to sell.

The future is full of uncertainty. There are probably more negatives than positives on the horizon. Some include economic slowdown or recession, increased competition, new investments from REITs, financial-liquidity problems, market volatility, lack of investor interest and a drop in consumer spending. It may have been easy to get into the self-storage business, but knowing when to sell may be difficult. The reality is a self-storage owner, like any investor, should keep his options open and time his transactions so he can indeed buy low and sell high.

Jack Guttman is the managing partner of Coldwell Banker Commercial, NERA, based in Fairfield, Conn. He has sold more than $100 million in self-storage facilities and has closed more than 14 sales in the last two years, mostly in the Northeast. He specializes in the sale of self-storage and retail properties and is also the owner of 25 self-storage facilities. Coldwell Banker, one of the largest commercial real estate brokerage companies in the country, has more than 400 offices throughout the United States. For more information, call 718.401.4700.

The self-storage industry has undergone a series of tremendous changes over the past two decades, evolving from a core group of small, mom-and-pop facilities to a large, powerful organization of professional business people. The rapid growth of the industry has further created a variety of challenging new issues, many of which are just now being addressed.

When the self-storage industry was young, so were its buildings. Facility owners had secure new roofs that did not leak, factory-fresh doors and a much lower incidence of crime than today. These circumstances were very attractive to insurance companies, several of which developed products specifically for the industry. Specialty insurers provided better coverage than what was generally available at the time, and many offered significantly reduced premiums for substantial savings.

During the '80s, when self-storage was reaching a new level of activity, so were its insurance exposures. Due to various challenges the nation was experiencing at the time--primarily the recession--building maintenance and repair was deferred in many facilities, increasing the potential for damage to customer's stored goods. In addition, the criminal element discovered self-storage facilities were ideal places to conduct its activities. These developments caused insurance claims to increase dramatically in certain areas, and helped give rise to certain specialized insurance coverages, such as customers' goods legal liability, to help facility owners protect themselves adequately.

Customers' goods legal liability is an important coverage unique to the industry. The basic premise of self-storage is owners act as a landlords, not warehousemen; they never take possession of their tenant's goods. They are not responsible for those goods since they are simply renting space. However, there are certain situations that can create legal liability on your part for damage to your customers' goods. For example, by providing a building to store goods, you represent protection against the elements. If a customer's goods are damaged by water or some other form of the elements, he may feel you were somehow negligent in honoring that representation.

If you are found legally liable for damage to a tenant's goods, your customers' goods legal liability coverage will probably pay the claim. Just as important, it provides defense costs even if a claim is found to be groundless, false or fraudulent. It also includes coverage for damage done to customers' goods stored in the open, should you be found legally liable for that damage. This coverage is not normally available in the standard insurance market and cannot normally be added to the standard business-owner's package policy. It is coverage available through specialty markets for self-storage insurance.

These days, most facility owners have got their deferred maintenance schedules under control. This new emphasis on routine maintenance is helping to contain losses in the area of customers' goods. Aside from a complete re-roofing of your facility, there are many new products available for sealing aging roofs. There are also companies that sell maintenance products, such as unit-door threshold seals, that provide cost-effective alternatives to more expensive repairs. And facility operators have kept busy implementing new ideas of their own to help contain losses, such as providing pallets in each storage locker. The pallets keep their customers' belongings a few inches off the floor, helping to keep them dry in the event of surface-water accumulation.

Security is also a major concern, and a tremendous number of vendors are in the business of providing various types of security equipment. A growing number of facilities are equipped with door alarms, computer-controlled entry gates and high-tech surveillance equipment. These products, accompanied by a good resident manager, help control crime.

Sad to say, the days are long gone when an operator can rent a unit to new customer and turn his back on his tenant's activities. Many operators routinely photograph customers, and some even obtain their fingerprints. This may seem drastic, but it has become a necessary practice in some areas. Some operators argue this type of intrusion will chase off customers; however, if it is done in a manner that expresses concern for their property, very few honest people will mind the extra care taken for their security. The customer it does chase off just might be a criminal, and revenue saved from a criminal is really money in the bank.

New construction and proper maintenance of buildings, combined with hands-on management and attention to security are creating safer and more secure places for customers to store their goods. This is good news for those who wish to keep their insurance costs at an affordable level.

David Wilhite works for Universal Insurance Facilities Ltd., which offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information on Universal's coverages, or to get a quick, no-obligation quote, call 800.844.2101; fax 480.970.6240; e-mail [email protected]; visit www.vpico.com/universal.

The essence of any good real estate transaction is due diligence, a "cat and mouse"-like game played between buyers and sellers, lenders and borrowers that defines the risks in a transaction. Buyers and sellers alike can benefit from knowing more about the due-diligence process. Here are some key trade secrets.

The time to conduct due diligence is before you sign on the dotted line. Once you purchase the property, you own the mistakes and the genius. It amazes me that novices to this business would neglect to seek expert counsel when putting hundreds of thousands or even millions of dollars at risk.

Last year, I had two opportunities to work on due-diligence assignments that had potentially tragic results. The first situation was one in which the purchaser did not conduct a thorough due-diligence effort, purchased the property, paid cash and then sought financing. I was performing due diligence for the lender and found the purchaser had been duped by the seller. The property did not generate nearly the income the purchaser had relied on from the seller's data. In fact, the actual performance of the property was less than 75 percent of what had been reported.

Note to buyers: Before you purchase a property, you must ask yourself, why has the property not sold to one of the major buyers of self-storage properties?

There are numerous large self-storage buyers who are ready, willing and able to close on transactions. If a property is the correct size and price, and located in a good market, you will never get a chance to buy it except for very few reasons. If an institution doesn't purchase it, the property or transaction may "have hair on it." If you decide to purchase it anyway, keep these points in mind:

• The same reasons the property did not sell to the institutions before will likely still exist to haunt you when it comes time for you to sell.
• Lenders may have the same beef with the property as the major self-storage buyers. In order to get it financed, you may have to find a lender who does not know enough about the property or industry to make a good lending decision.

The second situation I faced was a little less traumatic. The purchaser engaged our firm to conduct due diligence after he closed. We found there was a moratorium on building or expanding his property, which was regrettable considering one of the compelling reasons for purchasing it was to expand. He also discovered a new 80,000-square-foot property had been approved in his market and permits were ready to be issued. So not only could he not build, but he had a first-generation, state-of-the-art product about to become his competitor. He wished he had done due diligence before he closed.

Note to buyers: Never close on a property unless you have made a thorough due-diligence effort. If due diligence is not your core business, hire a professional. Do not risk the purchase without help.

The Due-Diligence Team

Who should be on your due-diligence team? First, you want to have an attorney review the legal documents and investigate pertinent issues:

• Purchase and sale agreement
• Entity documents (Does the seller have the right to sell the property? Are there partnership issues?)
• Title-insurance binder
• Noncompete clauses
• Zoning compliance
• Ability to replace improvements as grandfathered (on noncompliant sites)
• Environmental reports (particularly if there are issues)
• Personal-property purchase agreement
• Trade name and d.b.a documentation and rights
• Issue and opinion letter on lease document
• Reps and warrantees
• How are prorations handled at close?
• How are receivables handled at close?
• When does the close technically take place? On the day of escrow? When funds are sent? When funds are received? When deeds are filed?

An accountant or self-storage consultant should check:

• Bank statements compared to financial statements
• Cash to accrual-basis conversion
• Accounts-receivable and accounts payable reports
• Reconciliation of site-management reports to the documents originally submitted for making the purchase decision
• Physical inventory
• Retail-sales inventory

A self-storage due-diligence professional should:

• Audit lease documents
• Conduct verbal estoppels
• Conduct a market evaluation
• Examine the propensity for rental-rate improvements
• Interview and assess on-site personnel
• Interview and retain or hire a third-party management company
• Prepare three years of budgets
• Examine manager- and employee-incentive program
• Evaluate retail-sales program
• Conduct a software evaluation
• Archive integrity
• Make operational suggestions to enhance the property
• Inform you of ways to reduce operating expenses

The title-insurance agent will inform you of survey liabilities, such as:

• Easements
• Encroachments
• Setback violations
• Ownership issues
• Pending litigation
• General title flaws
• Construction or contractor liens

An environmental consultant will provide:

• A phase-I environmental site assessment
• Further testing as needed
• No-further-action letters
• Indemnification agreements
• "Bugs and bunnies, turtles and owls"
• Wetland delineation

Engineers will issue:

• Property-condition report
• Structural evaluation
• Permit compliance
• Code-violation exam
• Life-safety issues

Surveyors can provide:

• Boundaries
• "As-builts"

Insurance agents will discuss:

• Current insurance coverage
• Cost of new insurance

Property-tax consultants can predict:

• Special tax considerations from the past that will expire
• Future tax liabilities
• The likelihood of appealing tax billings and winning

Appeasing Your Lender

Conducting a thorough due-diligence effort will serve two purposes. It will determine if the information on which your original offer was made is accurate, and what the lender will discover when it conducts its own due diligence. For whatever the purpose, you soon begin to realize the complex nature of the due-diligence process and the difficulty that ensues when judging a property's ability to generate and sustain income.

The lender will be much more critical of the property. It will want to know what the demographics are like and how they play a role in the marketing, the strength and diversity of the local economic and employment market. It will also want information regarding declines in occupancy, rental rates and the impact of existing and emerging competition.

Many borrowers are hesitant to disclose the weaknesses of their property for fear the deal will fall through. This is usually the result of an emotional attachment to the site. Your lender should be a sounding board for your investment choice. Clearly, it should not be the pivotal opinion on which you base your decision, but should be taken into consideration. If the lender does not see the upside in a transaction, it is likely one of three circumstances are in play:

1. You have not properly documented the potential of the property.

2. The lender does not understand self-storage lending and operation.

3. You are operating on your own instincts.

The bottom line is, if the upside is genuine, you should easily be able to document it. Lenders are not born to be deal-killers. They are likely to be as disappointed as you are if a deal falls out because of discovery during due diligence. Lenders do not make money by analyzing deals, they make money making loans. Their threshold for risk just may be less than yours. Here is a simple formula to follow in working with lenders:

• Identify the risk.
• Understand the causes.
• Mitigate with solutions.

Many lenders are turning to professional due-diligence providers for expert assistance in identifying and analyzing the risks of a transaction. The due-diligence process gives lenders a clear picture not just of valuation, but also of cash flow and cash-flow preservation. It also creates a detailed analysis of each asset's ability to perform in expected and unexpected market and financial conditions. Most important, a complete due-diligence report provides solutions to mitigate potential concerns of a lender or rating agency.

There are several risk levels for a lender, which due-diligence should address:

• What are the circumstances regarding the property that could cause a default?
• What is the likelihood the borrower will default?
• To whom and how will the bank sell the asset if it is required to foreclose?
• How long will it take to sell the property?
• How much can the bank expect to net out of the sale, and will it be enough to recover its principal, interest and costs?

For the lender, the process of due diligence may be to satisfy any one or many of several criteria:

• Does the transaction meet the bank's lending parameters?
• Is the underwriting in conformity with bank policy?
• Does the loan meet FIRREA requirements?
• Will the loan meet the requirements of the rating agencies?
• Is the loan officer experienced enough in self-storage to recognize hidden risks?
• What might a prospective purchaser find wrong with the property?
• To whom can the bank sell the loan if it does not wish to hold it in its portfolio?

Due diligence means different things to different people. It is not an appraisal process. The result is not intended to establish a value, although that may be a byproduct of the process. The goal is more to disclose risks, not to offer an opinion as to whether the borrower can provide the solutions. If you have never owned and operated a self-storage property, what makes you think you are qualified to sustain profitable operations of a property, let alone turn around a distressed property?

So far, it sounds as if due diligence is a deal-killer. Is it ever a deal-maker? Here is a short list of how due diligence conducted by experts can enhance a transaction:

• Discovery of hidden income to immediately make the deal better.
• Discovery of potential income that will provide an upside to the transaction.
• Disclosure of expense savings of which the current owner is not taking advantage.
• Discovery of expenses that should have been capitalized.
• Discovery of expenses that were one-time-only and do not affect normal operations.
• Finding postings that were incorrect and added to net operating income.
• Discovering facts that make the market more attractive than it has been in the past.

In sum, the due-diligence process may not be one you want to conduct on your own. You may be a good operator, but that does not necessarily mean you are a good buyer of real estate. There is a very big difference. While you can expect to pay up to $10,000 for a thorough due-diligence effort (excluding title insurance and legal fees), that may be a small price to pay relative to how much you are putting at risk.

RK Kliebenstein is president of Coast-To-Coast Storage, with offices in Boca Raton, Fla., San Diego and the Washington, D.C., area. Coast-To-Coast is a self-storage consultancy business that assists developers and owners in operating more efficiently and profitably. If you have questions about the due-diligence process, Mr. Kliebenstein can be reached by phone at 561.367.9241; e-mail [email protected]; visit www.realestateinvestor.org.

Selling and providing records- management services creates a unique revenue opportunity for entrepreneurs and developers. Once you have earned a client, you will likely retain that company for its lifetime. However, there are several important issues that need attention to ensure this.

In last month's column, I discussed the value of a typical 1,000-box account in records management. That account generates more than $43,000 in revenue over the first five years of service. This is not the end of the revenue stream but just the beginning. Records are typically retained for an average of seven to 10 years.

It is also true to say most clients do not manage their destruction process until volume becomes very large. As companies grow, their volume also grows between a low of 5 percent and a high of 25 percent annually, depending on the age of the business. Newer businesses tend to grow at higher rates, while more mature businesses grow at a slower pace. The three common circumstances that generate growth in storage from the base account volume are:

1. Client businesses tend to grow as they mature, which stimulates more volume in records storage.

2. As documents undergo the destruction process, they are replaced with larger volumes of the same.

3. Most businesses lack a retention schedule. Clients tend to keep records longer than required.

Ensuring a Lifetime Relationship

There are several absolutes for the retention of records-management clients. These are:

Absolute 1: The right contract form. There is only one "right" contract form in the records-management industry. PRISM International is the trade association that has promulgated this contract. It (or a modified form of it) is in use in most commercial record centers around the world. It has been built through years of experience in the records-management industry.

Absolute 2: Contract term. Be specific about the term of your agreement. It is common for a contract term to be initially set for a number of years--perhaps two or three years at a fixed rate and then on an annual basis with a price escalation thereafter.

Absolute 3: Automatic contract renewal. The contract should include an automatic renewal clause after its initial term. The automatic renewal terms should be clear and require no action by the records-storage center or the client.

Absolute 4: Periodic price escalation. Price escalation clauses should be tied to the term of the contract. You should tie the increase to something reasonable, i.e., the regional cost-of- living index. Price escalation could be annual, biannual or follow any other specific time period.

Absolute 5: Limitation of liability. The limitation of liability is one item in your contract that should never be altered. The industry generally prefers $2 per unit (box) or a fixed rate, such as the cost of replacing the box. Never accept responsibility for the contents of the box. It is possible the client may ask for excess valuation insurance. You may choose to offer this insurance through a third party or suggest the client purchase it as an addendum to his own insurance.

Absolute 6: Permanent-withdrawal fee. One of the most common practices in the industry is the inclusion of a permanent-retrieval fee in the price schedule. The purpose of this is to offset the cost of racks and general overhead, as well as the cost of the final retrieval and data entry. It is usually priced at a fixed rate per box. It guarantees you will not lose money on any box that you bring into storage, since an immediate retrieval will pay for the expenses of your rack and overhead. It is also the most important deterrent to losing business because the cost is generally prohibitive.

Absolute 7: Failure-to-pay penalty. The penalty should be covered in the contract so you can take appropriate action and recover your costs of collection and rental fees past due. This clause usually contains wording that withholds access to any records when a payment is past due.

Absolute 8: Rate schedule that sets pricing levels. Schedule A is the price list. Prices may vary across the board from client to client. The rate schedule should list every cost to the client. It is recommended the reverse side of the Schedule A have a very clear description of each service and its basis of charge. This will support your position on service and activity pricing.

Absolute 9: Rate schedule that sets initial charges. Schedule B should detail all of the one-time charges that will be incurred for the initial collection of records. It should cover when these fees will be charged and define each charge specifically.

Absolute 9: Excellent client service. In the end, there is only one way to ensure a client will never leave. He must be continually delighted. You must have a client-care program that ensures clients regularly receive value-added services.

Regular columnist Cary McGovern, CRM, is the principal of FileMan and FIRMS (FileMan Internet Records Management Services), which offer full-service records-management assistance for commercial records-storage start-ups in self-storage operations. For assistance in feasibility determination, operational implementation or marketing support, or for questions on the FIRMS Sales Manager, call 877.FILEMAN, e-mail [email protected]; visit www.fileman.com.