The truth is, under the theory that self-storage is not a bailment and the facility does not take care, custody or control of its tenants property, as long as the lease is not in default, any party who has the access code and key to a unit can enter a storage site, whether a tenant or not. Certainly, any tenant has the right to give his access code and keys to another person, and a storage operator is not obligated to verify that persons right to be in the storage unit. This is true whether the tenant is an individual or a business.

But what about someone who does not have the access code or keys? What if the person is not the tenant but claims to be authorized to enter the unit? First, the general rule is no matter who the person is (with the exception of law-enforcement), if he does not have the key and code, the operator should not permit access. This is true even if the person can prove he is the spouse, roommate, sibling or child of the tenant. This problem gets more difficult if the person is listed on the lease as a co-tenant, but was never given the key or code. Still, access should be denied.

What if a facility allows its tenants to create an authorized-access list? Unfortunately, unless a specific definition of authorized access is provided as part of that register, all the list does is give a person with the gate code and key the right to be in the unit. Does this mean someone who has the key and code but is not on the list cannot enter the unit? What is an operator supposed to do when someone is on the list but doesnt have the key or code? Only if the lease states that authorized access provides permission for the operator to disclose the gate code and cut the lock is the problem solved. If the lease is silent on the definition, the best advice is to deny access to anyone other than the tenant or someone who holds the key and code until you can confirm from the tenant himself that access is allowed.

What about access in so-called emergency situations, such as a daughter seeking entry to her mothers unit while she is in the hospital, the wife demanding entry to her husbands unit while he is in jail, or the employee requesting immediate access to his companys unit to retrieve some merchandise? None of these scenarios necessarily allow for easy answers. Although the facility can always bend the rules and allow someone access to the tenants unit, the best answer will always be no.

In most instances, all it takes is for the person trying to get access to get written permission from the tenant. Although a notarized authorization is best, a signed document, even faxed, can be considered acceptable as long as the signature on the form and on the tenants lease match. Where a tenant is hospitalized or incarcerated, a power of attorney can be issued to enable another party to act on behalf of the tenant. In true emergency situations, a facility manager can also seek the advice of the police, if necessary.

Although it is sometimes an unpleasant task to say no, especially where the plea for access to the unit is sincere and possibly even compelling, the facility operator must consider the risks of trying to do the

Authorized access, deliveries, search warrants and facility trespass nice thing compared to doing the right thing. Certainly, all of the fences, gates and locks wouldnt mean much if people who arent tenants could simply come in to request access to a tenants unit. An operator must be diligent in protecting access to the facility, if not for the tenants benefit, then for his own protection from liability.

Dealing With Deliveries

The advent of deliveries being accepted by self-storage facilities has also created new questions concerning access to units. When it comes to these deliveries (such as UPS, Federal Express, etc.), unless an operator makes special arrangements and has a separate agreement with his tenants, the facility should not accept any deliveries, since taking possession of a tenants property, even if temporarily, could create a bailment.

It is clear that to fully compete in todays self-storage market and enhance the services provided to customers, many facilities have agreed to accept deliveries for their tenantsespecially commercial customersduring business hours. There are basically two types of delivery services offered. The first is where a facility keeps a key to a tenants unit and opens the unit to allow deliveries. The second is where the facility allows deliveries to be made to its office or a central holding area (typically an unused storage unit) where the tenant later retrieves the property. In this approach, the facility does not keep a key to the tenants unit.

If a facility operator chooses to accept deliveries for his tenants, the less-troubling method would be the latter, in which the facility does not retain a key. Under this approach, if a tenants property is lost or damaged, his claim would be limited to the delivered property and not extend to other property in his unit. Keep in mind that as long as a facility keeps a key to a tenants unit, it could be considered a bailee of the stored property and may be held responsible for any loss or damage.

If a facility agrees to accept deliveries, it should have the tenant sign an addendum to the lease in which he agrees to release the facility for any claims of loss or damage to the property. The tenant should also declare the value limit of the property (for example, no more then $50 per package) and state that any property delivered COD will be refused unless the tenant has paid the owner in advance.

Further, the release should address indemnification protection for the facility from the tenant for injuries that may occur to others, and should clarify that the terms and conditions of the rental agreement are not affected nor waived by the addendum. Lastly, the addendum should provide for some nominal consideration to the facility for providing this service. Again, as long as a facility recognizes the risk of accepting deliveries and prepares itself through a written addendum with the tenant, accepting deliveries can be offered as an added benefit for tenants.

Search Warrants

Self-storage facilities are a common site for law-enforcement searches and seizures. Can a facility operator provide the names of his tenants renting without the need for a subpoena or even a search warrant? To the extent an operator owns the proprietary right to the facilitys rent roll, he can choose to divulge whether a particular tenant is renting at his site. With that information, the authorities can better support their request for a subpoena for the tenants document file and a search warrant to inspect the property in the rental unit.

There have been recent cases that have addressed the issue of plain-view searches and reasonable access. In the case of State v. Bobic, the Washington Supreme Court upheld a search by law enforcement of one storage unit when viewed by the police from an adjacent, empty unit. The court found the police were authorized to look into the locked unit through a hole in the wall.

In another case, U.S. v. DeTurbiville, the Ninth Circuit Court of Appeals upheld the right of authorities to enter a locked storage unit where permission was provided, not by the tenant, but a friend who had been given the key and code to the unit. The court found the tenant assumed the risk that his friend would allow others to enter the unit, even the police.

As the likelihood of these police searches increase, facility operators should consider amending their rental agreements to explain their rights and protections in these matters. For example, the agreement should state that the facility retains the right to provide authorities information concerning all of its tenants. The rental agreement should also state the facility has the right to enter the unit where it is believed illegal activity is occurring inside. By establishing the facilitys rights in the rental agreement, there is less of a risk to the operator of tenant-trespass claims.

When can an operator enter a tenants unit? A landlord should retain the right to enter a unit, if necessary, for purposes of repair, emergency or to determine if there is a violation of the contract. A typical rental-agreement provision might read:

In cases where Owner considers it necessary to enter the space for purposes of examining the space for violation of this agreement or condition in the space or making repairs or alterations thereto, or to comply with this agreement, or due to emergency, Tenant agrees that Owner, or Owners representative, shall have the right without notice to enter into and upon the space and Owner reserves the right to remove contents to another space.

On the issue of lease compliance, there should also be a use provision in every rental agreement that limits the contents of what can be stored in a unit. A standard provision might read:

The space named herein is to be used by the Tenant solely for the purpose of storing any personal property belonging to the Tenant. The Tenant agrees not to store any explosives, or any flammable, odorous, noxious, corrosive, hazardous or pollutant materials or any other goods in the space which would cause danger or nuisance to the space of facility. The Tenant agrees that the property will not be used for any purposes unlawful or contrary to any ordinance, regulation, fire code or health code, and the Tenant agrees not to commit waste, nor to create a nuisance, nor alter or affix signs on the space, and will keep the space in good condition during the term of the Agreement. The Tenant agrees not to store jewels, furs, heirlooms, art works, collectibles or other irreplaceable items having special or emotional value to the Tenant. There shall be NO HABITABLE OCCUPANCY of the space by humans or pets of any kind for any period whatsoever, and violation of these prohibitions shall be grounds for immediate TERMINATION of the Agreement.

Under this provision, a facility operator would have the right to enter the storage unit to verify that no use violation has occurred as set forth above.

No Trespassing

Finally, one of the most difficult issues under landlord and tenant law is determining the point when a tenants access on the property may become a trespass. Normally, a tenant is considered an invitee, or one who is invited on the property, since he pays for that benefit through his rent. But tenants can also become trespassers.

Criminal trespass is defined as the intentional entry onto anothers property with knowledge that the entry is unauthorized. In that context, a tenant who has properly paid his rent but tries to enter the premises before or after gate hours without permission can be considered a trespasser. The same might be considered true for a tenant who has properly paid his rent but is on the property in violation of the terms of his rental agreement (i.e., is in breach of the peace). In that instance, after being asked to leave the premises by the operator, the tenants refusal to leave may be considered a trespass.

What about a tenant who is in default under his lease? Once a tenant is locked out of the facility by the gate or a unit overlock, he may be considered a trespasser by entering the facility without authorization. Furthermore, if the tenant cuts the facilitys lock to gain access to his unit, such an act could even be seen as breaking and entering.

Practically speaking, if a tenant enters his unit during default to retrieve his property, it is unlikely law-enforcement authorities would prosecute for trespassing and theft of his own goods. Certainly, such a decision will depend on the tenants other acts in entering the facility and retrieving its property for example, whether he destroyed any property (i.e., damaged gates, doors or locks) or there was any assault or battery when the entry occurred. Without such occurrences, a tenants retrieval of his own property may be seen as more of a civil matter then a criminal one, and the tenant might not be prosecuted.

Much of the confusion over who has rights to be in a facility or enter a unit, or what rights the landlord himself has concerning access can be resolved though a well-written rental agreement. Attention should be given to the use of undefined access lists or delivery agreements that do not contain liability release. Operators should obtain permission from their tenants in advance to release information to law enforcement and recognize their right to enter a unit if there is an emergency. An operator should also be proactive in handling tenant-trespass issues by involving the police. The bottom line is, you should know who is knocking on your door before you let him in.

Scott Zucker is a partner in the law firm of Weissmann & Zucker P.C. in Atlanta. Mr. Zucker specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He is a frequent lecturer at national conventions and is the author of Legal Topics in Self-Storage: A Sourcebook for Owners and Managers. He is also a partner in the Self-Storage Legal Network, a subscription based legal service for self-storage owners and managers. For more information, call 404.364.4626 or e-mail [email protected].

So what is a cap rate, and how do we use it to compute value of a self-storage facility? The capitalization analysis is used to determine the present value of anticipated future income. Cap rates are mostly market driven and vary based on the type of investment real estate (apartments, shopping centers, office buildings), as well as many other factors such as location, age, type of construction and management of the property.

Appraisal methodology simply states that the value (V) of the property is calculated by dividing the net operating income (I) by the cap rate (R) (net operating income being income before debt service, income taxes and depreciation). Conversely, the cap rate is determined by dividing the purchase price (V) by the net operating income. You end up with the following formula: V = I/R.

It so happens that in todays low interest-rate environment, a quality self-storage facility can sell for a 9 cap rate. The cap rate could be lower if the property is being acquired by a motivated buyer looking to do a 1031 tax-deferred exchange or someone looking to increase or protect his market share; or if a property is a part of a portfolio sale. The cap rate may also be higher if there is deferred maintenance or the property is functionally obsolete by todays standards.

Remember, there is an inverse relationship between the cap rate and purchase price. The higher the cap rate, the lower the value/price. The lower the cap rate, the higher the value. The buyer usually places a higher cap rate on a property he perceives to carry greater risk. The $64,000 question is not necessarily which cap rate is used to determine the value/purchase price of the property, but what income and expenses did the buyer use to derive his net operating income? Did he use last calendar years income, the trailing 12 months of income or a projection of current annualized income?

There are several other items that could affect that income figure. For example, in reviewing the sellers expenses, did the buyer change the size of the Yellow Pages ad? Did he add more payroll/benefits because he is going to open the office on Sundays? Is he going to enlist the help of a national call-center service? Does he plan to implement a free truck-rental program to be more competitive and aggressive in soliciting new customers?

Changes in any of these expense categories will alter the net operating income used in the buyers analysis in comparison to the actual income and expenses of the subject property. All of these questions and others go into the buyers calculations of what income and expenses to use when applying the formula V=I/R. This will determine the cap rate and, ultimately, what price the buyer is willing to pay for the facility.

Nicholas Malagisi is president of Storage Realty Advisors, a commercial real estate brokerage firm specializing in the sale of self-storage facilities, primarily in the Northeast. Malagisi has participated in the sale of more than $93 million worth of selfstorage properties since 1993. He also prepares feasibility studies for new projects. For more information, call 716.633.9601; e-mail [email protected]; visit www.storagerealty.com. 

This spring, we’ll all be running round like mad March hares. For those of us in self-storage, our fill rates should be only going one way—upward. So cheer up and think about new marketing initiatives to make the most of the seasonal uplift in the home moving sector. March through September is the time to make hay while the sun shines.

There is no doubt self-storage is a seasonal business, especially when it comes to the monthly fill rate for an immature facility. The more domestic customers you have, the more seasonal your fill rate will probably be.

The bottom line is, if you’re going to make your annual target, you need 12 months worth of fill in the nine months of spring, summer and autumn. I’d say more than half of all facilities in the United Kingdom suffer from winter blight. There are also those who manage to not only limit the damage, but to find or create opportunity in the late autumn and early spring, which carries them through the bleak winter.

Opportunity is one of my favorite words, and life is full of it. To find an opportunity for the cold winter and holiday season, think of what this time brings. The big autumn push should be completely focused on Christmas. Why? Because everybody buys loads of stuff during the holidays. From whom do they buy it? Retailers. What’s a retailer’s most expensive overhead? Space.

Let’s face it, if a retailer has a stock room in his expensive retail square footage, it isn’t going to be large. So while it may be full 10 months of the year, for two months, it isn’t big enough. That’s where your winter-blight marketing strategy comes in.

Early to mid-autumn is domestic move-out season. Tenants leave in droves, and this retail-focused strategy is designed to combat that domestic fallout. An effective, focused marketing strategy delivered to local holiday-driven retailers is an investment in time worth making. It’s a cheap marketing tool and easy to implement. Just get out of your cozy office and knock on the door of every retailer in your local vicinity and tell him how he can make more money—by buying in bulk and meeting demand, thanks to a local, short-term storage unit. Hey, I believe it and can sell it, why can’t you?

Believe me, it works. This no-cost promotion can more than offset your domestic fallout and keep your fill-rate moving upward through October and November, and carry you through December—but only if you’re clever. If you suffered from negative fill late last year, you’ve got no excuse not to try my suggestion. If it works and our paths ever cross, you can buy me a beer!

It is time to take stock of last year and implement plans for the new. Every year, and every season, is a new chance to market self-storage. All you have to see is the bigger picture and turn it into an opportunity. We will all soon be Mad March Hares, so make the most of the available market while the sun shines and your facility fills.

Andrew Donaldson is the founder and chief executive of Active Supply & Design (CMD) Ltd. of Cheshire, England. He is also the founder of the Self Storage Sentinel newsletter, Rent-A-Space Limited (now a multi-site operator) and selfstorage.uk.net. For more information, e-mail [email protected]; visit www.askactive.com.

By Fred Gleeck

I have a sign hanging in my office that reads, Measurement Eliminates Argument. Without measurement, business decisions are made without context. If I were to try and teach you to shoot a bow and arrow, for example, I would hand you the bow and some arrows, show you some basic techniques, and ask you to start shooting. But what if I didnt give you a target at which to shoot and mark your progress? How would you know how well you were doing?

Many owners and managers operate their businesses in a similar way. If you were to ask any McDonalds franchisee how many Big Macs he sold between 1:15 p.m. and 3:30 p.m. yesterday, he could give you an exact number. Ask a storage owner how many calls he got last month and he will most likely give you a very perplexed look. If were running a real business, we have to measure certain critical elements. In the storage business, there are some basic things that must be measured to make intelligent decisions.

Number of Total Calls

First, you need to know the number of calls you receive every month. Since the majority of your marketing efforts are geared toward getting people to call you, this number will give you a good idea of the effectiveness of your work in this area.

If youre asking how many calls you should be getting, that isnt the right question. The absolute number of calls will vary based on how much advertising you do and where you are located. The important thing to watch is the relative number of calls that come in from month to month; so the first thing you need to do is start tracking the number of inbound calls you receive. If you normally receive 350 per month, and then receive only 300 during a particular month, it could be an indication that something in your marketing or sales approach is no longer working.

How do you measure the calls? Youll naturally want to separate the number of new callers from existing tenants; but even if you dont, tracking a gross total over time will still give you a good indication of your marketing efforts success. You can track calls manually, or use a phone system that tells you how many inbound calls you receive. Whichever way you choose to track, start measuring this important item.

After youve measured, take your numbers and graph them for you and your staff to see. Its sort of like going on a dietthe visual representation can be very reinforcing. What youre after is a positive trend line. You want to see an increase in the number of calls you receive each month.

Number of Calls Converted to Visitors

Next, youll want to record how many of the individuals who called you actually visited your facility. This ratio will let you know a very critical factor in this business: how well youre doing in the area of telephone- closing ability. Once again, youll have to establish a baseline measurement in this area. Once you determine this number, you can compare your results from month to month to see how well youre doing.

If you make any changes to your phone-sales approach to improve your conversion number, only change one variable of the presentation at a time. This way, youll be able to accurately assess which approaches are working.

Number of Visitors Converted to Renters

Most storage operators claim they close more than 90 percent of people who visit, convincing them to rent a storage unit. I had one manager claim he closed 100 percent of his visitors. This is a nice goal, but practically impossible.

Like the two items discussed above, this measurement has to be looked at in comparison to previous months to truly judge your progress. The measurement youre taking here is your ability to close people in a face-to-face environment. You are essentially measuring your managers sales skills.

Customer Service

How successful are you in the area of customer service? There are some things that make it clear. For one, you can count how many repeat and referral customers you get each month. The more of each of these you receive, the better youre probably doing in the area of service.

To really see how well you are doing in customers eyes, hand people a postcard-format, customer-service survey when they move out. Keep it short, but ask people questions that rate your facility and its service on a scale of one to five or one to 10. Compile these numbers over time, and youll know how your facility rates in this crucial area.

Source of Calls

In addition to the absolute number of calls you receive, youll want to measure how many calls you get from each of your marketing sources. You can do this manually or automatically. To do so automatically, you can ask people to press a given key on their touch-tone phones when they make their initial call, with each number identifying a different source where they found you. Although this automates the process, it could hurt sales and annoy customers.

It may be better to track this information manually. Simply keep a tally sheet next to the phone, then ask each customer where he heard of you. Count how many calls you receive from each of your marketing methods over the course of a month. This will tell you where your efforts are having the greatest success and which ones you can ignore.

Conclusion

To determine your facilitys overall success and which marketing and sales methods are working for you, you must consistently measure your results. When you go into a doctors office, the staff will always measure your weight, blood pressure and temperature. Why? These are your vital statistics. Listed above are the vital statistics of your storage business. They need to be measured and monitored for your long-term success. Calculate all of the critical criteria and youll be able to make changes that will have a substantial impact on your bottom line.

Fred Gleeck is a self-storage profitmaximization consultant who helps owners/ operators during all phases of the business, from feasibility studies to creating an ongoing marketing plan. Mr. Gleeck is the author of Secrets of Self Storage Marketing SuccessRevealed! as well as the producer of professional training videos on selfstorage marketing. To receive a copy of his Seven-Day Self-Storage Marketing Course and storage marketing tips, send an e-mail to [email protected]. For more information, call 800.FGLEECK; e-mail [email protected].

Internet-based technology can give a storage facility a dramatic advantage over its competition. Tucson, Ariz.-based Online Self Storage Inc. is an Internet-development and marketing company focused on providing e-commerce solutions to the self-storage industry. It launched its first self-storage Internet transaction-processing application in 2000 and now has more than 400 facilities using its products.

This year, Online unveils another exciting aid to the industry a self-service kiosk designed to allow customers almost unlimited access and convenience. Known as SAM (Simplified Automated Manager), the kiosk allows customers to assist themselves through the self-storage process and makes a managers job more productive. Online partnered with CTS (Consolidated Technology & Solutions) Group and Hi-Tech Smart Systems Inc. to develop the kiosk software.

SAM allows customers to walk up to a storage facility after hours and access its services just as they would use an ATM. Placed outside a facility, the walk-up kiosk lets tenants process transactions and view their account information. A customer can even pay a past-due account and regain access to the facility. The system accepts credit cards, e-checks and direct debit for payment. SAM will even help prospects conduct a new rental. When the transaction is complete, the kiosk provides the customer a rental agreement, gate-access code and receipt. His information is automatically saved to the property-management database, and the whole rental process takes about five minutes.

The kiosks can assist owners in managing a remote facility with data tied to a larger one or manage a small, standalone facility without a manager. They can be used to expand a facilitys hours of operation, or help reduce personnel costs. With the addition of SAM to a facilitys property management database, managers can be more productive. They have more time to focus on marketing the facility to local businesses and customers, or focus on improving overall operations.

Each kiosk comes complete with property-management software and Internet integration to a facilitys e-commerce database. It has an attractive, easy-to-use interface with either a vandal-resistant, built-in keyboard and trackball or optional touch screen. Powered by an Intel Pentium computer, the kiosk is equipped with a magnetic card reader, laser printer, 15-inch LCD screen and a battery backup.

SAM is 60.1 inches tall by 22.6 inches wide by 20 inches deep, and weighs 165 pounds, allowing it to be easily installed in a small space. The units are internally air-conditioned and heated, and are delivered with all cables and wires. A service door at the rear of the unit allows easy access for the manager. A maintenance and support agreement is included.

CTS Group will be introducing a new version of the kiosk that is weatherproof and requires minimal facility construction at this months Inside Self-Storage Expo in Las Vegas, says Onlines president, Rick McGee. McGee has 18 years of experience in starting and growing companies in the software-development field. His specialty involves strategic set-up, sales and marketing. Online Self Storage is McGees latest development and, in three years, the companys annual revenue has grown 100 percent.

The companys Internet transaction-processing applications allow a self-storage owner to link his website with Onlines server and engage in e-commerce without having to write or purchase his own software. Online processes nearly 10,000 transactions monthly, 80 percent of which are payments and 20 percent new rentals, according to McGee. Other services offered include a website design, hosting and maintenance service, and Call MAXimizer, a call-center service designed to answer overflow and after-hours calls and extend a facilitys customer service capabilities.

Online is very excited to be working with CTS Group to provide an additional source of customer service and extend the transaction processing capabilities of a facility to 24 hours a day, 365 days a year, in a secure, user-friendly environment, McGee says. Owners of selfstorage facilities can now improve their bottom lines while providing more customer service by leveraging the capabilities of SAM. For more information, call 877.301.4635; visit www.onlineselfstorage.com.

At the time of this writing, theres a new movie in the theaters about a real estate transaction gone horribly awry. In House of Sand and Fog, an alcoholic yet sympathetic protagonist loses her home on the San Francisco Bay due to a bureaucratic error regarding taxes and the auction that results. The error was not her fault. Her failure to read her mail because of alcohol- and drug-induced stupor is very likely the fault of her ex-husbandbut I digress.

The heroines homeleft to her by her fatheris purchased by a former Iranian colonel wishing to present his family a charming bungalow by the sea. What ensues is sure to be a heart-wrenching battle of wills. (I didnt see the film personally, but I did see the preview trailer, which is about as much as anyone needs to see of a movie these days.) The moral of the story as it pertains to real estate is one of several things:

1. It is extremely important to avoid wallowing in a pool of vodka, or you could lose your shirtand everything else you own.
2. Its good to have friends in high places.
3. Always openand readyour mail.
4. Dotting your is and crossing your ts in any legal transaction could be the difference between disaster and accomplishment.

I can vouch for this. Back in the fall, my fiancée received a letter from the Maricopa County Assessors Office regarding a townhouse he owns. There was confusion over some unpaid property taxes, the bills for which were mistakenly sent to an unidentified third party somewhere in Nevada. As a result, a complete stranger had petitioned to pay those taxes on our behalf, and was now suing us to collect. You can imagine our shock, not to mention our fury. I guess sobriety and conscientiousness dont always paywe sometimes need influential friends.

The purchase or sale of self-storage, though a business transaction, can still involve a great deal of emotionas most real estate deals do. This is natural. All parties stand to lose something in the process, and stress can run high. There are time tables to which to adhere, and money on the table. But with the proper research and preparation, heartache can be kept to a minimum.

This months magazine is our annual real estate issue, and its no coincidence it also happens to be our big Show Edition. The Inside Self-Storage Las Vegas Expo, held each February, is the largest conference and tradeshow in the self-storage industry. In addition to attracting seasoned professionals from all facets of the business, one of the largest segments of attendees includes those investigating the sale or purchase of self-storage sites: public and private investors and owners from all over the world. I hope you find this publication useful in your real estate endeavors. May all your is be dotted. May all your ts be crossed.

See you on the show floor,

Teri L. Lanza
Editorial Director
[email protected]

Self-storage is possibly the most unique sector of commercial real estate. Unlike office, retail, industrial or multifamily investments, it primarily operates by occupants leasing space on a month-to- month tenancy. The lack of tenant improvements needed to lease space and the diversity of facility ownership further separate self-storage from the other asset classes in commercial real estate.

A successful broker who specializes in self-storage understands the nuances of this industry and how they relate to buying and selling self-storage properties. Using the services of a broker will maximize the exposure your property receives, which correlates with more interest and, ultimately, higher sale prices. For these and many other reasons, an experienced owner will seek out an accomplished broker who has successfully specialized in this unique field.

When you have determined you are ready to sell and will be using the services of a real estate broker, you will need to locate the best person for your specific needs. When deciding which broker with whom to contract, you must first determine each candidates:

• Track record in terms of sales
• Ability to produce an accurate valuation
• Marketing plan
• Experience in the overall transaction process

You must be able to determine the overall reputation of the broker you are considering. If he specializes in self-storage and has numerous references from satisfied sellers, it is likely he has successfully met the above criteria. You must also ask yourself: If you were a buyer, would you feel comfortable consummating a transaction with this individual? Finally, if the prospective broker meets the criteria to your satisfaction and you feel you will work well with this person, he is probably a very good choice.

Tax Items

After you have selected a broker and have set a listing price, I strongly suggest you consult with your tax advisor to determine your total tax liability. The impact of depreciation recapture at 25 percent, plus the combined federal and state tax owed, can result in a sizable tax bill.

Participating in a tax-deferred exchange can be a very attractive method of deferring your entire tax obligation. This is accomplished through Section 1031 of the Internal Revenue Code, commonly referred to as a 1031 Exchange. You will need a qualified intermediary to assist you with the entire process. Your real estate broker isnt permitted to act as your intermediary, but he should be able to explain the general concept and refer you to several qualified candidates.

A 1031 Exchange is a great way to defer taxes and leverage into a more valuable property. But even if you dont intend on reinvesting your equity in real estate, the good news is the long-term capital-gain tax rates for investors in the top tax brackets have been reduced to 15 percent from 20 percent effective May 28, 2003. Again, a consultation with your tax advisor should clarify exactly what your plan will be after you sell your facility.

The Sales Package

One of the very first things you and your broker will work on is your facilitys sales package. You will need to supply much of the information, and your broker will compile it in a logical and informative format. A good sales package will highlight the strengths of the facility, how it ranks with competing facilities in the immediate trade area, its current performance, and the future potential during new ownership.

Areas that are universally considered strengths in the industry are: road frontage and/or good exposure, a wide variety of unit sizes, climate control and outside parking spaces (depending on geographic location), wide aisles between buildings, and up-to-date security and entry systems. A rent survey and occupancy report of competing properties in the trade area will highlight your propertys position in the market.

The current performance of the facility can be documented with the previous years and current year-to-date income and expense statements, along with a current occupancy report listing the number of vacant and occupied units of each size. Future performance can be shown via a pro forma income and expense statement. This statement may reflect a continuation of the current occupancy trend, combined with historical rental-rate increases. It may also address a possible expansion of the facility if there is vacant land that will transfer with the sale.

Marketing

Once a sales package is finalized, it will be your brokers responsibility to begin marketing your facility in earnest. He will highlight it on multiple listing services, through trade magazines, and through direct mailings to self-storage and business owners in the market area.

Probably the most important factor in marketing your facility will be your brokers ability to directly contact the greatest number of potential buyers via phone, fax, e-mail, etc. A seasoned broker will have an extensive database of potential buyers for every type and location of self-storage property. A broker earns his money by securing interest from the greatest number of prospects, thereby enhancing the possibility of obtaining your target price.

During the marketing process, you will need to continually update your broker with monthly income and expense reports, up-to-date occupancy reports, and any significant changes to expenses such as taxes, insurance, etc. This will give your broker the ability to promote your facility with complete accuracy. It will also greatly reduce the probability of a buyer attempting to pare down the agreed price after a purchase agreement has been signed. The more information you can provide throughout the sales process will expedite the sale and reduce surprises on both sides of the transaction.

The Offer and the Sale

When you do receive a letter of intent to purchase from a prospective buyer or an actual purchase agreement, your broker will review it with you line by line so the offer can be accurately assessed. There are a number of areas in a contract besides the purchase price that can affect how much money you earn at the closing table. If you receive two offers, it is quite possible the offer with the highest purchase price may not be the best. By working with an experienced self-storage broker, you will have the ability to discern which offer is the best for you and your specific circumstance.

After an offer is accepted, your broker will continue to work through the entire due-diligence period, which can typically take between 60 and 90 days. Your broker will assist you in dealing with any adverse inspection issues, physical and financial. Your goal should always be to get to the closing table with little or no concessions to the buyer for any issues associated with the inspections. Again, with this goal in mind, it is imperative you keep your broker informed of any material changes to the operations of your facility.

A brokers primary job is to obtain the highest possible price for your self-storage facility. He is also responsible for guiding you through the entire process and to provide his knowledge and experience to help the transaction stay on course. When you work with a good self-storage broker, you will have the benefit of someone looking out for your best interests every step of the way. There are usually a considerable number of issues that will come up during the sales process after an actual purchase agreement has been signed. A good broker will be able to assist you with whatever obstacles arise.

Keeping your broker informed and monitoring the sales process will help you achieve your goals and produce a smooth transaction. A smooth transaction is a successful transaction!

Rob Schick is senior vice president of Revel & Underwood Inc., which was established in 1973 and specializes in the disposition and acquisition of self-storage facilities. Mr. Schick has more than 14 years experience in investment real estate sales and represents self-storage buyers and sellers throughout the United States. For more information, call 800.875.5439, ext. 166, or e-mail [email protected]

A loaf of bread in every arm. OK, so it is not your usual corporate mission, but it has been the passion and focus of Panera Bread since 1981. The chain has grown to 558 corporate and franchise locations.

Why is it a restaurant chain that sells breads, pastries, bagels, sandwiches and soup can be making such a name for itself? According to research conducted by TNS Intersearch, the company scored the highest level of customer loyalty among quick-casual restaurants. It also earned an esteemed Choice in Chains award, sponsored by Restaurants and Institutions magazine. Nations Restaurant News cited Panera Bread as being No. 1 out of 118 competitors in a national customer satisfaction survey of more than 71,000 consumers. According to a company press release, Panera has won best of awards in nearly every market across 35 states.

How is this possible when the company works in a very competitive environment? It has competition across the street and down the block, as well as new rival stores being built all around it. Is this starting to sound like another industry you know?

If you have never visited a Panera Bread store, let me give you the answer in five words: consistent product and service execution. I have enjoyed a coffee and a bagel or a bread bowl of soup in Panera locations across the country. Its products are always fresh, and the customer service is always superior. Its stores are always clean (including the bathrooms), and the counter people actually seem interested in getting you what you ordered.

Panera Bread is winning in a competitive marketplace because it has distinguished itself with its products, as well as its management teams approach to customer service and satisfaction. Its success is not because it provides the cheapest cup of coffee in town or gives away its products with discounts. It is successful because of consistent product and service execution.

I have been in hundreds of self-storage facilities during my 19 years in this industry. I have seen first-class facilities with secondclass employees floundering to meet their budgets and the financial goals of the owners. My comments are directed not only to fulltime managers but, in many cases, relief managers and part-time employees. The old adage that a chain is only as strong as its weakest link is equally true for our industry.

Do you have consistent execution of your management systems and customer-service programs in your stores? Does every customer look at a clean rental unit when the door is lifted? Is the phone dialog centered on convincing the prospect to make an appointment to come to the store? Is every customer who walks through your office door treated with a smile and a warm handshake? If not, I recommend you look for a Panera Bread location near you and go have a cup of coffee. Look for lessons that can be applied to your own store.

Are You Looking for the Curve?

It is no secret to the people who have met me that Im a plus-size guy. And being on the road about 75 percent of the time means a lot of nights in hotel rooms. My recent experience taking a shower at the Hyatt in Minneapolis showed me the value of a curve.

For me, taking a shower in a standard tub is a constant game of shower-curtain magnetism. It seems every movement increases the magnetic power of the curtain. Hyatt has a better ideano, not the expense of a larger tub. The company has simply changed the straight shower-curtain bar for a curved oneand an additional 6 inches of shower curtain. The result is a luxurious feeling of being in a huge shower. The other outcome is Hyatt will have me as a customer more often.

It is a simple and relatively inexpensive change, but it produces a major difference in the experience for the user. I wonder what curved curtain-bar ideas might be in the self-storage future. It could be outfitting units with shelving as a permanent fixture for business customers (with a corresponding increase in rental rates). Have you found a new curve at your store? If so, please drop me a note and I will feature it in an upcoming column.

Speak Effectively in Front of a Group

Speaking in front of a group is one of the average Americans biggest fears. All of us are speaking to people every day as a part of our jobs. While it is not always possible to send your staff to lengthy speaking seminars in faraway cities, it may be possible to have them go to the local coffee shop or hotel on Tuesday mornings to participate in a Toastmasters International group meeting.

Toastmasters groups bring together people from all walks of life, with a common goal of self-improvement. The following outline, taken directly from the Toastmasters International website, www.toastmasters.org, will explain how the program works.

• The Toastmasters program exposes each participant to a wide range of communication experiences.
• Each new Toastmaster receives a New Member Kit, which features a copy of the basic communication and leadership manual, general orientation materials, and information regarding skill-improvement in areas such as speech evaluation and the use of gestures.
• The initial prepared speeches, as outlined in the basic communication and leadership program manual, are designed with the new Toastmaster in mind.
• A variety of assigned speeches help the participant develop competency in areas such as organization, voice inflection and persuasiveness.
• During the meetings Table Topics session, members learn to think on their feet by delivering short impromptu speeches, lasting one to two minutes.
• After giving a prepared speech, each Toastmaster receives a constructive speech evaluation. This process recognizes speakers for their strengths and provides valuable insight into problem areas.
• Upon completion of the basic communication and leadership program, Toastmasters may participate in the advanced program. Participants may choose from specific business-oriented topics, such as speeches by management and technical presentations.
• Workshop-style success/leadership programs are also available, offering opportunities for further skill development in areas such as leadership, public speaking and conducting business meetings. These programs are especially effective as in-house training and can be tailored to meet the needs of your company.

You can find a group near you by visiting the website and clicking on the Find a Club button at the top of the homepage. Oh yes, Mr. or Ms. Owner, there is another reason to consider encouraging your managers and other key employees to join Toastmasters: Each club is made up of local residents and business people who could turn into future customers as they network with members of your team.

Jim Chiswell is the owner of Chiswell & Associates LLC. Since 1990, his firm has provided feasibility studies, acquisition due diligence and customized manager training for the self-storage industry. In addition to being a member of the Inside Self-Storage Editorial Advisory Board, he contributes regularly to the magazine and is a frequent speaker at ISS Expos and various national and state association meetings. He recently introduced the new LockCheckTM inventory data-collection system to the self-storage industry (www.lockcheck.com). He can be reached at 434.589.4446; visit www.selfstorageconsulting.com.

What about square foot per capita? This analysis is as overrated as it gets. The premise for determining market saturation when measured by square feet per capita seems very logical. The reality is this analysis could not be more wrought with trouble. Lets consider this. The 2002 Self Storage Almanac, produced by MiniCo Inc., indicated the following statistics:

What is interesting is the occupancy levels in the two city markets are not entirely dissimilar, despite the huge gap in supply. So is the market-saturation level .73 or 8.56? Remember that Las Vegas, at some point in the data set, had been at .73. At some point, it was also at the U.S. average of 4.59. Does this mean New York City has a supply capacity 10 times what it was in 2002? Was the market, by this definition, already oversupplied when the last development was in the consideration stages? When is enough enough?

First, consider that in arriving at the numbers for square foot per capita, the Almanac made some assumptions. To completely buy into the analysis, we would have to believe all self-storage facilities in both markets are 38,808 square feet. It would be a challenge to support that assumption, but the Almanac has done the best it can with the limited data available, so we give it credit for starting somewhere to create a data set.

The reality may be that, in metropolitan areas, the actual number of square feet could be substantially higherpossibly double. One of the problems is we simply do not have good data with which to start. Does anybody really know how many storage facilities there are in the United States or how many square feet are in each one? What about those 20 spaces run out of a car-repair business do you count them? Do you count shipping containers for rent in a yard?

What defines populationevery man, woman and child? Do 2- year-olds use self-storage? At what age bracket do I exclude a group? Doing so would greatly increase the number of square feet per capita. That statement alone should give every banker who made a loan based on this statistic instant heartburn.

Lets make the case against this analysis even stronger. What is the saturation level for square feet per capita? Is it the U.S. average? Is it the average from the top 50 markets? Is it the average from the top 100 markets? Is it the New York City supply or the Las Vegas supply? Do you count footage in development? What about footage under construction?

Finally, what about the commercial factor? How does square foot per capita measure commercial demand? Who could ignore a segment that produces 25 percent to 40 percent of the typical selfstorage customer base?

Market OwnershipA Better Analysis?

If we discard square foot per capita and attempt to define a market by concentrating on potential customers, we may be able to forecast saturation levels. Here are the assumptions connected to this analysis:

• There are two existing competitors in the market.
• The market is a perfect circle with a 2-mile radius.
• The competitors market is a perfect circle with a 2-mile radius.
• The population in the market is evenly disbursed. There is no area more or less dense than another.
• The population is 10,000.

Already I see problems with this approach, and we have not even gotten past the assumptions. But here is the popular methodology. First, on a map, draw a 2-mile circle around your subject property, as well as a 2-mile circle around each of its competitors. Any area in the subject propertys circle that is not overlapped by a competitors is the area the facility owns. Then you measure the population in that area.

Lets say, for the sake of example, that 25 percent of your area is not covered by a competitoryou own 25 percent of your market. If the total population of the two-mile area is 10,000, your target population is only 2,500. What is the storage use among this group? If the per-capita analysis worked, you could multiply your owned customer base by the number of square feet per capita, and that would give you the number of feet you could justify building. Uh-oh. Were back to square foot per capita again.

Now the appropriate test is to temper the results with the average occupancy levels in the market. This further qualifies the number of square feet anticipated for absorption based on the market ownership. The dilution serves to provide a more correct result.

True Test

These exercises only point out there may be flaws in traditional theories of demand. Many believe the only true test is the continued absorption of space. Once measured in a market, the actual absorption level promotes and predicts future assimilation. If the most recent projects have rented at 2,500 square feet per month, and no other drastic changes are noted in the market, there is validity to the suggestion that the market will continue to absorb at the same level.

I subscribe to this theory. I also suggest that if there is a high level of discounting and rental-rate growth has been stagnant, demand may be soft in a market with those characteristics. Developers should be cautious about a market in which no new projects have been built, or one that has not had high occupancies (above 95 percent) in all stores. While each project must be evaluated on its own merits, there will be many influences that can alter demand potential.

In most feasibility studies, there is insufficient time to measure the many differing amenities that may give rise to absorption. These would include:

• Climate-controlled vs. standard space
• Multistore vs. ground-level space
• Geographically challenged competitors
• New, state-of-the-art projects in first-generation dominated markets
• Price concessions
• Marketing effort
• Quality of management

These discussions have solely focused on predictive analysis. They have no relevance to forging new product in markets. I recall a market in which, when developers proposed to build a self-contained, completely climate-controlled building, competitors encouraged them to throw their money away, because the consumer will not rent that space. Whos laughing now? These projects are wildly successful, and many of the operators who thought these developers were crazy now have climate-controlled space in their projectsso much for predictive analysis.

For those readers who are experienced self-storage developers, you have already wrestled with many of these issues, and perhaps had interesting and lively debates with banks and investors. Most worked their way through the morass of misinformation and speculation. For those who are novices, you may be best served to hire a consultant to answer these tricky questions. Make sure you hire someone who owns, operates and is currently developing self-storage properties. He is in the trenches with you and can give the best advice.

RK Kliebenstein is a consultant and the team leader at Coast-To-Coast Storage, a self-storage consultancy firm. With a home office in South Florida and affiliate offices in Dallas-Fort Worth, Orlando, Southern California and other locations, Coast-To-Coast specializes in demand and feasibility studies. For more information, call 877.622.5508, ext.81, or e-mail [email protected].

The self-storage market is experiencing a recent surge in transaction activity involving large and small portfolios. While each of the self-storage REITs is currently trading near its individual 52- week high, these investment trusts have been less active in acquisitions over the last two years.

In response to strong privatemarket pricing of self-storage transactions, Green Street Advisors has decreased the capitalization rates used to value the stabilized domestic portfolios of the two largest REITs. Public Storages cap-rate value has been revised downward to 8.2 percent, while Shurgards dropped to 8.3 percent, each from 8.5 percent.

Public Storage

Public Storage, based in Glendale, Calif., is by far the largest company and REIT in the selfstorage industry. With a market capitalization of nearly $5 billion, it is the ninth largest REIT overall. Public Storage has 1,411 properties in 37 states, with geographic concentrations in California, Florida, Illinois and Texas. It was founded in 1972 by recently retired CEO Wayne Hughes, whose family owns approximately 36 percent of the company at a value of nearly $1.8 billion.

While Public Storage has the lowest dividend yield of the selfstorage REITs (about 4.88 percent) it also boasts the lowest debt ratio (only 2.33 percent, compared to 38 percent to 41 percent for its REIT competitors). Its companywide average occupancy levels increased from about 85 percent last year to more than 91 percent. The increase, however, is partly due to about $5 million in promotional discounts on rentals and television advertising costs.

In October 2003, Public Storage issued 5.3 million shares of preferred stock at a price of $25 per share, generating $132.5 million in proceeds. The company plans improvements to existing operations by renovating up to 40 older properties on an annual basis. The company has not acquired any new facilities recently, although 44 projects are under construction, expanding or remodeling. Other plans include the closure of 28 pick-up and delivery storage facilities and an exit from the Knoxville, Tenn., market through the sale of four facilities.

Shurgard Storage Centers

Shurgard Storage Centers, based in Seattle, is the second largest self-storage REIT, with a market capitalization just under $2 billion and interests in 599 properties (493 in the United States and 106 stores in seven countries in Europe). Shurgard, founded in 1972, has a total portfolio of 38.2 million square feet of rentable space.

Shurgard Europe (Shurgard Self Storage SCA) is now the largest self-storage operator in Europe, with 106 properties in seven countries: Belgium, Denmark, France, Germany, the Netherlands, Sweden and the United Kingdom. The company also has 18 stores under construction.

Shurgard recently increased its ownership stake in Shurgard Europe from 61 percent to 81 percent through the $101.6 million purchase of equity interests held by AIG (AIG Self Storage GP LLC, AIG Self Storage LP LLC and AIRE Investments SARL) and Deutsche Bank (REIB Europe Operator Ltd. and REIB International Holdings Ltd.). Last year, Shurgard agreed to pay approximately $49.75 million in cash for Credit Suisse First Bostons (CSFB) 10.6 percent stake in Shurgard Europe.

The 47 Shurgard Europe properties in its same-property pool have occupancies stuck in the mid-70- percent rangebelow proforma stabilized occupancy of 87 percent to 89 percent. Europes net operating income (NOI) is up 11.4 percent over last year vs. domestic operations, the same-store NOI of which is up 2.5 percent.

Domestically, Shurgard acquired a $90.1 million portfolio of 19 self-storage properties in Minneapolis, which was financed entirely with newly issued common shares of stock. These facilities (17 of which have stabilized occupancies) are operated as Minnesota Mini-Storage, but will be rebranded under the Shurgard name. Using the stock price on the day the deal was announced, Shurgard anticipates achieving a 9.4 percent initial yield. Substituting a netasset value estimate of $33.75 for the market price adjusts the acquisition to about an 8.25 percent capitalization rate.

Shurgard plans modest future expansion, with 15 new stores added to the 35 newly opened facilities. Company focus will include upgrading 75 to 80 stores, many of which are 20 to 25 years old. Additionally, all Shurgard facilities are now open for business on Sundays.

Sovran Self-Storage

Sovran Self-Storage, headquartered in Buffalo, N.Y., is an equity REIT with a market capitalization of about $444 million. Sovran operates its stores under the name Uncle Bobs Self-Storage and owns and operates 266 facilities. Uncle Bobs facilities are predominantly located in the eastern United States, Arizona and Texas. With 15.4 million square feet, it is the fifth largest self-storage company in the United States. Founded in 1982, the company had its initial public offering in June 1995 and is traded on the New York Stock Exchange.

Sovran just announced new financing arrangements of $300 million of senior, unsecured debt. A total of $209 million was used to repay outstanding balances, and the remainder of the financing package will be used to fund acquisitions and improve and expand existing self-storage properties.

Sovran has recently advanced its revenue initiatives and expects to incur $3 million to $4 million in capital expenditures during the year. The Dri-Guard humidity-control program is installed at 54 stores, encompassing 700,000 square feet. A total of 158 stores now feature free use of an Uncle Bobs truck. The companys call center has become fully operational as an integrated sales and reservation system.

Strong performance was shown at stores throughout Florida, Georgia, North Carolina, South Carolina and Virginia, while some of the Arizona, Texas and New England area stores experienced slower than expected growth. The company could sell some facilities based on market conditions and acquire facilities with high growth potential. Sovran recently made a $5.2 million acquisition of an 80,000-square-foot self-storage facility in Dallas after acquiring another in the city for $4.5 million. There are now 16 Uncle Bobs stores in the Dallas metro area.

Conclusion

Each of the self-storage REITs appears poised for continued income growth as economic activity picks up. Concentration on improving and upgrading existing facilities will remain a focus as private buyers continue to accept low cap rates (i.e., low initial yields) and sellers enjoy high prices.

Marc A. Boorstein is a principal with MJ Partners Real Estate Services in Chicago. He is an expert in the disposition, acquisition and evaluation of self-storage facilities nationwide, as well as a featured speaker and author regarding market trends in the self-storage industry. For more information, e-mail [email protected]; visit www.mjpartners.com.