Update 2/7/17 – Taylor/Theus has acquired a 5-acre site on University City Boulevard in Charlotte on which it intends to develop a self-storage facility. The three-story facility will be part of a retail development being built by commercial real estate company MPV Properties LLC and developer Tribek Properties, according to the source. The storage facility will include a second structure for boat/RV storage.

Taylor/Theus acquired the self-storage site north of Interstate 485 near Cabarrus Farms Road from MPV for $797,500. MPV and Tribek plan to develop and sell three outparcels near the self-storage property that are part of a larger project anchored by grocery stores, the source reported.

“The influx of residents to the University area and Harrisburg is driving demand for more retail, storage and commercial options. We are excited to begin development of this 23-acre commercial site with self-storage and retail outparcels,” Blanton Hamilton, a partner with Tribek, said in a statement. “Given the existing zoning in place for a neighborhood shopping center, we hope to attract a grocery-anchor in the near future to complete development.”

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4/11/16 – Taylor/Theus Holdings Inc. is developing nearly 400,000 square feet of self-storage space in Charlotte, N.C. The company has broken ground on two projects and expects to begin construction on a third within a month.

In addition, Taylor/Theus is expanding its 65,000-square-foot facility at 3308 South Blvd. When complete, the property will be nearly double in size, said Tyler Colpini, project manager. The facility is managed by Extra Storage Space Inc., a publicly traded self-storage real estate investment trust (REIT) and third-party management firm.

The two sites under construction include a 108,000-square-foot, three-story facility at North Tryon St. and University City Boulevard, and a 100,000-square-foot, two-story structure at Old Statesville Road and W.T Harris Boulevard, according to the source. Construction is expected to be complete in late summer or early fall, Colpini said. The third new development, a five-story property at 1014 N. Graham St., will include 101,815 square feet of storage space.

"(Taylor/Theus) entered the Charlotte market because it is one of the fastest growing [Metropolitan Statistical Areas] in the country, and there is a lack of new, institutional, quality properties in many of the submarkets," Colpini said.

The firm also has self-storage developments in the planning stages or under construction in the Carolinas, Florida and Virginia, the source reported. Previously, it developed and sold about 750,000 square feet of storage space to Extra Space. This included two Charlotte properties: a 128,250-square-foot facility at 9601 Monroe Road and an 88,835-square-foot building at 10000 S. Tryon St.

Taylor/Theus is a limited-liability company based in South Carolina.

Headquartered in Salt Lake City, Extra Space owns or operates 1,347 self-storage properties in 36 states; Washington, D.C.; and Puerto Rico. The company’s properties comprise approximately 900,000 units and 101 million square feet of rentable space.

Jim Grant, founder of the StorageBattles.com self-storage auction website that merged three years ago with StorageTreasures.com, has now launched SelfStorageAuction.com. The site allows facility operators in North America to conduct their lien sales online. Plans are underway to expand the site’s service to Australia and the United Kingdom, according to a press release.

The new site combines components of the original StorageBattles platform with new features, the release stated.

"We believe there is still plenty of opportunity for a new enterprise in this market, and we are well-positioned to succeed given our firsthand experience and industry relationships," Grant said. "We have taken our storage industry and auction know-how and listened to the needs of operators to create a newer, faster and easier-to-use website for self-storage auctions. And it's mobile-friendly, which allows bidders to buy and sell while on the move."

The new platform is hosted on two cloud-based servers in different locations. If one server goes down, all data on active auctions and bids can be retrieved without a break in service, the release stated.

In celebration of the launch, users can register for one month of free auction listings. Moving forward, those who choose the standard membership will pay 10 percent of each sale as a service fee. VIP memberships, available at $40 per month per facility, allow unlimited auction listings without cancellation fees, according to its website.

StorageBattles merged under the StorageTreasures name in 2014. StorageTreasures was in turn acquired in 2016 by OpenTech Alliance Inc., a Phoenix-based provider of self-storage kiosks, call-center services and other technology.

 

Allenbrand-Drews & Associates Inc., a development and engineering company, received initial approval last month to expand its Santa Fe Self Storage facility in Gardner, Kan. The plans include growing its existing property at 1060 E. Santa Fe to include an adjacent site the company owns at 1070 E. Santa Fe.

The owners requested approval of the preliminary and final plat, which would combine the two lots into one. The Gardner Planning Commission voted in favor of the two measures during its Jan. 24 meeting. Commissioners will also need to review the site plan.

Headquartered in Olathe, Kan., Allenbrand-Drews provides civil-engineering, design, planning and land-surveying services in Kansas and Missouri. It also has an office in Paola, Kan.

Santa Fe Self Storage is managed by Attic Management Group, which oversees 19 facilities in Kansas, Missouri and Oklahoma.

UPDATE 2/7/17 - Early-bird registration discounts for the 2017 Inside Self-Storage World Expo have been extended and will now expire on Feb. 20. This will be attendees' final opportunity to take advantage of the early-bird rates, according to expo officials.

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Early-bird registration discounts for the 2017 Inside Self-Storage World Expo will expire on Feb. 6. The event will take place at the Paris Hotel & Resort in Las Vegas, April 10-13. The early-bird rates allow attendees to save $330 on the All-Access Pass, $155 on the Seminar-Track Package and $50 on the Expo-Only Package. Buyers can also save $175 on each of seven add-on workshops.

The Expo-Only Package includes access to the:

• Expo hall, featuring nearly 200 exhibits
• Attendee Welcome & Orientation
• Self-Storage Q&A
• Self-Storage Legal Q&A
• Evening cocktail reception
• Roundtable discussions
• Select vendor education
• Buyers & Sellers Meeting
• International Program
• Sessions in Spanish
• Nevada Self-Storage Legal Review

The Seminar-Track Package includes everything above as well as access to all 10 education tracks, which offer 45 seminars. The All-Access Pass provides access to all show offerings, including add-on workshops. This year's workshop options are:

• Development Workshop
• Legal Workshop: A Primer
• Legal Learning Live Workshop
• Management Workshop
• Marketing Workshop
• Owner/Operator Executive Workshop
• Sales-Skills Workshop

To take advantage of early-bird pricing, attendees must register by 11:59 p.m. on Monday, Feb. 6. Registration can be completed at www.issworldexpo.com.

Now in its 26^th year, the ISS Expo is created for self-storage owners, managers, developers, investors and suppliers. The event is the industry’s largest conference and tradeshow, comprising four days of education, product and service exhibits, and networking opportunities.

By Cary Coleman

The movie “Moneyball” tells the story of Billy Beane, general manager of the Oakland Athletics, who in 2002 attempted to assemble a competitive baseball team on a shoestring budget, one that had the potential to beat even the wealthiest teams with their deep benches full of expensive talent. Beane built a group of undervalued players by employing a computer-generated statistical approach to analyze each competitor’s ability. Thus, “Moneyball” metrics were born, and the baseball business was forever changed.

A similar approach has transformed the self-storage industry, particularly in the area of online marketing. Many smaller operators and management companies experience challenges when faced with the pay-per-click (PPC) purchasing power of the industry’s real estate investment trusts (REITs). It’s important to understand that the goal is to buy rentals, not advertising. To do this, you need to buy calls and advertising conversions.

Many storage owners think they can’t afford Internet advertising and rely instead on free, generic search engine optimization (SEO). However, failing to purchase market impressions, calls and actual rentals puts them at the back of the line behind the wealthy REITs’ PPC searches. They don’t understand what’s happening in the search engines, and as a result, they misjudge their staff and mismanage their advertising.

The REITs dominate in online searches. Generic SEO results are simply too far down the page, and Web users dislike scrolling. They click less on the lower results, and so smaller self-storage operations see lower call volume. Every potential renter is worth $1,500 to $6,000 over their average length of stay. By not using PPC advertising to compete against the REITs, small operators lose tens of thousands of dollars every month in potential income and millions of dollars in asset value.

Moneyball Technique 1: PPC Advertising

Let’s look at a case study. In this scenario, a seasoned, stabilized self-storage facility that struggled with historic low occupancy and heavy competition realized an increase of more than 260 rentals and $393,000 in annual income by using Moneyball techniques. These results were obtained in an area of heavy REIT competition. Coupling PPC advertising with phone-sales training for its staff, this facility now dominates the Internet and the local storage rental game.

Net Unit Rentals Before and After Moneyball
	December	January	February	March	April	May	June
Move-Ins	12	43	43	43	69	124	114
Move-Outs	23	23	24	29	30	34	24
Net Rentals	-11	20	19	14	39	90	90
Source: Sitelink Management History Report; Hesperia, Calif.; 6/20/16

Many storage owners have dabbled with PPC, using traditional marketing companies that build websites to conduct search engine marketing (SEM) execution. Few have received the return on investment (ROI) outlined above. Instead, they’re usually beaten by the REITs for strategic Google positioning, and then their customers get closed on the phone by the REIT call centers. But that doesn’t mean the REITs can’t be beat.

In this case, the REITs were pushed down in strategic positioning and valuable market share. Using Moneyball techniques, the subject site dominated with 91 percent impression share vs. the REITs’ 33 percent, as quantified in the Google Auction Detail Report. Market share is valuable because it’s the means by which phone calls and rental conversions are purchased. Traditional marketing companies don’t typically share this information because they’re out-positioned by the industry giants and would rather talk about clicks and Google website analytics.

Many self-storage owners think these types of results are just a matter of buying your way to the top. In reality, Google placings are closely monitored and determined by performance. The facility described above outperforms the REITs at their own game, enjoying more leads, calls and rentals.

Moneyball Technique 2: Phone Sales

Moneyball isn’t about clicks or reservations. It’s about getting calls and outperforming your competition on the phone. Clicks are only a means to an end. While it’s important to play the PPC game, it’s equally important to generate more conversions as a result of increased market share. Conversion to rentals is the true benchmark.

You can actually compete with the REITs on a modest marketing budget that yields tremendous ROI. The average monthly Google clicks spend at a self-storage site using Moneyball techniques is $1,500 to $4,000. Compare that to the revenue and asset value of 10, 20 or even 90-plus net rentals per month, at $1,500 each. The results are staggering!

The truth is even the REITs don’t fully understand what’s happening in the world of Internet shoppers. The biggest misconception in the storage industry today is that a reservation or invitation to visit the property is a win. Nothing could be further from the truth. Time is the enemy. As hours and days go by after the initial contact, conversion rates dramatically decrease, and many reservations and promises are never fulfilled.

Call centers aim for reservations. Moneyball strategies aim for commitments and same-day rentals. Generally, facility staff are still locked into the traditional phone-sales technique of outlining features and the benefits, and ending the presentation with an invite to the facility. Moneyball trains employees on new sales methods that lead to closing the rental commitment the same day.

Relying on marketing companies for leads but having no clue how to close is a waste of advertising dollars. Further, you should never depend on a click or Google analytics report at the end of the month. Performance is based on two numbers only: net rentals and net income. Moneyball out produces traditional storage marketing in both.

For example, site in Rancho Santa Margarita, Calif., with high stabilized occupancy started to apply Moneyball techniques. Each month, it pushed the envelope of income and asset value. After six months, the average monthly increase was $23,205. Using a 5.5 percent capitalization rate, that’s an increase of $5,062,909 in asset value.

Monthly Deposits Before and After Moneyball
	October	November	December	January	February	March	April
Deposits	$194,198	$198,635	$207,097	$223,208	$220,807	$229,090	$225,484
Source: Sitelink Management History Report; Rancho Santa Margherita, Calif.; 4/30/16

Moneyball Technique 3: Aggressive Pricing

There are self-storage owners applying Moneyball techniques every day and putting up huge numbers. Some quickly run out of space to rent, but can still generate more revenue. Moneyball users consistently churn 3 percent to 5 percent of their unit inventory, with aggressive rent increases and PPC quickly refilling the space with higher paying tenants.

The standard industry approach is to modestly increase market rates—typically $2 to $10 per month—to avoid move-outs. Using Moneyball techniques, you raise rates based on unit size, averaging $10 to $40 per month. If several renters move-out, your PPC advertising helps you quickly refill those spaces. It’s net income that matters, not occupancy. REITs never stop their PPC advertising. They’re constantly churning the top 10 percent of their inventory in conjunction with aggressive rent increases. You should do the same.

To defeat the REITs, your must re-evaluate how you look at your advertising and phone techniques. You need to ask yourself: Can my current advertising systems and staff training produce these types of results? Can I go from $1 to $2 per square foot? Most owners using traditional marketing platforms can’t.

Billy Beane and his Oakland A’s taught us a lot about winning. In 2002, they broke the American League record for most consecutive wins. Though they lost the last game of the season to a team stacked with All Stars, they forever changed the way we look at competition. Using the same strategy and statistical approach, smaller self-storage operators and management companies can take a strong swing at the REITs.

Cary Coleman, nicknamed “The Sultan of Swat” for hitting “homeruns” against the real estate investment trusts, is CEO of iLead, a pioneer in Storage Moneyball. His professional motto is “calls, not clicks.” To reach him, call 949.370.3007; e-mail [email protected]; visit www.ileadppc.com.

The push for stricter self-storage regulation in Hong Kong is likely to result in higher rents for tenants and even several storage operators going out of business. Though rates have increased up to 20 percent during the last five years, calls for new building configurations designed to slow the spread of fire will force storage operators to raise rates and lose leasable space, according to the source.

Among the proposals put forth by the Fire Service Department is a corridor requirement of 2.4 meters between self-storage zones. If passed, the measure would likely result in operators needing to double rates, according to Helen Ng, CEO of the Store House, which has facilities in Hong Kong, Malaysia and Singapore. “It’s a bit of a knee-jerk reaction by the authorities,” Ng told the source. “No hotel even has a 2.4-meter corridor.”

Oliver Leung Wing-hong, chief operation officer for RedBox Storage, estimated rates could increase by 30 percent over time to compensate for lost rentable space and the cost of making facility alterations. Building firewalls could cost up to HK$12 million and take 18 months to complete, he told the source, adding, “It’s easy to introduce regulations, but who’s going to [pay for the changes]?”

Potential consumer effects should be considered for any new requirements imposed on self-storage operators, according to Kevin Chan, chairman of Store Friendly, which operates 100 storage facilities across the city. “The most important consideration is whether [regulations] will affect our customers,” Chan told the source. “Where are they going to store their stuff if all operators have to make changes at the same time? We all want to achieve a win-win situation here.”

An estimated 40 self-storage businesses have shuttered operation since the fires last summer, according to the source. One operator went out of business after investing $3 million to build a 10,000-square-foot facility in the Tsuen Wan area because the building owner said self-storage wasn’t permitted in the land lease, according to Luigi La Tona, executive director of Self Storage Association Asia.

La Tona indicated more business closures are likely to occur as a result of new regulations, but growth opportunities could also result for the region’s largest players. “It will be the survival of the fittest,” he told the source. “All the mom and pops that are just getting by will disappear—a hundred percent. However, those that can afford to stay in the game will continue, and they will have the potential to grow.”

Strategic Real Estate Investment LLC (SREI), which focuses on investments in self-storage and multi-family rental properties, is seeking approval to build a Granny’s Self Storage facility in Gastonia, N.C. The planning commission will consider the proposal filed by SREI President Tex Teixeira at its Thursday meeting.

The first phase for the proposed development at 1410 Shannon Bradley Road will include two storage buildings, one of which will be climate-controlled, as well as an office. Phase two will contain three storage buildings, according to the source.

The 6.6-acre property is currently zoned for general commercial use. While storage is permitted under the zoning, the city must approve a conditional-use permit. City planners are supporting the project because development has been declining in the area for several years, the source reported. There’s an AT&T office building just north of the proposed site and a row of single-family homes just opposite; however, city staff noted the area is primarily made up of a mix of commercial and industrial uses.

The land is owned by Carolina Tractor and Equipment Co., which received approval from the city in 2008 to build a heavy-equipment rental facility, but never did. The company is now looking to sell the property, which overlooks Interstate 85.

SREI also operates a Granny's Self Storage at 4335 Kings Mountain Highway in Bessemer City, N.C. The company buys storage facilities and multi-family housing at depressed valuations in strong markets, according to its website. The company then leases the properties to middle-income earners.

S’more Space Storage will host a ribbon-cutting ceremony on March 10 to celebrate its opening in Landisville, Pa. The event at 4:30 p.m. will include tours of the property at 581 Stony Battery Road as well as refreshments and a prize raffle. Members of the Lancaster County Chamber of Commerce will attend the celebration, according to a press release from Storage Asset Management Inc. (SAM), the third-party management firm will oversee operation of the site.

The property’s first phase comprises 37,000 square feet of rentable storage space in 308 climate-controlled and drive-up units. It also contains vehicle-parking spaces and a retail center that sells moving and packing supplies. Security features include keypad access and video cameras. Customers can take advantage of online reservations and billpay.

S’more Space Storage is locally owned by The Murphy Family, which consists of a mother and her two sons.

Based in York, Pa., SAM manages more than 50 self-storage properties and three UPS Stores along the East Coast

In the business of buying and selling self-storage properties, the discussion always ends with capitalization (cap) rates. Unfortunately, most people don’t fully understand all of the ramifications of this simple-sounding number. We have many new investors in the marketplace who’ve never purchased a storage property and are just learning the basics with regard to underwriting. Hopefully, this summary will help clarify the fundamental concept.

What Are Cap Rates and Why Use Them?

Real estate valuation is a very complex business, with many variables that affect price. Over the years, real estate professionals found they needed a way to compare property values in a market using a shorthand method, thus cap rates came into general use.

Essentially, a cap rate tells an investor what he should expect to earn as a percentage if he purchased a property using all cash. For example, if he thinks a property is worth a 7 percent cap rate, then he expects to receive an unleveraged 7 percent cash-on-cash return. However, we all know that operating expenses vary from one facility to the next.

Often these variances lead to a deal having three different cap rates: the one the seller is using, the one the buyer is using and the one the broker is representing. These rates are typically pretty close, but with the reassessment of real estate taxes and the increased operating expenses being faced by many institutional operators, a cap rate quote can be misleading.

When the net operating income (NOI) is divided by the cap rate, you arrive at a property value. This method is essentially a way to develop a price based on income stream. The lower the cap rate, the higher the value; the higher the cap rate, the lower the value. This is only one of the three methods used by appraisers to value a property, but it’s the one most focused on by investors. It’s primarily used because it does a good job correlating property values and helps facilitate comparison between markets.

Underlying Assumptions in Calculating NOI

As with any good rule of thumb, there are certain assumptions that are implicit in the calculation of NOI. For cap rates to be useful and comparable, the NOI must be calculated on a consistent basis on all properties. For example, the operating expenses must be similar in nature and somewhat standardized to compare “apples to apples.”

The first assumption when calculating the NOI is all revenue must result from reoccurring operation of the property (rental revenue), not from an asset sale or insurance recovery. Second, depreciation and debt service shouldn’t be deducted from revenue to arrive at the NOI. Depreciation and financing costs don’t reflect value, but merely tax issues and capital structure. These revenue assumptions are clearly defined and almost universally applied.

However, assumptions related to expenses are less uniformly applied and result in significant misunderstanding, particularly among sellers. They should include that the property is properly insured and advertised in a professional way. Property taxes should be adjusted to reflect what the new valuation will be at the time of sale.

Further, the expense numbers need to reflect the market-labor cost of running a self-storage property, which should include an onsite manager’s salary if the owner is currently doing the work for free. It’s also assumed that the operating expenses include an offsite management fee over and above the onsite management expense. This will range from 4 percent to 6 percent of gross revenue depending on the size of the property.

Many owners will say some of the assumptions don’t apply to them for various reasons, but I can assure you there are almost no exceptions in the marketplace of real sales. In the end, ignoring these assumptions is at best self-deception and, at worst, can have serious impact on the financing or sale of a property.

The Case of Higher or Lower Rates

Since not all properties are alike, they command different cap rates. The variations from normal cap rates (between 5 percent and 8 percent today) usually reflect the quality of the project and risk to the investor. For example, a 40 percent vacant metal-building project in a rural area would require a higher cap rate to reflect the increased risk and lesser quality asset. On the other hand, a large masonry project with full security in a growing metropolitan area with consistently increasing rents would command a premium cap rate, perhaps in the range of 5 percent to 6 percent.

Again, while the cap rate may vary, the underlying assumptions about the NOI don’t. Property valuations are somewhat subjective, but our collective experience would indicate that knowledgeable buyers and sellers agree on the quality of the NOI and with the risk variances that lie in the narrow range of cap rates.

Do Cap Rates Really Reflect the Market?

The answer is unequivocally yes! If cap rates didn’t reflect the marketplace accurately, we wouldn’t be using them in so many ways. The accompanying chart gives you an idea of how cap rates have varied over the last 10 years. Please keep in mind this takes into consideration all self-storage properties around the country. Remember that a property in a small city or town won’t command the same low cap rate as one in San Francisco or Midtown Manhattan.

 

As you can see, the market has seen a constant decline in cap rates for self-storage properties over the last several years, from an average of 10 percent in 2000 to 5.75 percent in 2015. This is largely due to the increased industry data now available that indicates the overall risk associated with owning self-storage properties is much less than once thought. Not to mention we’ve had a great run of low interest rates for the past decade, which has also fueled the increase in value of almost all income-producing real estate, including self-storage.

However, the most intriguing metric in the chart is the spread between cap rates and interest rates, indicated by the red line. As you’ll notice, the trend is less constant than the more consistent cap-rate and interest-rate trends. The narrowing of the spreads between cap and interest rates today would indicate the market is realizing once again that the stability of self-storage income streams is very durable.

The above review of cap rates covers the basics of how they work and their effect on valuation. They should allow you to arrive at a ballpark value for your new investment or current self-storage property. However, you must be impartial when making the judgment call required regarding income and expenses, and compare your project to other comparable sales in your market to arrive at an appropriate cap rate.

Understanding and setting the value of a property is the single most important step in the investment process. If you’re thinking about getting expert advice when evaluating an asset, it’s important to consult with a real estate professional who specializes in self-storage. There are some things unique to self-storage with which an average broker may be unfamiliar, regardless of his other experience or intentions.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. It also offers panel discussions in which brokers from around the country share their insights on self-storage market fundamentals and economic trends in their regions. To access recordings, visit www.argus-selfstorage.com/presentations.html. For more information, call 800.55.STORE; e-mail [email protected].