Shurgard seems to have shifted its focus to other countries; but one of the great things about having an established and respected company lead the market is it sets the standard for quality. As a result, Dutch customers can expect facilities that are clean and well-constructed.

A popular industry trend includes individuals who offer temporary storage on limited acreage or in farm sheds. They mostly advertise through eBay and other marketplace websites. There remains a difference, however, between a random garage-style building and a real “storage hotel” like the ones provided by Shurgard or Extrabox. Eventually, customers will experience this for themselves and begin to demand high-quality storage.

Limits to Growth

Many real estate owners are exploring the storage market, but they still prefer to land a single tenant with a five- to 10-year lease instead of 500 short-term rentals. Financiers sometimes regard the storage business as labor-intensive compared to other investment options. For example, a facility may have two or three employees and 400 units, with renters constantly coming and going. Most investors prefer to avoid businesses that involve intense customer service and its related issues. Management companies could rectify this challenge, but unlike the United States, the Netherlands doesn’t have many with self-storage experience from which to choose. As the market grows, more options should become available, which will encourage a cycle of greater investment.

Another factor limiting growth is difficulty in securing financing. Many entrepreneurs wishing to enter the business discover few institutions are willing to lend them the money to do so.

Finally, the Dutch market is undeniably expanding, but not all of its 80 facilities are succeeding as hoped. They face common challenges such as public ignorance or a poor perception of the product, bad locations, and unforeseen competition in big cities such Amsterdam, Rotterdam, The Hague and Utrecht.

Elusive Profit

Although the demand and need for storage exist, Dutch companies and entrepreneurs are finding customers don’t just walk in and pay the quoted rates. It takes hard work to turn a profit. It’s not enough to lease or buy a building with cheap rent and create arbitrary unit configurations; nor is it sufficient to put just anybody behind the desk.

To generate generous returns, facility owners must rely on solid planning and research about each building and location. They also need to conduct marketing, perform daily sales activities, keep facilities clean, and hire trained and caring staff. This is what many newcomers don’t understand.

Today’s consumers are savvier than ever. They don’t just want high-quality service with no hassles, they want low prices. A facility’s entire business process has to run smoothly—it takes more than a chic corporate image to succeed. A smart owner can create his own market by being proactive. Just like anything worth pursuing in life, self-storage requires effort.

Erwin Fleer is co-founder and a board member of Extrabox Self- Storage, based in the Netherlands. The company is the first in Europe to offer a complete franchise opportunity. For more information, e-mail [email protected]; visit www.extrabox.nl.

Social Security Numbers

One of the first questions that comes up when a tenant signs his lease agreement is whether he needs to provide his Social Security number (SSN). When SSNs were first issued in 1936, the federal government assured the public that their use would be limited to Social Security programs. Today, however, they are frequently used in all sorts of applications. And because these numbers are so accessible, its relatively easy for someone to use an SSN to assume anothers identity and gain access to his bank accounts, credit accounts, utility records and other sources of personal information. Identity thieves can even establish new credit and bank accounts in the victims name.

Theres no law preventing a self-storage or other business from requesting an SSN as part of a transaction, and few restrictions on what it can do with the information once it has it. A customer may claim you cant request his SSN under privacy laws; however, the Privacy Act of 1974 only applies to government agencies.

Under the act, all federal, state and local agencies must provide a disclosure statement explaining how the SSN will be used and under what statutory or other authority the number is requested. The act also states that an individual cannot be denied a government benefit or service if he refuses to disclose his SSN unless the disclosure is required by federal law.

Disposal of Records

Identity thieves can often find a wealth of personal data simply by dumpster diving, and the irresponsible disposal of consumer information by businesses has been cited in numerous instances of fraud. As a remedy, the Fair and Accurate Credit Transactions Act (FACTA) was passed in December 2003, a federal law designed to minimize the risks of identity theft and fraud. Under FACTA, the Federal Trade Commission was charged with developing information-disposal rules, which went into effect on June 1, 2005.

The scope of the rules is quite broad. They apply to any employer, regardless of industry or size, that obtains a consumer report (whether a full credit report or a pre-employment check of public records). In essence, they apply to anyone who maintains or possesses consumer information for business purposes. Consumer information is any record about an individual, whether in paper, electronic or other form, that is a consumer report or derived from a consumer report.

If a self-storage operator performs any credit or background checks on prospective tenants or employees, or uses any information taken from any type of consumer report, he is subject to the FCCs disposal rules. As such, he must properly discard consumer information by taking reasonable measures to protect against its unauthorized access or use. He can handle the disposal himself or hire a third-party document-destruction service.

In most instances, proper disposal involves shredding or burning paper documents or wiping a computer clean of electronic data. Smaller operations can purchase a paper-shredder from an office-supply store to do their own shredding. They can also buy a software utility from a local computer store to clean their hard drives of sensitive information. Larger operations generally have an information-technology department to handle these tasks.

If youre ever in doubt as to whether your disposal practices are sufficient, consult the rules directly. If you mishandle consumer information, you could be held liable for any resulting identity theft. If accused, youll need to demonstrate what you did to destroy the data.

As long as youve made a good-faith effort, youre probably safe. Any willful violation of the disposal rules, however, can result in fees of $100 to $1,000 per violation plus the cost of the legal action, including attorneys fees. You might also be held liable for punitive damages. Fees for negligence are limited to the consumers actual damages plus the cost of action, including attorneys fees. In addition, the rules provide for administrative enforcement, which could include federal fines of up to $2,500 per violation.

Given the increased awareness of identity theft, fraud and other privacy issues, storage operators should develop policies to ensure the actual destruction of discarded records, particularly when they contain sensitive information. This also applies to personal records stored in units. If youre ever left with boxes of records as the result of a delinquency, you should dispose of them properly. While the law may not extend to these abandoned records, its always better to be safe than sorry.

California and Texas

There are two new laws in California that address privacy rights for consumers. The first is the Online Privacy Protection Act of 2003, which requires commercial websites and online service operators that collect personal information from California residents to clearly post their privacy policy. The second, known as SB 27, grants a California consumer the right to know the third parties with whom his personal information is shared, unless he was given a free method to prevent such sharing. To comply with SB 27, a business has 30 days from the time of request to provide a consumer with:

• The names and addresses of the third parties that received his information in the preceding calendar year.
• The categories of information disclosed during the preceding calendar year (name, address, age, birth date, e-mail address, etc.).

Any business that collected personal information from California residents after Jan. 1, 2005, had to decide whether to continue sharing that information with third parties for direct marketing purposes. If it chose not to, then it falls outside the scope of SB 27. However, it still has to send a prepared response to any consumer who makes an SB 27 inquiry.

The Texas law, HB-698, took effect on Sept. 1, 2005. It requires businesses to destroy a broad range of discarded personal information that could be used to commit identity theft, including Social Security and other government-issued identification numbers, financial-account numbers and even e-mail addresses. Businesses that fail to comply can face fines of up to $500 per record.

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is intended to help consumers fight the growing crime of identity theft. For example, it provides that receipts for credit- and debit-card transactions cant include more than the last five digits of the card number. Congress also adopted a new rule that entitles individuals to a free copy of their credit report annually.

FCRA gives an identity-theft victim the right to contact the credit-reporting agencies and flag his account. This new procedure, called a fraud alert, has already been incorporated by the three major credit bureaus: Equifax, Experian and TransUnion. The alert is initially effective for 90 days but can be extended, on request, for up to seven years. Once an alert is issued, any business asked to extend credit to the person in question must contact the applicant by phone or take other reasonable steps to ensure the credit application was not made by an imposter.

In addition, FACTA requires any business that provides credit, products or services to an identity thief to provide copies of all documents and transactions to the victim. The business must also provide copies of the requested documents to any federal, state or local law-enforcement agency specified by the victim.

Background Checks

These days, employers feel an increasing need to know the backgrounds of prospective and current staff. Since its important to employer and employee that the information accessed is truthful, its best to use consumer reports prepared by a third-party reporting agency, as these fall under the jurisdiction of the FCRA. Part of the purpose of the FCRA is to ensure that reports used to make important decisions, such as those related to a persons employment, are accurate. Since privacy is obviously a factor, it also limits who has legitimate access to background information.

Public records may be a part of an employment-background check. This could include information regarding bankruptcy, civil judgments or tax liens. The FCRA imposes limits on the length of time such information can be reported by a consumer-reporting agency. For example, civil judgments and tax liens should not be reported after seven years, and bankruptcy should not be reported after 10 years. When noting a consumers bankruptcy, the report should include the type of bankruptcy filed.

An employer has certain obligations when performing a background check. First, he must get permission from the applicant or employee. This consent must be given on a separate form and cannot be included with other documents, such as an employment application. The employer must generate special notice if hes seeking medical information. He must also notify the subject of a background check before taking any adverse action based on information disclosed.

Privacy rights are of significant concern to consumers and business operators, and the self-storage industry is not immune from risks associated with the use and access of customers personal data. It is the duty of every operator to be aware of local, state and federal laws that impact his business. It is also his obligation to use discretion and good judgment when disposing of tenant and employee information that could lead to identity theft.

A partner in the law firm of Weissmann & Zucker P.C. in Atlanta, Scott Zucker specializes in business litigation, with an emphasis on real estate, landlord-tenant and construction law. He is a frequent speaker at national conventions and 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, e-mail [email protected].

This month, I gathered real estate experts to discuss the state of self-storage in the Northeast. Lets hear what they have to say about their respective cities and regions. Our panel includes: Linda Cinelli, LC Realty, North Branch, N.J.; John Lisowski, Grubb & Ellis, Pittsburgh; Joe Mendola, The Norwood Group, Bedford, N.H.; and Chuck Shields, Beacon Commercial Real Estate, Conshohocken, Pa. My comments are in italics.

Cap rates have generally dropped over the last year but still tend to be influenced by local factors. Whats a typical cap rate on A- and B-grade projects in your area?

Cinelli: A-grade projects are in such demand that investors will pay 7.5 percent to 8 percent cap rates. We were recently outbid on an A-grade location for which the winning buyers felt the potential for occupancy was worth the lower cap rate. B-grade projects are also in demand, but the buyers are more conservative and want to see cap rates in the 8 percent to 8.5 percent range.

Lisowski: In Western Pennsylvania, cap rates for A-rated facilities are in the 9 percent to 10 percent range. B-rated facilities trade in the 11 percent to 12 percent range. Most buyers tend to be local investors familiar with the industry. The population in the area is stagnant at best (declining in most areas), which causes concern regarding future occupancy and expansion.

Mendola: Cap rates for A-grade properties in New England are about 8.5 percent. There are very high barriers to entry and room for expansion. B-grade properties have cap rates in the 9 percent to 9.5 percent range. These properties offer good cash flow but not much near-term upside.

Shields: In my region, the cap rates are not as aggressive as in other parts of the country. An A-grade project might see a cap rate in the 8 percent range, and a B-grade project could be a point higher.

Cap rates vary by location, even within the same city. It appears buyers, while still willing to pay higher prices, are becoming more selective about location and quality.

Are you seeing rental-rate increases? What is occupancy like in your territory?

Cinelli: Rental rates for larger units in the area are lower, but rates for smaller units are higher. Occupancies are declining because as more facilities come into the market, existing ones are offering significant deals to keep their business. Overall occupancies can range from 75 percent to 80 percent, although some can be as high as 98 percent.

Lisowski: For the most part, rental rates and occupancies have remained relatively stable, with the exception of an occasional special such as first month free. Overall occupancy is in the 85 percent range.

Mendola: The New England market is in an equilibrium mode, with rental rates holding steady. Occupancies are also stable, and they probably wont move until we get a catalyst for demand. The marketplace is about 83 percent occupied. However, if a facility is sitting at 65 percent occupancy, it will have to do some aggressive marketing to get up to 85 percent.

Shields: Rental rates have increased in Eastern Pennsylvania and Southern New Jersey, with occupancies remaining high. There doesnt seem to be the usual winter declines. On average, occupancies are 80 percent and higher for most established facilities.

There seems to be justification for owners who begin to worry about overbuilding. I also hear that because of increased costs for gasoline and heating bills, many people have less disposable income, which can affect their decision to rent storage.

Has there been a marked increase in planned and new projects in your area? Are these facilities larger with more amenities?

Cinelli: It seems there are more buyers for approved sites, since entitlements are such a problem in most states. For example, the approval process is extremely difficult in New Jerseyany elevation must be attractive and not look like storage. In New York, approvals vary, but they havent reached the same challenging level. Buyers feel its better to build vs. buy existing facilities at low cap rates. The sites being built are more high-tech and sophisticated to attract customers. Buyers are especially big on visibility and retail locations, and will pay top dollar in some cases.

Lisowski: There hasnt been a marked increase in new construction in this market. In the larger metropolitan areas, there is some construction as the population shifts to the outer suburbs. In this case, we might see some new facilities, but not any of major consequence.

Mendola: New facilities in New England have dropped off in general, but theyre still popping up in special situations. These facilities tend to be more state-of-the-art.

Shields: Im seeing a lot more largescale, new developments, with more amenities such as upgraded technology, security, aesthetics, landscaping and, most important, climate control.

Clearly New Jersey is a hot spot, but remember that overbuilding can occur in a single micro trade area and still be devastating to existing owners in the market.

What things do potential buyers most like and dislike about a property?

Cinelli: Buyers like the opportunities for expansion that exist in areas of increased residential growth; but many dislike the fact prices are too high and they wont be able to reach the returns that were available for the initial investor.

Lisowski: First and foremost, buyers like the potential for a steady stream of income and positive cash flow. Second is the possibility of future increases in value if the facility is strategically located in a growth area. On the other hand, buyers worry about future occupancies if the population experiences a continual decline.

Mendola: Buyers like properties with expansion possibilities and high barriers to entry as well as highly visible locations. They dont like properties with unstable occupancy in flat markets in which price is based on low cap rates at stabilized occupancy.

Shields: The No. 1 thing I see buyers looking for is the ability to add value. This is done by raising rates and expanding to meet demand. They dislike high asking prices with unrealistically low cap rates to justify them.

We can see that buyers are getting pickier.

Is bank funding available for facilities in your area? What would financing terms look like?

Cinelli: Lenders base their decision on the strength of the borrower first, then on experience and cash-flow projections.

Lisowski: Bank financing is available for buyers in the market. Typically, one would see a term of 15 years and rates in the 6.5 percent to 7.5 percent range, depending on the facility.

Mendola: Bank financing is available, but the feasibility study has to be detailed and good at measuring pent up demand. The rates are climbing to 7 percent and 20-year amortization with a fixed rate for five years.

Shields: Bank and conduit financing are available for existing facilities, but construction financing is a little harder to find. Construction financing might be obtained with 300 basis points above treasuries with interest-only payments for 24 months. Conventional financing might see 7 percent. Conduit financing might be about a point lower, with a term of 7 to 10 years and amortization of up to 20 years.

The money is still available but more expensive than in recent months, which may slow builders down a little bit. But as long as sale prices remain high, the economics will still work for most developers. Cinelli makes the point that if the buyer has strong enough credit, the lender will approve any project and loanthats where really bad (rate-busting) projects are born.

---

Michael L. McCune has been actively involved in commercial 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 1994, he created the Argus Self Storage Real Estate Network, now the nations largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.selfstorage.com.

Insurance companies can provide coverage in a variety of forms. They can write a business owners policy (BOP) that rolls several coverages into one (theres a standard BOP form for self-storage, but not all companies use it). They can write their own version of a package policy for small businesses. Or they can write individual policies for property and liability, and try to cover your needs with endorsements that extend coverage.

Insurance companies must be financially strong, as determined by their industry ratings. A.M. Best is one of the most highly regarded insurance-rating services, and the company you choose should have an A.M. Best rating of A or better. This indicates the company is financially solid and has a good reputation in the marketplace. Your provider should also be known for fair and fast claims services.

Provider Options

When buying insurance, you have several options. You can work with an independent agent, a direct-write agent or a broker.

An independent agent has a contract to act on behalf of several companies, each with its own appetite to write certain kinds of insurance. He will review your needs, offer advice, and provide coverage from these suppliers. A large part of his job is to regularly evaluate your policy and ensure you have adequate protection. (At each review, he should check to see if you have added or improved buildings.) The agent you choose should not only have a strong working relationship with the companies he represents, he should know the advantages and disadvantages of each policy type.

A company, or direct-write, agent works for just one insurance carrier, offering only its available coverages. He has direct access to the companys resources, which sometimes results in faster service.

Brokers are independent professionals who represent insurance buyers rather than companies. They usually have working relationships with several insurers and often do comparison shopping for their clients.

Finding Candidates

You can find insurance carriers in a number of ways. The local Yellow Pages is a good place to start, though it wont provide any feedback as to each providers competence. Self-storage operators, however, are a great source of referrals. Ask others in your area which companies they use. You can also find good candidates at industry conferences and tradeshows, where they may be presenting seminars or exhibiting. You can even ask vendors of other industry services which insurance providers have a good reputation for customer service and knowledgeable staff.

Choosing Your Insurance Partner

Before choosing an insurance professional to assist you, consider these key factors: Familiarity with self-storage is critical. From an insurance perspective, this industry is unique. Beyond the usual concerns regarding property-damage loss, there are significant legal issues involved in the tenant-landlord relationship. As a storage operator, you are not a warehouseman, meaning you do not have care, custody or control of customers goods. This relieves you from most liability, but there are other risks. The agent or broker you choose must understand this and be aware of the coverages that specifically address industry exposures (see sidebar).

A good agent or broker should be able to help you decide what coverages you need as well as recommend the limits of liability you should buy and what deductibles to accept. Professional designations such as certified insurance counselor (CIC) or chartered property and casualty underwriter (CPCU) help indicate a professionals qualifications. They usually identify those who place a high value on insurance training and knowledge.

While cost of coverage is important, the premium should not be the No.1 reason you choose an insurance provider. Consider the company being represented, how many self-storage businesses it supports, and the services it can offer. Some of those services should include:

• Formalized risk management, which helps you identify and analyze your companys exposures. For example, it can determine the replacement-cost value of your facility and potential loss of income should the site go out of service.
• Premium payment plans and financing of premium services, which spread the cost of an insurance policy over several months.

Choosing an insurance professional comes down to how comfortable you are with a broker or agent and how confident you are in his ability to secure the protection you neednow and as your business grows and changes. A trusted advisor should be an important member of your team. After all, youre an expert in your business. Isnt it worth the time and effort it takes to find one in the insurance market too?

Toni Bader is vice president of marketing for Bader Co., a national provider of point-of-lease self-storage tenant insurance. Via its commercial-insurance division, the company offers business owners insurance through companies rated A or higher. For more information, call 888.223.3726; visit www.baderco.com.

---

Self-Storage Coverages

If you own or operate a self-storage facility, there are several insurance coverages you should know about and understand:

Customers goods legal liability.

As a landlord, you only rent space. Most self-storage leases clearly state that you are not liable for any loss or damage to tenants stored goods. But you still need protection in case youre ever taken to court or found to be negligent in the operation of the facility. Customers goods legal liability pays the cost to defend you against lawsuits and judgments.

Sale-and-disposal legal liability.

Storage operators face legal risk when they sell a tenants property at auction to satisfy past-due rent. Mistakes are sometimes made during a lien sale. For example, perhaps the manager overlocked the wrong unit or failed to notify the tenant according to the state lien law. In any event, this type of coverage helps defend you in case of a lawsuit and, again, pays for any judgments against you.

Extended business interruption.

In general, business owners policies include coverage for extended business interruption, but some insurance companies offer wider benefits than others. Make sure your policy includes enough protection to help you get back in business after a disaster such as a hurricane. Youll need enough time to gather equipment and make repairs, and then restart your business and refill your units.

How much happier would you be if you had twice as many commercial tenants as you do now? My guess is quite a bit! Commercial renters stay longer and almost always pay on time. Theyre also more tolerant of rent increases and are generally easier to deal with. So it makes sense to attract as many of these customers as possible.

To increase your percentage of commercial tenants, you need a well-planned, concerted marketing effort that consists of direct contact and direct mail. But first, you must recognize these customers want to do business with a specialist, someone who understands their unique storage requirements. You must come across as that person. Luckily, in this age of computers and desktop publishing, the task isnt difficult. You can easily create your own mailers and promotional materials.

When tailoring collateral to commercial clients, keep in mind the primary benefit you offer them is storage that is cheaper per square foot than office space. Your product also helps them reduce clutter. There are probably many other advantages you can highlightall it takes is a little brainstorming. Its especially useful if you can use numbers to demonstrate potential cost savings.

Direct Contact

Once you have assembled your brochures, fliers and mailers, get out your compass and a map of the immediate area. Draw concentric circles around your facility at radiuses of .5, 1 and 2 milesthose are your target markets. Now youll go out to every business in those areas, beginning with the smallest circle, and introduce yourself in person. (Note: Dont make the mistake of excluding a business because you think it wont need storage. Let the customer make that call.) Some storage operators are afraid to make sales calls because of fear of rejection. If this is true for you, youre not alone.

But lets look at a few figures that might help alleviate your anxiety: Lets say every commercial renter you have stays an average of 12 months and pays an about $50 per month for his unit. These numbers are far lower than national averages, but even at these rates, each customer is worth $600. If you have to call on 20 businesses before you make a sale, each visit is worth $30. But isnt $30 of effort worth $600 in income?

When you first introduce yourself to a business owner or manager, be armed with your promotional materials that are specific to commercial tenants. Quickly give your pitch, which should be rehearsed. Be friendly, but dont take up a lot of his time. The goal is to announce your services, and let the prospect know you are competent and easy to do business with.

Keep a record of all your visits and follow up with promising prospects. Make a note of whom you spoke with and the degree of interest he demonstrated (I suggest using a scale of one to 10). Generally, youll let people get back to you when theyre ready. But for those who ranked an eight, nine or 10 on your scale, follow up with a phone call and invite them to visit the facility.

Direct Mail

The key thing to remember when creating a direct-mail piece for commercial customers is youre simply luring them to contact you, not selling them storage in this step. Trying to make the sale at this stage will be a waste of time and money. Its just like dating: People are reluctant to buy on the first meeting. They need to be wooed.

With this in mind, the only purpose of your mailing is to give business owners a compelling reason to call you. This is your second date, so to speak. When they call, give them a list of benefits specific to their requirements. Answer all their questions and assess their storage needs. Then set up your third date: a visit to the facility during which theyllhopefullysign a rental agreement.

Of course, commercial clients make up only one segment of your marketing plan. A complete program will address multiple target groups for maximum effect. But these customers are well worth pursuing and could make your business a lot more profitable. So get out there and shake some hands, and send out some seductive mailers.

Fred Gleeck is a self-storage coach and consultant who helps owners and operators maximize profit. He is an expert in the field of information and seminar marketing and the author of more than 10 books. To learn more about new marketing ideas revealed only in his live events, visit www.storageseminar.com. For more information, call 800.345.3325; e-mail [email protected]; visit www.selfstoragesuccess.com.  To subscribe to Mr. Gleecks e-zine, send an e-mail to [email protected].

Since its inception in the 1950s, the records-management industry has been perceived by many to consist of simple storage and retrieval services. But these days, the business is extremely multifaceted. As a provider of records storage in a self-storage environment, you have options when it comes to your level of service, which depend on human and financial resources and operational goals.

Some philosophers argue that the era of industry and agriculture has passed, and knowledge is all we have left to barter. Whether we trade or sell it, information has become the primary component of our economy. As a result, business records have risen to unprecedented levels of importance. Held in repositories that range from huge server farms to commercial records centers, theyre maintained for four primary reasons:

• Regulatory compliance
• Litigation avoidance
• Sound business practices
• Fraud and theft prevention

When it comes to managing records, the challenge isnt storage; its finding the right record in a timely fashion when its needed. Business owners can store their records anywhere, including a self-storage facility, warehouse, attic, closet, etc. But documents must have integrity, which means they must be available and reliable. The best way to ensure this is to keep them in a safe place with limited access. As a self-storage operator, you can offer many solutions. Following is a description of your options, from basic to complex.

Options for Storage Operators

Passive storage.

Most self-storage facilities already offer passive records storageall they do is rent units in which business customers keep their boxes. The operator has no direct involvement with tenants records. There are approximately 100 million boxes of records sitting passively in self-storage facilities throughout the world. Few records-management companies are fortunate enough to have that kind of volume under contract.

Passive storage with shelving and boxes.

This next level is easy to manage and brings value to the facility and customer. In this scenario, you simply sell shelving and boxes as retail items. Boxes in particular are high-margin items.

Passive storage with shelving, boxes and software.

This is a new twist on the passive-storage concept. Its still simple, but in addition to shelving and boxes, you offer software the customer can use to index and locate his boxes. You set up a work station and data-entry forms, and the client enters his own information and prints his own reports. You can charge for use of the software on a monthly basis or per transaction. In either case, you still have no involvement with customer records.

Records storage lite.

Several of my past columns have addressed this concept, which is a combination of passive storage and active management. You no longer rent storage units to customers. Instead, you rent storage space by the cubic foot. You also become responsible for retrieving and indexing boxes in inventory. In essence, you become the customers custodian of records. This method includes several key components:

• Small-business packages
• Will-call pick-up
• Standardized pricing
• Five simple services
• Permanent revenue
• Permanent contracts
• A simple operating method
• A simple sales method

For more information on RS-lite, you can read past articles in the Inside Self-Storage online archive.

Nontraditional records management.

More complex than RS-lite, this method includes extra services and sales methods. It requires additional manpower, capital and training as well as strategy, strict rules and outsourced resources. Its also a stepping stone to full-blown, traditional records management.

Multiple storefronts.

This recent method is financially advantageous for self-storage operators with multiple facilities in a single market. It works best with more than five stores. It involves a strategy developed by operators who have grown their records-management volume to several hundred thousand boxes and vaulted into traditional records management without missing a step. (For more information, refer to my column in the January 2005 issue.)

Traditional records management. This method can be approached in two ways. The first is to build to it slowly using one of the above methods. The other is to launch your records business as a traditional startup from day one. In this case, you open your records center as a separate business, build a book of services and provide them from a single-purpose facility. This approach is the most capital-intense, especially during the first three years. Some traditional centers reach breakeven in as little as two years, but you can minimize costs and enjoy profitability almost immediately by experimenting with more basic methods first.

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

Storage operators often think theyre running safe and secure operations based on the systems and controls they put in place to improve themfor example, security equipment and safety regulations. What they dont realize is they may still be missing key techniques to reduce their exposure and protect their business. They should also know that risk management can often assist insurance underwriters in accepting self-storage as an insurable asset, which helps minimize premiums.

There are many exposures that contribute to a facilitys potential liability or loss. This article discusses some of those risks from the insurance perspective. It also suggests practices that can mitigate them.

Surveillance

Did you know that when you proclaim use of 24-hour surveillance cameras to tenants, you are essentially claiming to have a person watching the facility on a monitor at all hours of the day and night? Lets say an event such as a theft occurs that results in loss to a tenant. You could be found legally liable because you did not actually have someone watching the surveillance monitor, ready to contact the proper authorities. Think about this when addressing video surveillance in your rental agreement, advertising and other print materials. Your insurance company will certainly think about it in its evaluation of your business.

At the same time, video cameras can protect your facility from potential liability and property damage and are a worthwhile investment. Pay careful attention to the type of system you purchase. Is it closed-circuit? Does it digitally record to a computer hard drive? How long do you keep recordings? Where is the data stored? Do you keep backups at an alternate location such as a corporate or home office? Your insurance company will ask questions like these to properly evaluate the controls you use and your level of financial risk.

Lighting

Lighting is an important risk-management factor because it adds a level of security to a site, helping to prevent accidents and criminal activity. Facilities should always be well-lit, especially at night, and particularly if a site is open after business hours. Always make sure your lights are in proper working order. Replace burnt-out bulbs and make necessary repairs as quickly as possible. You want to avoid liability for customer safety at all costs, and lighting is one simple solution.

Fencing and Gates

Perimeter fencing and security gates have become an increasingly important factor in managing risk. Fencing should be at least 8 feet tall and, in most cases, include additional protection such as barbed wire to prevent entry by intruders. Choose your fence carefully. Chain link has been the traditional material of choice, but as more criminals have find ways to penetrate it, wrought iron or concrete fencing has become increasingly preferred.

Losses sometimes occur as the result of piggy backing, which is when an authorized individual drives into the property immediately behind a legitimate tenant who opens the gate. To prevent this, use an electronic access system. You can use keypad or card entry, or even require tenants to sign in and out at the office. Your insurance company will ask about fencing and other security equipment in its evaluation.

Fire Protection

Central alarms are key to protecting your facility from fire. Even just a few minutes can significantly change the amount of property damage caused. Fortunately, the cost to implement an alarm system is minimal when compared to potential devastation. Aside from the price of physical damage, you must factor in the business you could lose through business interruption.

Most facilities have full sprinkler systems, which must be inspected at least once a year. Always check a units sprinkler head when a tenant vacates to ensure it hasnt been damaged and isnt leaking. Also check water flow regularly. This is a particular concern in regions of extreme cold, because frozen water can cause the system to malfunction and create leaks; and most insurance policies exclude these damages. A well-planned annual inspection will save you from potential losses.

Tenant-Created Hazards

Lets face it: You dont always know what tenants are storing in their units or who is accessing the space. Customers sometimes store illicit substances or use their units for illegal activities. Others may want to run legitimate businesses out of their space, but you must still set some guidelines for them to follow.

Does your rental agreement clearly indicate which items and activities are restricted? This is essentially important because hazardous or flammable materials can cause property damage, injury and environmental issues. In addition to a properly worded lease, conduct regular walk-through inspections of the site, documenting the types of items you see stored and reporting any suspicious activity to local authorities.

As this industry experiences vulnerability to more and more exposures, every operator needs a detailed risk-management plan. It should be a mandatory aspect of your business and adhered to by all ownership and facility personnel. Youll not only protect your valuable asset, youll generate added value for the customers you serve.

Mike Gong is a property-and-casualty insurance professional for Arthur J. Gallagher Risk Management Services, which has provided a full range of insurance solutions to the self-storage industry since 1990. The company is the fourth-largest insurance broker in the world, maintaining more than 250 offices throughout the United States. For more information, call 800.568.0833.

• It will prevent former tenants whose goods were sold from claiming you failed to follow proper lien-sale procedures.
• It will prevent lawsuits filed by buyers who claim your auction was unfair or inappropriately handled.
• It will help prevent other claims that could result from having buyers as guests of your facility.

Technicalities

Unless your state statute provides differently, an auction requires the use of a licensed auctioneer; but that doesnt mean you have to sell via an auction. If you choose not to use an auctioneer, you should refer to your lien sale in all advertisements and other materials by the same term used in your states storage statute, usually public sale.

Most statutes also require the sale occur at the facility, unless that is somehow impossible. Some operators enter contracts with auction companies that pick up the goods and sell them at the auction house. This sort of arrangement could represent a violation under your state statute, so proceed with caution. When you take possession of property by turning it over to an auctioneer or moving it to an auction site, you accept the responsibility of a bailment, which is an unnecessary risk.

Avoiding Tenant Claims

To avoid claims of wrongful sale from tenants, there are a multitude of bases to cover before you get to the sale, such as including the right provisions in your rental agreement and following your state self-storage statute to the letter. But lets talk about the sale itself and how to ensure it is fair to the customer whose goods are being sold.

Most state statutes require property to be sold in a commercially reasonable manner. They also proclaim the tenant has the right to redeem his property and stop the sale until the time it is finalized. For everyones benefit, your written materials should address why the sale is occurring and how it will be handled, as well as articulate when a sale is final. When drafting your auction rules, consider the following:

• A statement advising the public why the sale is being conducted, i.e., the tenant is in default pursuant to your self-storage statute.
• A statement, to the best of your knowledge, regarding whether the property is subject to a lien superior to yours (for example, in the case of a vehicle).
• A rule that gives a tenant the right to pay off his debt and reclaim his property right up until finalization of the sale.
• A rule indicating whether the owner, manager or employee, or any of his relatives, can bid on the items being sold.
• A statement identifying the final authority and decision-making process regarding auction winners.
• A rule excluding personal items found in the unit, such as photographs, letters, diplomas, etc., from the final sale.

Avoiding Buyer Claims

In addition to the above, you need rules and disclaimers to protect yourself from accusations of wrongful sale leveled by buyers. First, indicate whether you are selling the contents of single or multiple units. Also define bidders ability to inspect the units prior to sale. For example, will you allow them to look into the space? Will they be prohibited from rummaging through the contents?

Consider preparing a statement that says storage units were inventoried, photographed and sealed, and you have not touched them since. Bidders should know the spaces are in the same condition left by the tenants. You might also clarify if inventory was taken only visually by standing outside the unit and looking in. If this is permitted by your statute, it may reduce your liability if you missed any items at the back of the units. Finally, make it clear that goods are purchased as is, where is, and you do not guarantee the condition of any items.

Explain how the sale will be conducted and how a bidder participates. For example, you might require he register with you and leave a credit-card number on file. You might issue paddles or bidder numbers. You might even require a deposit.

Clarify what the opening bid will be, in what increments bids can be raised, and whether there is a reserve. Based on the guidelines of most state statutes, you should avoid sealed or closed bidsan open bidding procedure must be part of the sale. Disclose the indicator for the final bid, i.e., what you will say to let bidders know its their last chance. Make it clear that the buyer is not permitted to touch or move any of the items until the sale is declared closed. Finally, give yourself the right to pull items from the sale if a reserve is not met or some strange circumstance arises.

Be clear about when you expect payment and in what form (cash, credit card, check, etc.). Also state whether you require a specified deposit that will be held until the unit is emptied and swept, and inspected by the facility manager. If sales tax or auction premiums are included in the final sale price, the buyer should sign a statement to that effect.

Keep in mind payment isnt the final step. Many operators deem a sale complete only when the buyer removes the goods from the premises, with a rule for when that can occur. What if you conduct a sale in the morning, only to have the tenants overdue payment arrive via mail in the afternoon? You want to protect yourself from potential litigation, especially if the tenant may be trying to set you up. Therefore, consider a rule that says the sale is not complete and the goods cannot be removed until X number of hours after the sale or even the next day.

From time to time, illegal items are found among the contents of an auctioned unit. You need a rule stating that buyers should carefully inspect their purchase for illegal goods, such as drugs, guns, etc., before leaving the facility. Once the property is in a buyers possession, he is liable for any goods in the lot.

Most important, make sure bidders sign a copy of your written rules before they enter the site to attend the sale. Your written guidelines will have no value if they arent read, understood and abided by each participant.

Problem Buyers

Every now and then, youll get a troublemaker among your bidders. For example, you might get someone who buys the contents of a unit and is later uncooperative if the rightful owner turns up. He may refuse to return the items or demand a substantial markup. Can you exclude this person from future sales? While youd like to think its within your rights to ban difficult bidders, state statutes claim each sale must be reasonable. This means you must sell to the highest bidder, mitigating the tenants debt as much as possible. Theoretically, that person could be your problem buyer; and if you exclude him, the tenant whose goods you sold could cry foul.

However, this may be a risk worth taking. The fact of the matter is youre usually not going to collect the balance due from the tenant anyway. A claim of failure to mitigate damages is unlikely, because there will be nothing for the tenant to gain from it. This is an issue to discuss with your attorney, management company or ownership.

But if you do decide to exclude eligible bidders at will, do so consistently and address the policy in your auction rules. For example, state that you will not accept checks from any bidders whose checks have previously bounced, or you reserve the right to refuse bidding privileges to anyone who fails to follow the auction rules.

Avoiding Lawsuits

Operators go to an enormous amount of trouble to avoid liability for tenants damaged property or personal injury. But what do you do about auction bidders, who havent signed a rental agreement but still spend time on your property? If one of them was to be injured or suffer property damage or loss while on site, you could find yourself facing a lawsuit.

For this reason, your auction rules should include releases of liability for anyone with interest in the propertyyou, your staff, the management company and ownershipand anyone else involved in the sale. The rules should also include an indemnity clause for any injury or damage a bidder may cause. If a bidder does something on the premises that results in a lawsuit, you want to be indemnified by that bidder, who hopefully has insurance.

Your attorney can help you define terms and draft rules to protect your business. Every state will handle claims made by tenants and buyers differently. But if you have a clear, well-written set of rules including releases of liability, you have a much better chance of avoiding tricky situations and beating potential lawsuits.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. This column provides general legal insight into the self-storage field and should not be substituted for the advice of your own attorney. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151; e-mail [email protected].

The Sweet Science of Storage

Boxing enthusiasts will be familiar with the phrase the sweet science of bruising. Though its often attributed to A.J. Liebling, a sports writer for The New Yorker from 1935 to 1963, the source was actually Lieblings literary idol Pierce Egan, writing about bare-knuckle fighting in England during the early 19th century. In either case, the expression is strangely fitting for this months editorial focus.

Our business and personal lives are riddled with matches, rings into which we step to pursue often minute, sometimes significant victories. We hear the bell toll, not with a Donnean sense of fatality, but as a calling to some higher missionaccomplishment. Whether youre attempting to close a deal, build a relationship, make amends, reach some goal ... You lace up your gloves, pop in your mouth guard, and brace yourself for the first punch.

The science comes in as you run the geometry in your head, calculating angles and distances, bobbing and weaving, shuffling, sliding, balancing and redistributing weight. Every move we make in this world, whether premeditated or spontaneous, lands us somewhere. Hopefully, its not face down on the mat.

As storage operators and investors, youll recognize some of these struggles as you examine the potential risks involved in your business: natural and man-made disasters, crime, terrorism, lease loopholes, accidents, etc. Unfortunately, your stoutest opponent and lifeblood are often one and the same: the tenant. A mere blink, a slight miscalculation of movement can leave you open to liability. But if you know the rules of the game and a bit of fancy footwork, you can usually avoid sucker punches and knockouts.

Consider this months lineup of writers as your new coaches. Theyll teach you the defensive maneuvers you need to succeed, from how to choose an insurance agent and secure the right coverage to generating the right lease provisions and auction rules. The training may be grueling and even painful, but take it from our experts: Its worthwhile in the long run. Sometimes you have to take a few strategic hitsand the accompanying contusionsto position your opponent for the final blow. And from time to time, endurance is enough to see the thing through.

On a related note, Im pursuing a new title of my own. Im not leaving ISS, but I will be passing the editor mantle to a couple of new contenders: my long-time associate Kimberly Hundley, who has worked in the industry for two years, and Drew Whitney, who managed the magazine throughout most of the 90s. Ill be spearheading some exciting new projects that will expand the publications online presence and resources; and youll still see me at the ISS expos, where Ill be working to ensure the quality of our already supreme education programs.

Ive shared my thoughts on this page for several years running; and itll be tough to give up the voice. But those of you who have enjoyed my insights can take pleasure in future ramblings via the soon-to-be-instituted ISS blog. Watch for it at www.insideselfstorage.com. Make sure you sign up for our free e-newsletter, too.

Now, just a few parting words of encouragement: Remember to roll with the punches. No matter what, keep your hands up. And never let em see you sweat. May you always be nimble in the self-storage ringheres to fighting the good fight.

Best of luck,
 
Teri L. Lanza
Editor-In-Chief
[email protected]

 

U.S. Secretary Tom Ridge

As a self-storage operator, you should understand how to protect your facility from terrorist activity and what the Homeland Security Act truly empowers the government to do. You should also be clear regarding your rights and responsibilities as citizens of the United States.

The Federal Government has been charged with the task of leading a unified, national effort to secure the country; preventing and deterring terrorist attacks; and protecting against and responding to threats. The Department of Homeland Security has coordinated this effort, and related responsibilities have been allocated to more than 87,000 government jurisdictions at the federal, state and local level.

What does this mean to the private sector, i.e., the nations providers of goods and services? According to the National Strategy for Homeland Security issued in 2002, the private sector is a key homeland security partner that will be critical in developing systems of information, communication and delivery for the detection and prevention of terrorist activity. Specifically, business owners have been asked to:

• Take positive, personal action to ensure the security of their facilities and minimize vulnerability.
• Support enhanced government/industry communication by sharing all information (no matter how small) regarding threats or suspicious activity.

How Does This Affect Self-Storage?

Storage facilities provide easy access to largely unmonitored space in which materials can be delivered, stored and transported with little threat of detection. They are often located near critical infrastructure, such as buildings of national significance or large public-gathering areas, which might be prime targets for the planting and detonation of explosives. Facilities that offer vehicle storage are particular vulnerable to these threats, as explosives could easily be planted in cars, trucks, etc., and left on site.

For example, in April 2004, ammonium-nitrate fertilizer, the same explosive used in a 2002 Bali nightclub bombing that killed 200 people, was discovered in a self-storage warehouse in West London. The year before, chemicals used in the first attack on the World Trade Center were stored at a self-storage facility in a New Jersey suburb. The tenant, Ramzi Youself, had the chemicals delivered to his unit directly from the manufacturer.

What to Watch For

So, what do you do? How do you, as a self-storage operator, protect your facility and country from risk? You have four critical tasks:

1. Take responsibility for your piece of homeland security.
2. Report all suspicious activity to authorities.
3. Increase security and awareness within your facility.
4. Train employees to recognize indicators and react to suspicious activities.

The key is to be vigilant and involved with customers. Ask about tenants need for storage. Dig for more information if a customers use sounds unusual, and report any suspicious behavior to local police. Always require identification before renting a unit, and request a second form of ID if the transaction is at all questionable. Verify all addresses and phone numbersif you cant confirm them, dont rent the unit.

You should also conduct routine sweeps of the facility. Be cognizant of strange odors or sounds emanating from units, and check dumpster areas for any suspect discards. Look inside vehicle windows for unusual contents or configurations. Finally, invest in improved security equipment, such as surveillance cameras, and be extra attentive in your monitoring. Youre looking for the following red flags:

• Movement of unusual items into or out of units
• Tenants who spend excessive time in their units (especially if they arent moving goods in or out)
• Routine or scheduled visits to a particular unit
• Tenants who behave suspiciously when in proximity to employees or security personnel
• Customers who pay in all cash
• Requests for 24-hour access or any unusual off-hour access
• Long-term prepayment
• Abandonment of unused items
• Dubious identification
• Unverified phone numbers or addresses

As you walk through your facility, try to get a sense for what your tenants are storing. The following items could indicate a potential threat, especially when present in large quantities:

• Fuel
• Industrial chemicals
• Explosives or other weapons
• Commercial refrigeration units
• Flight manuals, military training manuals, blueprints, maps, etc.
• Chemical containers

Civil Rights

While its important to be watchful, bear in mind that the Constitution provides for Civil Rights. While the government has certain powers under the Patriot Act, public officials do not have the right to invade someones private space without a court order commonly referred to as a search warrant. The procedure to secure a warrant is quite simple, but the document must be signed by a judge.

If an official asks you to unlock a storage unit or provide access to anything other than a public area of your facility, he must have a warrant, and you should see it before you comply. The intent of this is not to undermine national security; on the contrary, you want to be cooperative. But if you dont abide by the law, you leave yourself open to legal risk. If the official doesnt have the paperwork, you can over-lock the unit under the emergency-powers provision of your rental agreement, and await his return with the proper documents.

Furthermore, it is not your responsibility to break locks. You can lend your lock-cutter to a warrant-holding official. But unless the warrant specifically states that you are to open the unit by force, you shouldnt do so.

Finally, you are under no obligation to provide customer lists or records without a court order. Casually informing your local precinct of suspicious behavior is one thing; providing a printout of customer information is quite another. If you abide an oral request that is improperly issued by an official, you could find yourself sued by a customer and face a judgment of civil relief in court.

This article is not all-inclusive. Its simple intent is to alert you to the protections put in place in the aftermath of 9/11 and your responsibilities as a business owner and citizen. Much of what is recommended here is common sense. If you have questions or concerns, consult your attorney or a self-storage association.

Kenneth M. Piken has practiced law for more than 25 years and is the senior partner in New York-based Kenneth Piken & Associates. The firm encompasses all aspects of law, with a concentration on real estate and logistics matters. It has participated in or handled virtually every appellate New York case affecting self-storage operators, all with favorable results. Mr. Piken was general counsel for the New York Self Storage Association for more than 15 years and participated in drafting and lobbying a New York lien law. He lectures throughout the country and contributes articles to industry publications. For more information, visit www.pikenlaw.com.