Before you purchase a piece of land for the purpose of building a storage facility, you must conduct a feasibility study. To not do so would be foolish. This holds true no matter how much experience you have in the storage field--or any other field, for that matter. Each project should be evaluated individually. Not every location makes sense for the construction of a storage facility.

Now the question is: Will you conduct the study yourself or hire a professional? If you choose to do it yourself (which I don't recommend), you must understand feasibility is an art and a science. The so-called experts who simply produce volumes of charts and Excel spreadsheets without looking at the marketing aspects of a project miss the "art" portion of the feasibility equation. Regardless of whom you hire, there are some basic efforts you can make on your own.

Your Market Area and Demographics

The first you thing you need to do is get a map of your area. Take out a compass and draw a circle that extends in a 5-mile radius from your proposed location. In a highly rural location, you may want to go as far as 15 miles. On the map, mark the locations of all existing self-storage facilities in the area.

Next, get a company to create a demographic report for you. There are a variety of firms that do this (they are probably advertising in this issue). Get quotes from a few companies, then choose the best. All the company needs is your location and it will produce demographic figures for your 5-mile radius. Don't ask for the fancy, expensive study. All you'll need are the basic numbers, so just get the "basic" report.

Many storage-feasibility experts feel certain demographics indicate a greater need for storage than others. I've heard the argument that a lower socioeconomic area holds more potential for storage owners because lower-income populations generally live in smaller apartments and houses and, therefore, need more storage. On the other hand, people who are more affluent are more apt to buy "toys" and other items that cause them to need storage as well.

I don't think demographics are a real issue. I've seen highly desirable projects in all different demographic areas. Don't give demographics too much weight in your decision regarding a potential site. I bring it up so you won't get fooled by those who might mislead you as to their importance.

Evaluate the Competition

Strong competition makes it more difficult to be successful in a given area. And, of course, the reverse is true. To make an informed decision, you've got to evaluate your competition.

You'll need to visit each of your potential competitors. When you visit, evaluate them quantitatively and qualitatively. Your quantitative analysis will involve assessing the percent occupancy at each facility. You may be able to do this by counting locks, but keep in mind some facilities keep locks even on their vacant units. If you find the majority of the facilities are operating at 90 percent or higher capacity, you can give yourself a thumbs up in this area of your analysis. If you find many of them are completely full (which is foolish), you can give this location a very strong thumbs up.

Call and visit each facility as if you are a customer. Ask yourself whether you would rent from that particular location based on the quality of the manager. If you find managers who are less than competent, give yourself another positive mark. It's much easier to compete and win if the majority of your competitors are less than professional in their approach to the business. Keep a notebook with comments on each facility you visit. If you want to be really diligent, take a picture of each one as well.

Saturation Levels

Your next step is to determine the amount of storage space available in your area. I call this the saturation level. If a given area has 100,000 people and 500,000 square feet of storage space available, you've got 5 square feet of storage per person available in the market. This number varies dramatically around the country, from less than 1 square foot per person in the New York City area to around 10 square feet per person in Las Vegas and a few other cities.

If your saturation level is lower than other surrounding markets in your area, give yourself a thumbs up. There is no absolute number--it boils down to how your number compares to that of other market areas in your region or city. If your number is lower, it's an indication that more storage may be needed.

Degree of Transience of the Population

The more transient the population in a given area, the greater the need for self- storage. A stable area like many upstate New York communities will have less of a need for storage than a place like Phoenix.

What numbers do you use to make this assessment? This is where the "art" of feasibility comes in. I generally make this assessment based on a gut feeling, but you could probably compute the number of people who move in and out of an area and compare it to the national average. Give yourself a thumbs up if you are in what would be considered a more transient area.

Potential Renters

Who is in your area? Are there plenty of apartments and housing developments? Is there new building going on? Is there mainly residential building around you, or is it primarily commercial?

Although commercial clients can be very profitable, they are tougher to market. Give yourself another thumbs up if there is plenty of residential building in your 5-mile radius. This would include both new and existing residential properties.

Marketing Willingness

If you're the kind of person who wants to have someone else do your marketing, give yourself a thumbs down. Owners cannot abdicate the marketing responsibilities for a facility. I've heard plenty of owners complain that a management company or manager isn't doing the marketing as well as he should. Surprise! The owner has to be the one who champions this effort.

By all means, do everything described above. If you got a thumbs-up result in every area, you're probably in pretty good shape. This will help you better understand the work you ask a paid professional to do. The feasibility consultant you do hire must have a marketing perspective. Without a marketing background, you'll leave out the art in this process. The numbers do not tell the whole story.

When it comes to feasibility, it's better to make an investment of a few thousand dollars than a million-dollar mistake. Even if you've determined your land makes sense for self-storage, it is always a good idea to get a second opinion--but it should be an opinion from a knowledgeable expert.

Fred Gleeck is a self-storage profit- maximization 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 Success--Revealed! as well as the producer of the only professional training videos on self-storage 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].

Chart of Software Suppliers

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Management software isn't just for bookkeeping, and it's no longer optional for self-storage facilities wanting to stay atop the industry curve. Software allows a facility owner and manager to streamline operations and improve efficiency. The time saved frees the manager to look after other aspects of the business, such as maintenance or fielding phone calls. And that's just on the site level. Today's software allows owners or management companies to keep tabs on all sites across their facility networks, often instantaneously.

Programs can generate dozens--sometimes hundreds--of detailed reports for analysis of specific trends. Reports, letters and notices can be spit out at the touch of a button or even automatically. Most day-to-day functions still require the initiation of a person--the manager. But management software helps a manager perform his duties much quicker than he could manually.

Few people will argue management software doesn't help a facility's efficiency across the board. But resisters are out there. Ramona Taylor, president of Space Control Systems Inc., says she's constantly amazed when she meets people who own multiple self-storage sites and operate them manually. "Sometimes it's just that they resist change," she says. "The business is running, and they don't want to change how it's running. Sometimes they're worried their people won't be able to manage a software system. I think that's completely contradictory, because anybody who could manage one of those manual systems would fly on a software package."

Owners are creatures of habit. "Once you're comfortable with running a facility--even if it's off a ledger card--you tend not to want to change that," says Tom Smith, president of Empower Software Technologies LLC. To those comfortable facility owners, Smith says, "Change is inevitable. You have to make that commitment at some point. You cannot continue to grow your facility on ledger cards and be able to maximize its efficiency."

Another reason for resistance is an owner who fears losing control of his operation or who generally mistrusts the manager to do his job. Taylor doesn't buy it. "You can have much better control through software than you can manually," she says. "Because if you've got somebody keeping manual books, they have lots more opportunity to fudge the books or change what they're inputting than they would if they're putting it into software."

Not only does management software aid in the identification of malicious intent, it helps eliminate legitimate mistakes as well. For example, the likelihood is reduced that the wrong tenant's goods are sold at a lien sale, says Ron Plamondon, president of Integrity Software Systems Inc.

When mistakes are made, however, management software also has the ability to correct them and leave an audit trail. If a manager enters an incorrect dollar amount for a unit rental, for instance, he should be able to go back and correct the original entry later rather than adjusting it with another entry, says Markus Hecker, marketing director at SMD Software Inc. "Sometimes it's erased from the customer's ledger, but it's never erased from an auditor's view," he says.

Picking a Package

Software companies largely agree that just about every management program performs the same basic functions. With all things being equal, then, how does a self-storage owner begin the quest for the right software to fit his needs?

"It's difficult to tell one from the other because, on the surface, they all do the same basic things--you can take a payment, move people in and out, and so forth," says Michael Richards, president of HI-Tech Smart Systems. "The real value of a program to an individual is in its details, and there are thousands of those details." Discovering the details in software is probably the same for all other aspects of the self-storage process, from feasibility studies to selling: Do the homework. Research companies. Compare products and features. Perform due diligence. Project needs into the future. Ask questions.

Everyone has their own processes of software selection, but here are some suggestions:

Survey fellow facility owners. Talk to people in the industry, other than a direct competitor, who use management software, says Gary Trook, vice president of the Acorn Products division of DCAL Computer Systems. Find out which programs they use and whether they like them. Begin to narrow the list.

Make a list of needs. The best way for an owner to begin is to decide what he wants the program to accomplish. Taylor suggests making a short list of needs--one that contains what really matters to a facility. Only then should an owner check out material or demos from each vendor. Hecker takes the idea a step further. He says it's a good idea to look to the future, too. "Most people struggle with projecting their operation in the program six months down the road," he says. "That's not difficult, but takes a little bit of thought to figure out beforehand."

Watch presentations and get demonstration disks. Whenever possible, watch a demonstration of the product's features, such as at a company's tradeshow booth. "It shouldn't be a long presentation," Hecker says. "Because if the program is good, it shouldn't take long to demonstrate the strengths and different points that are important." Judging the aesthetics of a program may help some to further eliminate certain packages.

Demos are a good way to get inside a program, test its features and functionality, and get a feel for what is liked and disliked. Most vendors agree a five-minute glance is not sufficient. "Virtually all of the software companies provide a working demo of their software," Richards says. "The problem there is you have to work them. They're called 'working' demos for a reason.

"You have to have the discipline and make the time to go through and work each one sufficiently. I generally recommend people have a standard workload--so they might go in and move 10 people in, take 20 payments, move 10 people out, do a bank deposit, run the reports, look at the accounting data that gets created. That will give them a general feeling for how all those things work and what the details are."

At least one company that doesn't provide a demo disk has its reasons. "A lot of people are not willing to sit down and commit to learning three or four different programs to make a decision, because you've got to learn them to operate them," says Michael Kelley, president of Dilloware Inc. Since Dilloware provides an entry-level package, it doesn't get involved in demo disks anymore because of its target price point--it's simply not cost effective for the company.

Check references provided by each company. Be prepared to get a glowing recommendation of the software, because that's why the vendor gave you the reference's name. Gregg Genualdi, a programmer at PTI Integrated Systems, suggests asking a reference if he's ever had a problem with the software. "If he says no, hang up immediately," he says. "Every user out there has had some problem of some type. That person's not being totally honest." If there was a problem, Genualdi says, ask the reference what it was, how it was handled, whether it was resolved and whether he was satisfied with the result.

Pay particular attention to a company's service and support, as well as any hidden costs. "If you don't get any service, it doesn't matter what package you got," Trook says. Doug Carner, vice president of marketing for QuikStor Software, adds: "Are there hidden costs to have the management software integrate with the access keypads and the video cameras? Are there any limits on how often they can ask for help? Maybe they get a year, but they're told they can only call a couple times a month. That should raise a flag."

Heather L. Gullickson, executive vice president of American Computer Software, echoes the sentiments of the software industry when she says today's owners and managers are looking for software that provides ease of use and increased efficiency. "Software should have well-organized, user-friendly navigation that enables the user to easily enter property, building and unit details for location, terms, and tenants in a fast and efficient manner."

Most programs offer these basics, so a decision between programs often comes down to the major options. Owners need to ask themselves whether they're willing to spend the money for a program with specific options. "I've got to sit down and say, 'Am I willing to spend $3,000 for a program plus $500 for credit-card interface? Am I willing to spend $3,500?'" Kelley says. "If the answer is, 'I'm not willing or not able to,' then I should forget credit-card billing, no matter how bad I want it. If the answer is, 'Yes, I can do that,' then how do you distinguish between two equals? There is no real way."

For better or worse, many decisions may still come down to preference. Sometimes, all it takes for an owner to pick one program over another is a gut feeling. "Someone may find one company's approach easier to understand than another's," Kelley says. "For whatever reason, it hits with them--just like some people prefer Chevys and some people prefer Fords. They're both pickup trucks, they both get about the same kind of gas mileage and they're both cool, but somebody clicks with one or the other."

Who's It For?

As if selecting software weren't daunting enough, an owner needs to have in mind who the program is for as he goes through the process. Should the owner buy the program for himself, or should he buy one that fits his manager's style? The answer is not as simple as it might seem.

According to Richards of HI-Tech, the No. 1 software customer is the facility owner. He's the one who visits tradeshows and compares packages. He's the one who performs the due diligence on the company, including checking references, and he's the one who should pick the features he likes. "Managers may come and go, but the owner's going to live with the software forever," Richards says. "It's not something he can completely delegate to the manager to choose."

A revolving manager door is not the only reason for putting the owner in control of the selection process. Perhaps the manager likes the program's functions for day-to-day operations, but doesn't realize the generated reports are worthless to the owner at the corporate office. When asked to choose, a manager may also pick a particular program because he's familiar with it from a prior job, or maybe because he knows its loopholes or security weak points, Richards says.

John Fogg, general sales manager at Sentinel Systems Corp., agrees. He relays a situation where the owner and manager reviewed the software, but the manager forced the owner to pick a certain package because he was familiar with it from a past experience. "I think it's a dangerous situation for an owner," Fogg says, "because that tells me this manager knows enough about the program that he could know more than the owner does, and there could be a reason he's choosing that one."

Even though owners talk to companies, compare demos and pick a package, they still need to be mindful of their managers, who will work with it on a daily basis, says Taylor of Space Control Systems. "I think they need to keep in mind what that site manager is like, how familiar he is with computers, and how easy the software is going to be for him to use," she says.

But there are those who say software is flexible enough that the manager should have no trouble changing his style to fit the program. Richards is one such voice. "My feeling is that all the programs are straightforward enough that anyone can learn the daily operations, be it a 14-year-old kid or an 84-year-old retiree," he says. "So basing your decision on which one is easiest by the manager's opinion of which one is easiest is not a good thing to do."

Flexibility

Management software automates essential business functions and altogether makes owners' and managers' lives easier. Programs are designed to appeal to the most general of industry needs, but sometimes don't fit with an individual facility's applications. A package should be flexible. But, then again, if too much of the program can be altered, it undercuts an owner's peace of mind.

There are two types of flexibility to consider, says Steve Hyman, president of DHS Worldwide: 1) that of the owner to configure the software per his facility's specific needs and 2) that which allows him to give individuals flexibility at the user level. "We are very open to tailoring our software to match a particular operation's needs," Hyman says. Software should be enhanced to fit an operator's vision, rather than the software vendor's vision of how the facility should operate. Hyman says if 90 percent of his program works for a certain facility, his company will program the remaining 10 percent to match.

Not everyone feels that way. Taylor says there should be give and take. "Any software vendor that's selling to everybody in the industry can't possibly make the software do every little thing everybody wants it to do," she says. "A lot of people out there have some quite different ideas about how they think their business should be run." Programs should be flexible in areas such as late fees, especially those areas affected by varying state laws. "To that extent, the software companies have to--and do--adapt." But, Taylor says, "Owners have to realize that they may have to change a little bit when they change software."

Integrity Software Systems' Plamondon agrees with Taylor, but is a bit further down the spectrum of ideas. "We have a style in our software, and we recommend that the owners adapt to that style--not to say that there aren't options," he says. "I think when a person looks at a piece of software, he really shouldn't try to bend the software to fit his schemes if it's possible to adopt those of the software. A lot of times, I think you can create a lot more problems with pieces of software, trying to bend them to fit your particular quirks." Owners without prior knowledge of software--such as those in startups--will admittedly have an easier time learning the intricacies of a new program than those switching from an old program.

Gordon Quayle of Quayle Computer Concepts is another in the "learn to adjust" camp, but his software also caters to small facilities that tend not to need too much functional variety. "No matter what management software you buy, you're going to have to change the way you do your work to match the way that management software's been written," he says. "There's a limit to how flexible you can make the software. You can't make the software do everything for everybody."

Support and Upgrades

Software vendors use words like "crucial" and "essential" to describe the roles of technical support and upgrades in the entire package. Owners and their managers spend countless hours and energy to build databases into their new management systems. If something should happen to that database, the facility could be crippled, resulting in lost records, lost business or compromised security.

A good software company works closely with its clients to ensure downtime is minimized; likewise, facility owners and managers need to rely on that support. Quayle says owners more or less become married to the software provider once they purchase a package. "You want to make sure you've found a company that's going to support you," he says. "You want to be able to call them and get help, you want to be able to find people who are available to help you when you need to be helped, and who are willing to help you."

To date, Quayle's software package comes with free, unlimited technical support. His reasoning is simple enough: "If you're having trouble with my software, then I haven't done something right," he explains. "Either I didn't write the software well enough or I didn't explain it well enough. The onus should be on me to help you get past that problem--not the other way around. A lot of companies won't even talk to you until you put some money on the table."

Often, though, software companies keep support staffs on hand to answer user questions in a timely, professional manner. Many vendors agree self-storage owners need to be willing to pay for that level of dedicated support. "I have technical people on staff all day. That's their job," says Acorn Products' Trook. "They deal with these customers individually when they call, and they respond to them immediately. So, would I be prepared to pay for that if I were a customer? You bet. I don't think it's unreasonable at all."

Example: For a fee, DHS Worldwide offers unlimited technical support and free upgrades, which is a common approach among software vendors, Hyman says. Other companies include free support for a certain period of time with the purchase of their products, and in those cases further support can be purchased.

The subject of upgrades gets more mixed emotions than does support. Some companies strive to upgrade their products several times a year. Others believe upgrades should be reserved for major changes and should be released every few years or so. For example, SMD Software's Hecker says his product has gone through hundreds of upgrades, while QuikStor's Carner says upgrades simply aren't needed if the software is well-written. It depends on the philosophy.

"Software is never finished," says Smith of Empower Software Technologies. "Software is constant. The day a software company announces it's made its last change to the package and it's now complete is the day that company starts to slide downhill." There are always new features and new opportunities owners or users want to see in a software package, Smith adds.

Richards says he gets suggestions all the time from self-storage users on how to improve his product, many of which are reflected in future upgrades. "Those suggestions make their way into the program sooner or later, and then everybody gets the benefit of those new features," he says.

What the Future Holds

With so much of the future's technology hitting the market, it may be hard to pinpoint what the self-storage industry can expect tomorrow in management software. Still, software vendors do a respectable job of giving the industry a look into the crystal ball.

The Internet's role will be huge, says Hyman of DHS Worldwide. Increasingly more owners are using the web to seek out vendors in cyberspace and do business with them over wide-area networks, he says. The next step from the self-storage perspective is the ability of a centralized location to house one database for information from all of an owner's sites. "It makes it much easier to track performance and results and also react to the market efficiently," Hyman says. Richards agrees. "Obviously, with the large trend in self-storage companies doing multiple sites now, this is probably the fastest-growing area," he says.

As technology becomes quicker over time, it will also involve more players over a wider area. That is why Richards sees companies working together for the good of self-storage in a way not yet seen. For example, his company is currently working with roughly a dozen other companies to interface with his software for tasks such as taking online payments, credit-card processing and automatic clearing house, or ACH, where payments are automatically debited from a specified checking account. Many companies, including HI-Tech, already have these capabilities, but it's the shift to a symbiotic attitude that is noteworthy. "Each of us does our own thing, but we do it in a way that works with other people," Richards says.

The availability of high-speed communication lines, such as DSL and T1, to the industry will allow more data to be transferred, Smith says. "Software companies definitely need to be ready to meet that demand as it becomes available," he says. Security and tracking on the Internet will tighten as well. Managers will soon no longer be able to surf the Internet indiscriminately without someone knowing about it, Smith says.

Increased web capabilities will also give rise to improvements in real-time access. Companies on the edge of online technology and some management-software vendors have already instituted remote site access, where an owner can log into any site from anywhere in the world, check data and, in some cases, take a virtual tour of the facility. It is also possible for customers to pay online or at the gate and receive instant access to the facility, as well as view their own unit via surveillance cameras from any web browser. Look for more companies to come on board.

Carner sees a trend toward voice recognition, where a computer listens to callers and synthesizes replies for a full, interactive experience around the clock. "Tenants will be able to find answers about their account, purchase service upgrades, even arrange box pickup and delivery, just by talking with the computer at the site," he explains. "This is the management software being another employee--a 24-hour, tireless employee."

That tireless employee is an all-knowing, all-seeing, infinitely quick assistant to the facility manager. It is capable of handling basic tasks such as move-ins and move-outs, generating letters, receipts and late notices, and calculating rent and late charges in a fraction of a second. Good programs analyze price and occupancy trends and suggest action as needed, lock out past-due tenants, itemize office inventory, and print additional receipts when requested by tenants. High-end programs take credit-card or ACH transactions, house databases from multiple sites, integrate with security and gate-access systems, and enable for remote site access in real time.

In short, software saves time. Plamondon says owners with as few as 20 units tell him they need management programs on their computers. "It really cuts down on the work, like closing the books at the end of the month, producing leases when somebody moves in, producing late notices and doing the mailings that are required in the business," he says. "Basically, a software package is a must for self-storage."

THE WORD ON VOCATION STREET THESE DAYS IS "Technologize or die." If you don't join in the automation nation, your competition will kick you in the dirt and laugh at your folly. Computerize, or run the risk of becoming an anathema of the business world.

I hate to say it, but it's probably true. And I really do hate to say it.

I'm torn. While part of me adores having unlimited information at my fingertips via the Internet--a recipe for white navy-bean hummus, a fully annotated version of T.S. Eliot's "Lovesong of Alfred J. Prufrock," concert dates for Siouxie and the Banshees--I still love the experience of browsing through stacks at the library. Microsoft Word makes life as an editor much simpler, but it lacks that luscious pen-to-paper quality. E-mail limits the amount of time we spend on the phone making small talk around "important" issues, and yet, doesn't it dehumanize our interaction?

This month's issue is all about the revolution of technology and how it affects self-storage. From management software to online solutions, we have included the most comprehensive information available on industry packages and systems and the companies that provide them. If you're shopping for software, read this first. Are you looking to add online reservations to your menu of services? You'll read how. Concerned about the security of automatic payment processing via the Internet? Never fear--you'll read about it here.

Whatever you decide to do about this technology thing, just remember: It's only as good as its ability to make your life easier. Don't be a slave to software! And don't automate to keep up with the Joneses. Do it because it makes your business better--for you, and for your tenants. Automatic reports are wonderful, as are full-color graphics and e-mailed notices. But sometimes, it's just nice to drop someone a handwritten note saying, "Thank you for your business." We are, after all, still human.

One final note: You'll notice we're making some changes to Inside Self-Storage. This is largely in response to reader wants and wishes, but also, we're just taking the next inevitable steps toward progress. Read our newest section, "Inside Events," page 20, which will keep you apprised of ISS events and happenings. Please continue to contact me with your thoughts and suggestions.

Best wishes,

Teri L. Lanza
Editor
[email protected]

Every self-storage facility owner should be aware of the need to protect his income against business interruptions. If you should sustain a direct physical loss from a fire or other covered cause of loss, the chances are good you will also suffer an indirect loss of income. (Indirect losses refer to the lost profits and fixed expenses that continue each month whether or not your facility is operating.) You are also likely to incur extra expenses as you attempt to resume your normal business operations.

Business-interruption insurance--specifically, loss-of-income insurance and extra-expense insurance--are designed to minimize your risk in the event of a loss. "Loss of income" refers to the suspension of your business operations by direct loss or damage as a result of an insured cause of loss. "Extra expense" refers to any extraordinary expenses you incur during the period of restoration that you would not have incurred had there been no direct physical loss or damage to property. The "period of restoration" begins with the date of direct physical loss or damage resulting from any covered cause of loss.

Also known as time-element coverage, business-interruption insurance provides several important benefits: 1) it protects you against reduced sales income (and increased expenses) that result from damage to your buildings or business-personal property; 2) it allows you to retain key employees by maintaining their salaries and benefits; 3) it encourages prompt settlement of building and business personal-property losses; 4) it helps you to retain your tenants; and 5) it can restore you to the same position you were in before the loss occurred.

Business-interruption insurance is usually included in most business-owners' policies as a standard endorsement, which might lead you to take it for granted. However, when you consider that business-interruption losses can easily exceed direct-damage losses, the importance of this coverage becomes clear. Business-interruption insurance is of particular value to self-storage facility owners who sustain a covered loss in that it compensates you for lost profits based on your self-storage operations' projected monthly earnings, thus taking into account the seasonal nature of the market.

When shopping for business-interruption insurance, keep in mind loss-of-income and extra-expense coverages are limited to the actual length of time required to rebuild, repair or replace your damaged buildings or business-personal property. In other words, the amount of financial loss is determined by the length of time it takes to get your facility back in business. For loss-of-income coverage to kick in, the suspension of your business operations must be caused by direct loss or damage as a result of a covered cause of loss. Payment is based upon your operation's past history of seasonal profits and losses. (Note that it is your responsibility to make every reasonable effort to resume complete or partial operation as soon as possible to minimize loss.)

It is a surprising but true fact that a small percentage of self-storage facility owners choose to operate without business-interruption insurance, perhaps because the coverage is not required by most lending institutions. However, when you consider the value of this insurance and its very reasonable cost, it's very difficult to understand why anyone would knowingly skip this essential coverage.

As a general rule of thumb, it's a good idea to secure a full 12 months of loss-of-income coverage to protect yourself against business interruptions. While it may only take three to six months to rebuild your business after a covered loss, you will first be required to remove debris, obtain bids and building permits, and perhaps face ordinance and zoning requirements prior to starting reconstruction. Since most conventional coverage ends when rebuilding is complete, you should ask your insurance agent about an extended period of indemnity.

This important enhancement provides for loss of rental income during a specific period following reconstruction. While an average retail store or restaurant can begin generating profits as soon as it is reopened after a covered loss, self-storage facilities may take several months to locate enough new tenants before becoming fully profitable.

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

Author's note: I have put off addressing this topic in my column because significant bankruptcy-reform legislation has been proposed in at least the last four congressional legislative sessions. If this legislation passes in its current form, some of the actions recommended below may be subject to change. If new bankruptcy legislation is enacted, I will provide an update in this column as quickly as possible.

To mimic comedian Al Franken (better known as his character, Stuart Smalley, of "Saturday Night Live" fame), "How would my tenant's bankruptcy affect me, Al Franken?" Bankruptcies are a reality in our industry, and every bankruptcy filed by any tenant of yours, no matter what the circumstance, affects you and requires you to at least take precautionary steps.

The most recent statistics available indicate the number of bankruptcies filed has hit an all-time high. You need to be aware of what to do when you find out a tenant has filed bankruptcy, and you need to understand there are several different types of bankruptcies your tenants might file. The most common types are Chapters 7, 13 and 11.

Chapter 7

Currently, a Chapter 7 is an attempt to discharge all unsecured debt and some or all secured debt. Secured debt is debt for which collateral has been pledged in exchange, such as a mortgage on a home, title on a vehicle or even a purchase-money security interest in items you might buy on a credit card. Secured debts are generally dischargeable under Chapter 7 so long as the debtors are willing to surrender the secured asset to the creditor. A side note: Some states require you notify these types of creditors before you perform a lien sale.

The largest debt component of a Chapter 7 is usually unsecured debts, e.g., a MasterCard or Visa, doctor bills, unpaid back rent for an apartment, or even a delinquency owed to a self-storage facility for nonpayment of rent or other damages. At the end of the Chapter 7--assuming there are no assets for the trustee to liquidate and distribute to creditors--you will not receive any of the money due you. Your debt is discharged and you can take no action in the future to collect it.

Chapter 13

Conversely, a Chapter 13 is often referred to as a "wage earner plan." The debtor files a petition for bankruptcy that prevents creditors from collecting the debt, but he plans to repay some percent--sometimes up to 100 percent--to his creditors over a period of years known as the "bankruptcy plan." If you get a notice about a Chapter 13 and follow the procedures for filing a proof of claim, you can expect to see some of the money the debtor owes you over a period of time (three to five years).

A debtor may not file a Chapter 7 more than once every six years; however, Chapter 13 can be filed more often. While the courts may intervene on serial filings, there is no real statutory limitation on the number of times a debtor can file a 13.

Chapter 11

A Chapter 11 is a business reorganization somewhat similar to what you have been reading about Enron or Kmart. These are cases where the debtor is trying to reorganize and remain in possession of its assets, typically a business-type debtor. Since businesses use self-storage facilities, you may find yourself involved in this complicated form of bankruptcy.

In a Chapter 11 or 13, the debtor is expecting to pay you and all his other creditors some percentage of the past-due debt over a period of time and may intend to stay in your facility. The debtor is required to remain current in his post-bankruptcy petition or you can force him to leave by a "motion for relief from stay." Unfortunately, less than 10 percent of debtors who enter into Chapter 11 come out of it with a discharge. Most of these bankruptcies are either converted to another chapter, or the debtor's assets are liquidated and the bankruptcy ends up dismissed.

Proceed With Caution

Beyond the basic steps described in this column, dealing with a tenant's bankruptcy requires the assistance of your attorney. It is counter-intuitive--meaning you don't often get the result you expect--and bankruptcy law is full of pitfalls. If you make one wrong move, you could end up involving yourself in undesirable ways.

Here's an example of a pitfall: A nonaffiliated creditor is not allowed to accept more than a $600 payment toward a debt within 90 days prior to the filing of the bankruptcy. Affiliated or related creditors have an even longer time limit.

Any money paid above and beyond that $600 is considered preferential, and the bankruptcy trustee will seek those funds returned to the debtor's estate for distribution to all creditors. If you choose to ignore the trustee's demand for repayment, you will be sued by the trustee as part of the bankruptcy.

The Basics

The first thing you need to know about bankruptcy is the automatic-stay provision. Any time a bankruptcy is filed, as soon as the stamper hits the paper at the Clerk of Court's office, an automatic stay is invoked. This is an order of the court that prevents any creditor from doing anything to try to collect the debt or exercise any other contract rights while the bankruptcy is pending--unless special approval is sought from the court.

If you get a notice of bankruptcy or even hear one of your tenants has filed bankruptcy, you must stop everything you are doing to collect the debt--at least until you confirm the tenant has not filed. If you are sending out bills, late notices or lien-sale notices, you must stop. In Chapters 11 and 13, you may send bills for any debt incurred after the date of petition, although it may not be collectable if the debtor sends you notice he is rejecting his lease with you. However, under all chapters, you may not do anything to try to collect even one cent of money accrued prior to the date of the filing. If you are in the middle of your notice working toward lien sale, advertising intent to sell, or ready to perform your lien sale--even if you get notice the morning of--you must stop the sale.

When you find out about a bankruptcy, figure out where the tenant is in the bankruptcy process before doing anything else. Determine the chapter of bankruptcy filed and whether the debtor is a current or past tenant. Then call your attorney. You should receive a notice disclosing the type of bankruptcy and providing some deadlines and a date for the meeting of creditors. At the end of the process, you will be writing off some amount of debt and may need to seek the court's permission to remove the debtor's property from your facility under what is called "relief from the automatic stay."

The next thing you ought to do is gather all your information on the debt: how much you are owed, how long the debt has been accruing, and what type of payments you have received in the 90 days prior to the filing of the bankruptcy. This way, you may at least know if you will be subject to a preferential-claim action.

You also need to determine if there are any potential exceptions to discharge that your attorney can raise. Exceptions are set forth in the Bankruptcy Code that explains certain types of debt that cannot be discharged in bankruptcy. Unfortunately, you have to raise the objection. One common objection that prevents discharge of your debt is the allegation of fraud.

Fraud is generally difficult to prove because it is an intent-based claim, and it is often difficult to prove what was going on in someone's mind at the time they entered a particular transaction. However, there are a couple simple examples of fraud of which you should be aware in determining whether a claim of nondischargeability is worth pursuing:

1. If you received any check payments that were returned for nonsufficient funds and those payments have not been made good, the bankruptcy courts tend to presume bounced checks represent a fraudulently obtained debt.

2. If someone misrepresented his identity to you for the purpose of avoiding detection in your credit or background check, the debt may be found to have been obtained fraudulently.

In certain limited situations, you may be able to file an objection to a discharge. (There are more than 30 of these types of exceptions in the Bankruptcy Code; however, many child-support, student-loan and tax-type exemptions would be inapplicable to a self-storage application.) If your objection is upheld by the court, the debt to your facility would be held nondischargeable and would survive the bankruptcy. However, if your objection is denied, not only will your debt be discharged as part of the bankruptcy, you will be potentially responsible for the attorneys fees and other costs incurred by the debtor in defending the action. Often, rather than officially objecting, you can work out an agreement with the debtor's counsel for a partial payment or payoff arrangement.

Once you have received notice of a bankruptcy, you should not allow the debtor to store on the premises without paying rent. In a Chapter 11 or 13, if the debtor wishes to remain, he is required to keep current in his post-petition obligations. If he does not, you should seek approval from the court to remove him. In a Chapter 7, if the debtor does not voluntarily vacate, you must seek approval from the court to remove him by lien sale or eviction.

Removing a Bankrupt Tenant

In the situations mentioned above, you can go to the court and seek a "relief from the automatic stay" to repossess your space. Call your attorney and tell him you need to file a "motion for relief from automatic stay" because you are either not receiving current rent under the Chapter 11 or 13, or the tenant remains on the premises under a Chapter 7. Your attorney will file paperwork with the court asking it to allow you to take necessary actions to repossess your space and indicating you are suffering undue hardship as a result of the tenant. After a length of time, the court will lift the automatic stay.

This does not mean you will be allowed to collect the debt owed you, only that you have obtained leave to evict or exercise lien-sale remedies. Keep in mind that if money is gained from the sale, a sizeable amount may belong to the debtor's estate.

Proof of Claim

The final issue of which to be aware is proof of claim. The notice you receive will tell you whether the court is accepting proof of claims. At some point in Chapters 11 and 13, the court will always seek proof of claim. Often in Chapter 7, when estimates indicate there will be no funds available, the court does not bother asking for one.

A proof of claim is a court-issued form on which you list the amount of the pre-petition debt you are owed. These forms have very specific requirements for demonstrating to the court that money is in fact due, including breaking out any interest or late fees, etc. The forms require you to classify the type of debt and attach supporting documents. There are also filing deadlines that must be met. The proof of claim is the only way to protect your right to any sort of distribution that will be made by the bankruptcy court or trustee. While it may seem like a futile exercise and you will often wait a long time before you see any money, the proof of claim is the only way to recoup any debt owed you.

The most important thing is to be vigilant. If you allow your tenants to get four and five months behind in rent before taking action, shame on you! In 47 of the 50 states, you have lien-sale rights shortly after the end of the first month of delinquency. If you are prosecuting your lien sales promptly and efficiently, your debtors should not be more than two months delinquent before they file bankruptcy--which is obviously a less bitter pill to swallow than four or five months of rent. Further, if you have properly screened tenants by performing credit checks, or have a system in place to collect delinquent rent, you will substantially reduce the amount of money, time and energy spent dealing with bankrupt tenants.

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. 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, Mr. Greenberger can be contacted at Katz Greenberger & Norton LLP, 105 E. Fourth St., Suite 400, Cincinnati, OH 45202, or by calling 513.721.5151.

When a potential customer walks into your facility, are you really offering him all you can? Maybe your operation is clean. The manager is organized and professional. Perhaps you even sell locks or packing supplies. Unfortunately, it's a drive-thru world where customers demand more. Ancillary services that go beyond boxes and bubblewrap are an integral part of new-world success. "Sometimes, when you have a customer who's never used self-storage before, he wants you to help him figure out what he needs," says Dean Nichols, owner of Dean Nichols & Associates, which manages 10 facilities in the state of Washington. The stores offer a variety of ancillary services including truck rental, mailboxes, locks and packing materials. "With having it all in one spot--you don't have to send customers down to the hardware store for a lock. If they need boxes, you've got them there."

Call it one-stop shopping. And it's not a new concept. Retail stores such as Wal-Mart and Kmart now stock groceries as well as toys, clothes and sporting goods. As the pace of life continues to speed up, people are looking for shortcuts. That's where ancillary products come in. Offering packing supplies, mailboxes and truck rental along with storage units gives a self-storage facility a leg-up on the competition, adds money to the bottom line and provides convenience to the customer.

Locks, Boxes and Bubblewrap

Most storage owners already recognize the benefits of stocking locks and packing supplies. "It's becoming increasingly more important with storage facilities," says Kenneth Van Slyke, president of Nationwide Box Inc. The Houston-based company sells everything from packing supplies to security products. "You see a lot of the big guys doing it, like Public Storage and Shurgard. They spend a lot of resources to try and grow this part of their business. They know it's a perfect fit."

Chateau Products Inc. began 11 years ago with locks. Now the Englewood, Fla.-based company has more than 400 products, all aimed at the self-storage market. Increased traffic and the lure of profits have encouraged more self-storage operators to set up shop. "People are realizing it's a natural thing to do," says Nancy Martin, vice president of sales and marketing. "You have this space with a window front. It has curb appeal, and people are driving by it all the time. It's a store, and it should be treated like a store."

Like a store, there's an opportunity to make a fair amount of profit. The majority of retail items can be marked up 100 percent. "You can pretty much double your money. There's a good retail markup on these items, and it's not a huge investment to start," Van Slyke says.

In fact, outfitting an attractive retail area is minimal. "You could set up a real nice looking store for a couple thousand dollars," Martin says. "At our company, we have a policy where if you don't sell it, we'll take it back. If you can work out something like that with your vendor, that's fantastic."

It can also be done on a smaller scale. "You can start off small with just a few box sizes, a few rolls of tape, maybe some packing paper and see what blossoms from there," Van Slyke says.

Almost any size store can have ancillary products, says Ed Hainrihar, vice president of U-Store-It, headquartered in Middleburg Heights, Ohio. "Even if you have to designate a physical unit that's close by, turn that into a display area. Every self-storage operation should have ancillary supplies. The amount of money you spend is minimal and the customer is right there."

Marketing the Merchandise

Just like self-storage, retail items need to be marketed. Too often, these easy-sell items are regulated to a small section of wall space or clutter the sales counter. To ensure the success of such ancillary products, customers must be attracted to them. "Some people can't see putting the extra effort into having the retail area. But if you don't show it, you can't sell it," says Scott Harris, owner of Movin' On Storage Centers and president of Pittsburgh-based Dana Management Group Inc.

Movin' On Storage Centers boasts more than 1,000 square feet of retail space. "As self-storage grows and progresses, we have to realize we are a retail-oriented business, and we have to address it as such," Harris says.

U-Store-It has found so much success with moving and packing supplies the company is overhauling its retail areas. "The greater the store, the greater the income," Hainrihar says. "We know there's an opportunity to offer a greater degree of service to a customer and make more income for the store as well."

The goal is to entice customers into the facility who normally wouldn't visit. Adding the phrase "packing supplies" to your website, window banners, Yellow Pages ad and all company mailings will draw more people to your door. "You can increase your product line to help solve more of your customer's problems. It prevents them from going down the street to another storage facility that may be selling boxes," says Van Slyke.

Self-storage operators can also use ancillaries as promotional items. For example, give every customer who tours the facility a few free boxes. Once the customer comes through the door, the opportunity to sell a storage unit increases. "I have people who come in just for the packing supplies, not realizing we are a storage facility," says Roni Chandler, manager of Movin' On Storage Center in Charleston, W.Va.

Closing the Deal

But how do you determine what will--and won't--sell? "There are certain items that definitely move faster than others," says Van Slyke. While locks remain best sellers, boxes, packing paper and tape are gaining ground. Stocking the three standard sizes of boxes--small, medium and large--is a good bet. "You need to at least carry those," Van Slyke says. "All these boxes require tape, so you need to sell that. Nobody should be leaving with 50 bucks worth of boxes and no tape."

Next to locks, boxes are the easiest products to sell. "It used to be you could only find boxes at the back of grocery stores and liquor stores. They don't necessarily give out boxes anymore," Martin points out. "Boxes are still the No. 1 thing people need when they move. It's very important from a liability and service standpoint for a storage operator to make sure he has something to offer the customer to protect his goods while they're being stored."

Location can be a huge factor in determining which items will fly off the shelves. "Look at who your customers are and the surrounding area, and look to see what's already available," Martin says. "If there's a college nearby, you're going to have a lot of students moving out for the summer and putting their things in storage. They'll need boxes for computer equipment. If you're in an upscale area, you'll need dish boxes, things to protect dishes and glassware. The basic items like sofa covers, newsprint and tape will always sell. If you rent trucks, make sure you have a lock that will fit on the rental truck."

While choosing what to stock seems like commonsense, many facility owners make the wrong decision simply because they don't evaluate their customer base. "You want to make sure you're focusing on what your customers will need," Hainrihar says. "The reason the lock is such a big seller is because everyone needs one. You want to pick items every customer can use."

Keeping the shelves and pegs full is another key to maintaining an active retail area. "The more people see, the more they tend to buy," says Van Slyke. "Fill up your racks. Never let people see an empty hook. Customers want to see everything full and dust-free."

Managers should keep track of which products sell best. "There's some great software available now where you can actually keep the inventory in the computer and watch for the bestsellers," Martin says.

Leasing Trucks

Next to locks and packing supplies, truck rental is the most popular ancillary item. Not only is it a huge customer convenience, it can also add a few more coins to your coffer. "Everyone is moving into and out of self-storage in a truck," says Kirk Nash, president and CEO of On The Move Inc. in Boerne, Texas. "The question is, is it a Ryder, U-Haul, Penske or Cousin Bill's pickup? They're looking for a pickup when they come to get space. If a customer can go to a self-storage facility that has trucks or one that doesn't, they'll probably go to the one that has them."

There are a few ways self-storage operators can jump into truck rental: leasing or buying a truck from a dealer, or becoming a dealer for a truck leasing company. Each has its advantages and disadvantages. Leasing or purchasing a truck allows the self-storage operator to have total autonomy when it comes to who rents it and at what cost. However, leasing a truck requires a hefty monthly payment, whereas becoming a dealer involves little or no financial obligation. Yet, self-storage operators who become truck-rental dealers are subject to the rental company's policies, including pricing and limitations on truck availability.

On The Move currently leases 3,000 trucks, 80 percent of which belong to self-storage operators. The total cost to lease a truck is about $850 a month. The four-year lease includes liability and comp and collision insurance. All trucks also come with 12 furniture pads, a hand truck, rental forms and truck-condition reports. "We put it all together. You can get a truck anywhere--getting the truck is not tricky. The tricky part is getting the insurance so you can hand the keys to any licensed driver 21 and older. By providing the insurance, rental forms and backup material, we put operators in the local truck-rental market," says Nash.

On The Move also offers unlimited mileage and guarantees its leases. "Anytime during the first year, if doesn't work for them for any reason, they can turn the truck back in and we tear up the lease. They don't have to even give me a reason," Nash says.

The amount of profit a self-storage operator makes is directly correlated to how much effort is expended in renting the trucks. "We have self-storage operators out there with numerous trucks that are netting $1,500 a month per truck. Then there are other folks who are just breaking even on the vehicle," Nash says.

Nichols has found leasing trucks to be quite profitable. "It's almost a surefire hook when someone calls and we tell him we can offer the use of our truck for free," he says. The trucks are always used during a new lease-up. "As a facility becomes more mature, what we do is give the truck away less and rent it more. And it brings us at least one tenant a month we wouldn't otherwise get. If it brings us five tenants we wouldn't otherwise get, it certainly pays for itself," he adds.

A truck also serves as a moving billboard. "We use it as a marketing tool as much as a revenue source," Nichols says. "When it's out in the neighborhoods, it serves as an advertisement. People see the truck and we get some name familiarity."

Self-storage operators not interested in signing a lease agreement can still offer their customers truck rentals by becoming a dealer with a national truck-leasing company. The biggest advantage is there are no out-of-pocket expenses. Self-storage operators only need to provide the space to store the trucks and a dedicated phone line to take reservations. "We take care of the expenses for everything," says Jennifer Sullivan, director of public relations for Budget Car & Truck Rental. The Lisle, Ill., company acquired Ryder TRS in 1998. "We take care of the cost of the truck, truck maintenance and insurance. We supply all the equipment--tow dollies, hand trucks, blankets. We supply the contract and computer system. We'll also deliver reservations to them and give them a free Yellow Pages listing."

In turn, self-storage operators make a commission on every truck rented. "It has been a great source of ancillary income," says Harris, who offers Ryder, U-Haul and Penske truck rentals at three facilities. While some of the facilities only net a few hundred dollars each month, Harris does have one site that garnered $150,000 in its first year. "It helps edge out the competition and it helps bring clients to your facility. When they rent the truck, that's one more customer to whom you can market."

In fact, U-Haul's research shows 23 percent of all customers who rent a truck from a self-storage will also rent a unit. "There's a synergy between moving and storage," says Dennis O'Connor, director of storage operations for U-Haul International Inc. in Phoenix.

You've Got Mail

Mailboxes are another ancillary product popping up in self-storage. Some owners are already experimenting with the concept and finding great results. "It's a good service to offer our customers," says Nichols, who has mailboxes at several facilities.

Salsbury Industries, a Los Angeles company that manufactures mailboxes, is fielding more requests from self-storage operators, says Ricardo Alva, the company's outside-sales manager. "The great thing about getting these boxes is it's a one-time charge," Alva says. Mailboxes run about $500 for a bank of 30 and roughly $400 for a bank of 10 larger compartments. "If they have a bank of 30 boxes and rent them for $15 each, that's $450 profit per month," Alva says. "If the cost of the unit was about $500, in a little more than a month, it will have made back the cost of that unit. From there on out, it's just profit."

Pricing the service will depend on the facility's location and what the competition may be charging. However, not every location can be considered a good one for mailboxes. "Most storage facilities would not lend themselves well to private postal boxes because they're too off the beaten path," Harris says. "If you're in an urban environment where you have a lot of drive-by traffic, people would notice the service and might have a tendency to use it more. Most of my boxes are being used by current tenants."

In addition to small business owners, facilities near marinas and colleges are ideal for mailbox services. Although it's too new a venture for Harris to declare it a success, he says the minimal start-up cost makes it worth the gamble. "They'll pay for themselves a lot sooner than the storage facility will."

Salsbury publishes a manual for business owners interested in providing mailbox services. "Owning and Operating a Successful Private Postal Center" includes information on start-up costs, marketing, sample rental rates, configurations and contracts. The manual also has the actual form business owners need to submit to the post office. "That's really the first start for anyone considering doing this type of business," Alva says. The manual costs $25 and can be obtained via www.mailboxes.com or 800.725.7287.

Managing Time

One reason many self-storage owners have shied away from ancillary products is the fear they will take up too much of the manager's time. "Unless you're overwhelmed with customers, I don't know how ancillary products would be too much for one manager," says Chandler of Movin' On Storage.

And as the industry continues to evolve, managers are expected to be more than just a facility caretaker. "It is now more of a sales aspect. With the focus more on ancillary sales, you're going to have to ask your manager to sell. We look for people like that, and we also tell them this is part of the job," Hainrihar says.

It's also important to make selling ancillary products as simple as possible, says Chateau's Martin. That includes ordering, stocking and pricing items. Clear price tags and product descriptions will cut down on the number of questions customers ask. An easy reorder system is also a must. Use a reorder tag with the product number on the back of the hook. "That way, all the manager has to do is pull the reorder tag off the hook and pick up the phone to order," Martin says.

Mailboxes require even less of the manager's time. "It's a pretty self-sufficient service. All they're doing is receiving mail, sorting it out and putting it in the box. There's not too much maintenance involved," Alva says. In fact, the entire process should take less than 30 minutes a day.

While packing supplies sell themselves and mailboxes need little upkeep, truck rental does require more time and energy from a manager. Movin' On Storage Centers averages a ratio of 7-to-1 calls a day for truck rentals vs. storage units. "You're tracking a much heavier call volume for truck rentals," Harris says. Generally, a single manager can handle a truck-rental operation generating up to $125,000 to $150,000 in annual revenue, Harris says. "Anything over that, you really need to consider bringing on more people."

Although truck rental requires more of the manager's time, every truck-rental call is an opportunity to sell storage. "That's what the owners have to realize. Yes, managers are taking time to answer the phone, but that's a call coming into the facility," Harris says. "Granted their first reason for calling was for truck rental, but everybody who needs a truck is probably going to need boxes. And people doing self moves may also need storage."

The key to having any kind of successful ancillary product is getting the manager on board. "If not, they're not going to answer the phone and they're not going to go the extra mile," Harris says. "Some people will work hard if they know they're going to have X number of dollars at the end of the week. Other people are going to ask, 'What's in it for me?' Those are the people you have a hard time with when bringing in the truck rentals and other ancillaries. If you're bringing in more boxes or truck rentals into an existing facility, you do need to compensate that manager for additional work."

Compensation could come in the form of a higher salary, bonuses or other incentives. "If you compensate your managers, they don't think of it as extra work. But they need to view it as the total-pay package," Harris says.

Juggling mailboxes, packing supplies and truck rentals with renting units and keeping a facility running smoothly is by no means an easy task. However, the extra effort could lead to big payoffs in the long run. Ancillary products add profit, create customer convenience and help your facility stand out from the competitors. "It's a matter of helping the customer as much as you can," Van Slyke says. "If you offer everything they need under one roof, that's going to build a valuable trust."

If you don't offer units for $9.95 at your facility, you should.

Forget how you're going to offer them for the moment and just think about the concept. How many more people could you get to visit your facility if you had units that rented for just $9.95? What size unit could you rent for that price? Obviously, a very small one.

Since we know the key to renting units is to get people to call and visit a facility, a low price point will help make this happen. Owners who have adopted this marketing concept have been able to design very interesting Yellow Pages ads. Think of a headline in the storage section of the phonebook that reads, "Units Starting as Low as $9.95 per Month." The ability to use this price in your advertising is one key reason for offering it, but we're getting a little ahead of ourselves. Let's first consider some of the other issues.

Where Do You Get Them?

Before you rent the units, you've got to have them available, which means you're either going to have to buy or build them. Building these units can be fairly expensive. It would take you a while to recoup your losses charging a whopping $9.95 per month. Instead, buy the units used. Where do you get them? Some owners have found them by going around to the local schools and buying discarded lockers.

Approach the school and ask for the building-maintenance or physical-plant manager. Tell him you are looking to pick up some old lockers but don't have very much money. In most cases, he will be prepared to discard them without getting a dime, so you're in good shape if you offer him any money at all. You don't have to buy a lot of them, but you can't have just one. This looks like you're obviously playing a game. Instead, have at least 20 units available at the $9.95 price. One suggestion is to make sure you always have one unit available to show people. That way, when people come in to inquire, you can prove the $9.95 offer is for real.

The Upsell

Let's be honest: The $9.95 unit is, for the most part, a gimmick. The vast majority of people who visit based on the $9.95 pricing will see the unit and say, "No way. I can't fit anything in there." (Though I've heard from owners there are many happy customers hiding--er, I mean storing--some interesting things from their wives and husbands in these small "units.") Your answer will be, "We do have a lot of them rented, as you can see. Would you like to see some of our slightly larger units?" This will make it possible for you to show--and maybe rent--them a 5-by-5.

Maximizing Your Effectiveness

I'd like to give you some ways to use the $9.95 units to build traffic. First, mention them in all of your print advertising--not just your Yellow Pages ad, but in any fliers, postcards and other promotions. If you are the only facility in town that offers a $9.95 unit, highlight this fact in your ads as well.

Mention these units on your answering-machine or voicemail message. Say something like "Hi, and thanks for calling ABC Self Storage, the only facility in town with units starting as low as $9.95 per month..." Also mention your $9.95 units in any conversation you have with a prospect over the phone. You don't want it to become the lynchpin of your sales pitch, but you should mention it--especially if it's a unique selling point (USP) in your market.

You can also combine your $9.95 unit pricing with another USP (or two or three) to create a powerful sales message in any form. In the marketing business, we call this technique "piling on." Make your offer attractive enough on its own and then add more benefits to make it irresistible. Here's an example of how it might work over the phone:

Manager: Hi, thanks for calling Fred's Self Storage. How may I help you?

Customer: I'm looking for a 10-by-10 unit. How much do you charge for it over there?

Manager: Well, let me grab my price list ... It's around here somewhere (stalling) ... By the way, are you calling around?

Customer: Yup! I sure am.

Manager: Well, no matter who you rent from, make sure that they've got (insert your primary USPs). Also make sure they can rent units as low as $9.95.

Customer: You've got units at $9.95? Are you serious?

Manager: We do. But it sounds like you know what size unit you want. Can I ask what you'll be storing to make sure you're pricing the right unit size?

At this point, you've engaged the potential renter, got him opening up to you, and there is a strong probability he will visit your facility. Is it strictly because of the low-price units? Not in this case, but in some cases it will be. Remember, the $9.95 unit is just another weapon of your marketing arsenal.

Economics

If you think about it, your revenue per square foot per month will probably be higher on the $9.95 units than any of the others you offer. Demand for these units won't be overwhelming, but I have heard of facilities that have as many as 60 lockers, 57 of which are rented. Consider putting these lockers in or very near the office. You'd be surprised how many people who rent these lockers will also buy packing and shipping supplies and boxes from you. The total revenue these renters generate is much more than the price of the units.

Although the $9.95 unit pricing is admittedly a gimmick, it is an effective one. I have two signs posted in my office these days. One of them reads, "Measurement eliminates argument." The other one reads, "Upsell everything." By using $9.95 units, you can measurably increase the number of calls you turn into visits. I'm also willing to wager you can upsell a substantial number of prospects to larger units once they visit.

Fred Gleeck is a self-storage profit-maximization 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 Success--Revealed! as well as the producer of the only professional training videos on self-storage 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].

Clarification on Manager Monitoring

Last month, in his column titled "Monitoring Managers' Phone Performance," Fred Gleeck wrote, "I'm not a lawyer, nor do I play one on TV. I do know you need to inform your employees they are being monitored on the phone. Make them sign a consent form that agrees to the monitoring." Several managers interpeted this to mean it is illegal to tape-record them on the phone without their consent. This is not true.

According to D. Carlos Kaslow, legal counsel to the Self Storage Association ("Is It Legal to Record? Employee Privacy vs. Employer Rights," The Self Storage Legal Review, 1994), an employee has no legal protection from an employer who wishes to conduct mystery shopping of his self-storage facility via the telephone. While intercepting personal calls is illegal, federal law does allow employers to monitor their employees' business calls, providing they have a legitimate business purpose for doing so. Similarly, companies that provide mystery shopping and other evaluative services are not breaking any laws or violating self-storage managers' rights.

If you are a self-storage manager, be aware every call you make could be monitored and assessed by your employer or a service he has hired. The best way to avoid negative consequences is to make every call professional and courteous.

Last month, I ventured into the never-neverland of marketing viewpoints and tried to show how perception of a product--not the actual physical offering--is the arena of marketers. I showed how media can create a label or symbol that has value independent of any product. I also established that a product is the means to a customer's end, and effective selling focuses on those user goals. That presupposes you know what those goals are, otherwise you have no basis on which to found an appeal.

Determining Value

If I said you must talk the customer's language to communicate with him, you would probably agree. If I said you had to think like the customer to influence him, you would probably agree. If I said you should price your services consistent with the prospect's view of their value, you would probably agree. After all, if the prospect's notion of value is below your price, he won't buy. Now you know I'm leading you down the garden path, so you are likely to be hesitant about agreeing to much more. But at least we can agree you must know something about value to properly price your services.

So let's move to a simple example of value determination. Imagine a hot summer's day. Dad has been mowing the lawn. He's hot and thirsty and takes a break. There on the kitchen table, his thoughtful wife has set out five identical glasses of ice water. He exclaims, "I'd give a million dollars for one of those!" He gratefully chugs the first, thanks his wife, and more slowly drinks the second. He feels much better. He walks away from the rest. But he wasn't alone in mowing the lawn. Right afterward, his son comes in hot and sweaty. He notices the remaining three glasses. Like his dad, he eagerly drinks the first, then leisurely consumes the next. He thanks his mom and walks away leaving the last glass untouched.

Following our dictum of pricing according to value, how would you proceed to price the glasses of water? Is this example realistic or surprising? It characterizes the dilemma of pricing. The value of a product to any one customer is not easily knowable in any quantitative way, yet we agree value is the only basis on which to effectively set prices.

Further, value bounces all over--even for the same customer. It is the customer's situation that determines value. The cost of the product has nothing to do with it. And the value will vary as the customer's situation changes. In our example above, four of the five identical glasses of water had different values at different times to the dad and the son. To each, the first glass had great value, the second had some value and the third, well, it had a common value--zero.

The critical item here is the father and son would have been willing to pay varying sums depending on their situation. What's a poor marketer to do? Well, sometimes he just chickens out and uses cost to determine pricing because it is knowable and convenient. Or he checks out the competition and follows its lead. Neither is a very valid method.

Real-Life Application

Let's apply this to the self-storage world. An owner believes there may be a demand for a package of self-storage units for a prosperous family. A wife has been on her husband's case, imploring him to get his big toys out of the garage. Also, she has some lovely heirlooms she doesn't want sharing space with the ATVs and snowmobiles. She wants her own unit. And the kids? They have their stuff, too, and think it would be neat to have their own unit.

OK, Mr. Operator, how do you price the package? You say, "That's easy--just add them up!" But the husband is paying the bills, and each of those units is worth progressively less to him. He won't pay the same for each. The units may be identical, but they're not worth the same. Now you're thinking: "But those units all cost me the same, and I can't charge different rates for the same unit! Besides, my accounting software doesn't work that way, and it wouldn't be fair to other tenants paying regular price."

Now take a look at airlines. On any given flight, there are between 10 and 15 seat prices in play. Hotels are the same way. On any given night, there will be a wide range of prices being charged. They understand if they want to sell multiple seats or rooms, they must recognize the difference in value successive units have to the same buyer. This may sound like basic discounting, and with large purchases, you'd be right--bargaining power does come into play. But when you're talking about families or small groups, each successive unit is actually worth less. If you want to sell those additional units, you must acknowledge this fact in your pricing.

Is this sort of thing really needed for the self-storage industry? I only report the hows and whys of marketing practices. Why anyone would believe this industry is exempt from the factors and forces that shape every other competitive market, I don't know.

Trial and Error?

There is one caveat. We have used analogies to illustrate the principles, and the illustrations may seem simplistic--like the glasses of ice water. I'm trying to establish the concept. It's a little like looking at a football-team playbook vs. watching the execution of plays in a game. On paper, the plays look clear and simple; but in real time, they look like a mess of guys running in all directions. It takes a skilled eye to detect the order. The same is true with marketing strategy. We are trying to set up the marketing playbook. This is not guessing or random trial and error. There is good reason to believe this approach will work.

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

Until now, the underlying profitability of records storage has little surfaced or been presented in a comprehensive cash-flow model. Moreover, the financial advantage of codeveloping records storage with self-storage needs to be made clear. The purpose of this article is to provide general insight, via cash-flow models, into the profitability of records storage when added to self-storage.

First, the Concept

Records storage--more aptly called "records management," as it involves indexing, retrieval and a plethora of other services--is an out-of-site, out-of-mind business, the potential for which is little known. Started in the 1940s, it has become a mature industry with several professional organizations: PRISM International (formerly the Association of Commercial Records Centers), the Association of Records Managers and Administrators, and the Institute of Certified Records Managers, which provides certification. These organizations collect very little by way of operating statistics worldwide; however, the most interesting rule of thumb is existing customers of commercial records businesses increase their storage by 15 percent to 20 percent annually.

Why is records storage used? The average file cabinet holds about eight boxes worth of files. The same cabinet consumes about 9 square feet of floor space. If you are paying $15 per square foot annually for office space, these eight boxes cost you $135 per year to store or $16.88 per box per year. The average cost to store a box in a commercial records center is $3.75 per year. This translates into a monthly box average of 31 cents for storage, plus 15 cents in service fees (indexing, retrieval, etc.).

Building a Cash-Flow Model

A typical facility can generate 1,000 to 3,000 new boxes for storage each month. One industry expert claims that with an aggressive marketing plan, well-trained salesperson, diligent and consultative sales method, and managed sales cycle, the results can be 100,000 cubic feet of storage within as little as two years (one storage box equals 1.2 cubic feet).

Although this fast track is possible, the cash-flow model in this article assumes a conservative 1,000 new boxes monthly. Typical expenses have been included to arrive at net operating income. Exhibit A demonstrates projections for a 63,000-square-foot self-storage facility combined with a 110-by-110-foot records center. (Note: For the sake of brevity, this article makes several assumptions not shown here. A full statement of assumptions, including construction costs, loan parameters, income and expenses, is available upon request at www.mrfeasibility.com.)

Good News and Bad News

The bad news is it can take two to three years for a stand-alone records-storage facility to become profitable. At the end of year two, the stand-alone facility in Exhibit B has a negative cash flow of $41,641. However, the good news is if the same records-storage facility is a part of a self-storage project, it shares some of the operating expenses. The self-storage operation provides enough cash flow for both during the initial two years, while the records storage is gaining air speed, so to speak. See Exhibit C.

The Impact of Records Storage

Below is the income stream from our same exhibit, with and without records storage. A hypothetical sale is established in year five to measure the full potential of the project. The initial investment for the land and start-up is $500,000. In the records-storage cash-flow model, the construction costs for the building and racks have been added to the construction loan.

Without records storage

With records storage

Immense Profitability

In the above example, there is more than a $2.5 million increase in profit to the bottom line, which is surprising. A lot is due to the fact that existing customers stored additional boxes at a growth rate of 15 percent to 20 percent. This gives the industry a unique self-generating annuity. Special attention is called to the increased cash flow in years three to five. Notice the permanent loan has been brought online at the beginning of year three in the records-storage case. Often, a records-storage facility will not efficiently support a permanent loan until this time.

Two Big Impact Factors

A big impact on the bottom line comes from loan proceeds (the permanent loan coming online). Also, the downstream sale is very significant. Both these factors pivot on establishing market value, first at the end of year three, and then at the end of year five.

With commercial real estate, market value is most generally determined by a capitalization rate. The exhibit model uses a 10 percent cap rate; however, it should be observed that records storage is more of a business venture than a real estate investment and involves much more intensive management. Although there are several ways of valuing small-business ventures--for example, a simple way is to multiply earnings by three to five--such earnings are before interest and taxes. When there are assets such as real property or inventory, they are added to the value. The end result of such valuation is often less than using a cap rate. When records storage is added to a self-storage project, there is a tendency for a lender to establish market value with a cap rate for lending purposes. This is of great advantage to the developer. It changes the profitability outlook completely.

Some Critical Observations

In Exhibits B and C, loan payments do not occur until month 13 of operation. This occurs because interest reserve is used to make loan payments. Interest reserve is the loan's capacity to make its own payments for the first few months of rent-up. (These payments are added to the principal balance of the loan.) The interest reserve is the total amount of all the loan payments that can be added to the principal balance. This ceiling is negotiated with your banker and is best acquired when the loan package includes a monthly map of interest-reserve use during rent-up. The efficient use of interest reserve is critical to the positive cash flow of the project. See Exhibit D.

Focusing Your Loan Package

If you are going to create a loan package, the examples cited in this article point to the importance of three key points:

1) Have a monthly financial map showing the need for a specific interest-reserve amount. (This will keep your cash flow positive for the first two years.)

2) Be prepared to show why it is important to bring permanent financing online at a later time. (Generally, the records-storage project will not support a viable permanent loan until somewhat later than self-storage.)

3) Be sure your financial package shows the lender the "before and after" impact of adding records storage to your facility. You'll stand a better chance of the lender using a cap rate to establish value for your loans.

Jim Oakley is a pioneer and national authority in computer-modeled feasibility. His methodology was taught at Arizona State University and its Center for Executive Development. He has addressed major national organizations including the National Association of Corporate Estate Executives and the National Association of Real Estate Educators. His articles have appeared in Inside Self-Storage, Professional Builder and Lodging magazines. Mr. Oakley consults from Prescott, Ariz. For more information, call 928.778.3654; visit www.mrfeasibility.com.

People say location is everything--especially in real estate. The developers of Price Self Storage in San Diego couldn't agree more. Price Self Storage West L.A. LLC, a partnership between Price Self Storage and Calabasas, Calif.-based Ezralow Co., happened upon a choice piece of property in west Los Angeles. The site, just half a mile south of the Santa Monica Freeway, even had a building that could be easily converted to self-storage. And it's not in an industrial area, but smack in the middle of a retail corridor.

Retail neighbors--Albertson's grocery store, Rite-Aid drugstore, and fast-food giants Taco Bell and McDonald's--offered Price Self Storage an ideal marketing opportunity. "We thought it was unique to be able to get a location like this where so many customers frequent every week to buy their groceries," says William Hamilton, company president. Because the facility is located on a main street--La Brea Avenue--roughly 70,000 cars cruise by the facility every day.

Considered the biggest drive-in self-storage facility in California, Price Self Storage opened its very large doors in November. The two-story building encompasses 390,000 square feet on 6 acres. But it's not just its size that sets Price Self Storage apart from its competitors. The developers capitalized on the facility's distinctive features to create a truly innovative self-storage center. The facility was once used as a distribution center for Thrifty stores. The expansive layout enabled the developers to go beyond the typical self-storage design. "When tenants enter the building for the first time, its kind of awe-inspiring," says Hamilton.

The building's entryway and roomy corridors allow passenger cars and moving trucks alike to easily navigate among the facility's 2,250 units. Because the building was originally designed to be a distribution center, the second floor was already built and engineered for truck use. "That was one of the reasons we were able to make the facility a drive-in. It had a large clearance between the first and second floor, and extremely strong floor-load ratios that made it just a natural to adapt," Hamilton says.

Price Self Storage didn't stop with design. The facility also has a number of amenities to entice customers. The units, ranging in size from 5-by-5s to 12-by-30s, have individually alarmed doors. Surveillance systems ensure safety for tenants and their belongings. Ancillary products, including moving and packing supplies, free use of a moving truck complete with a driver, and a full U-Haul dealership, up the customer convenience factor.

Hamilton, a former executive of Price Club, adapted many of the quality and value concepts employed by the warehouse business to his self-storage ventures. "All the things we learned about value and convenience we adapted to our storage," he says. "We want to be convenient. We want to have value. We have to have the cleanest facility in the nation. We charge very fair rates. We provide services."

The company's motto of value and convenience resonates through all nine of its self-storage facilities in California. Hamilton assures it's a concept that will only grow as Price Self Storage continues to develop and open new facilities. "We try and differentiate ourselves by merchandising our buildings differently, having large driveways, and really focusing on what the customer wants, which is value."

For more information, call 858.485.5900; visit www.priceselfstorage.com. 

Architectural services for Price Self Storage were provided by Valli Architectural Group. For more information, call 949.349.1777; e-mail [email protected].