Many an entrepreneur longs for the days of old when a storage facility seemed to fill itself. In British Columbia, where competition is no less intense than the States, Signature Self Storage managed a neat time-traveling trick. The Coquitlam store opened last July with no promotion and is already 90 percent occupied, proving quick success is still within a newcomers grasp. We had absolutely no time for a grand opening, says owner Dave Matheson, who pre-leased 40 units during construction.

Driveway and exit gate.

Matheson already owned the 39,000-square-foot parcel along the Barnett Highway, a major artery through the Tri-Cities area. A year of research on development possibilities showed self-storage would be the best use. Between 40,000 and 60,000 cars travel past the location each day, and the area is booming with new upscale townhouses, condominiums and retail businesses.

Growth is a double-edged sword in British Columbiawith both sides slicing up profits for self-storage. Demand has put construction workers in short supply, delaying the completion of building projects. Matheson, who acted as his own project manager, saw an obvious need for storage in the Coquitlam community. We have tenants who are in transition between homes, he says. They need a place to keep their belongings while they wait for their new house to be finished.

As for competition, the nearest new storage facility was across the highway in another valley, and Matheson deemed it no threat. He also wasnt worried about two other storage shops on the very same block. The U-Haul next door mainly leased trucks with only a small area devoted to storage, and the site two buildings away was full.

Still, 90 percent occupancy within six months? Matheson believes customer service and security are the main factors behind Signatures speedy success. The company also navigated a couple surprises during the construction process to ensure a profitable and attractive site.

Build It

Signature Self Storage, Coquitlam, British Columbia.

Coquitlams stringent zoning regulations imposed landscaping and a 30-foot setback on Mathesons property that, without careful planning, could have limited the income-producing area. Matheson designed a single-story facility with 31,400 leaseable square feet. The $2.5 million facility consists of three parallel buildings, divided by wide asphalt driveways.

The store is constructed of tilt-up concrete that resembles redbrick walls with contrasting green-metal trim. DBCI supplied the roll-up doors and interior partitions.

As respite from British Columbias 75 inches of annual rain, Matheson included two 10-by-10 bay doors, allowing customers to drive into the central building to load and unload their goods. No unit is more than 75 feet away from the doors. I dont know of any other facility in the area that does this, he says.

The central building is climate controlled and houses 262 units ranging in size from 5-by-5 to 10-by-30. Windows permit natural light into the corridors and give the facilitys exterior the appearance of a line of shops, heightening its architectural appeal. The two outside buildings each contain 24 10-by-20 units. Many of our outside corridor units are used by businesses or to store vehicles, says Paul Ellis, general manager.

Safety and Security

Loading bay doors let customers drive into the building.

Progressive security features were instrumental in driving rent-up, according to Matheson. The facility installed WinSen security and management software system from Sentinel Systems Corp., which enables staff to perform management functions and generate reports. Monitors in the office show feeds from the stores several cameras. Ellis can be anywhere that Internet access is available and check cameras, gate codes and unit access in real time.

Although the facility has no live-in manager, the grounds are under 24-hour security, thanks to the state-of-the-art computer system. In the event of an after-hours breach, Ellis and a local security company are electronically notified. In addition to gate codes, all units are individually alarmed. Although the facility is open from 9:30 a.m. to 5:30 p.m., access hours are from 7 a.m. to 9 p.m.; business customers have 24/7 access.

The facility has several women tenants who appreciate the sense of safety they have when visiting their units after normal hours, Matheson says. Signature will also accept deliveries for business clients.

Simple Script for Success

Signature's office features security monitors.

Mathesons formula for success is fundamentalcourteous customer service, good location and security. We show all our customers how to operate the gate and unit-door code and sometimes even how to store their goods, he says. And we always treat them with courtesy.

Word of mouth is the most powerful marketing tool Signature has in its marketing arsenal. One day, three women renting a 10-by-30 unit were unable to drive their moving truck under the bay doors, so Ellis and his staff helped them unload and move in. Impressed by their service and concern, the women referred the facility to several friends.

Location predictably has been a boon to the enterprise as well. The complexs sign can been seen from the busy highway. Managers have noticed the sign brings in actual renters while the facilitys Yellow Pages listing draws phone calls about price checks. The nearby storage facility, which was full when Matheson started his project, maintained its occupancy and now sends overflow customers to Signature. Even the truck-rental company next door has ended up adding to the bottom line because customers like the convenience.

Plans and More Plans

Expanding services is the facilitys next step. Signature may convert two climate-controlled units into 5-by-5 lockers for wine storage, Ellis says. We already have a couple of customers who keep their wine here. The Okanagan Valley, one of Canadas primary wine-growing regions, is only about 250 miles away. Also, Signature plans to modify one unit for kayak storage; a kayak club and boat launch is locationed a few minutes away, and kayaking is a popular sport in the province.

The success of his first storage venture has spurred Matheson to begin searching for facility site No. 2only his strategy will be different. Based on lessons learned, he would be sure to get city zoning approval before spending thousands of dollars for environmental site assessments.

With the expansion of the Tri-Cities area and the rising affluence of its population, its clear to Matheson that storage is a commodity with a future. People know what self-storage is and what it provides, he says. And there is good growth potential in this industry. For more information, call 604.552.1974. 

Statistically, more than 90 percent of self-storage operators have never ventured into records management. Or so they think. Virtually every facility in North America already stores business records, though perhaps unknowingly. Self-storage is the worlds second-largest provider of the service. The competition comes from commercial records centers (CRCs).

You may wonder how CRC service compares to that of a typical self-storage. In a nutshell, storage facilities are better positioned to attract customers while CRCs have the upper hand in specialized benefits. This creates an exciting partnership opportunity. Lets look at the facts.

Ahead of the Game

Self-storage facilities have something CRCs dont: walk-in traffic. No one calls or walks into a CRC, primarily because theyre invisible in many markets. Consider the following:

• CRCs cant be seen from the freeway like many self-storage sites. Typically, theyre found in warehouse districts or industrial parks.
• CRCs have little or no signage. Clients of traditional records centers dont want it advertised that business records are stored in the building. Some clients even request no signage on delivery vehicles.
• Its too expensive for CRCs to call on most small-business accounts. With the cost of a sales call estimated at hundreds of dollars, consider the cost of preparation, prospecting and manpower.

When it comes to targeting small businesses, self-storages walk-in traffic gives it an advantage, especially since nearly 25 percent of visitors represent small businesses. Furthermore, just about everyone who walks into a self-storage facility has a relationship to a business owner, manager or employee.

Remember, small-business records are intensely profitable. The yield per unit on these accounts is higher than any other type of storage, bar none. However, while self-storage facilities are better positioned to attract customers, their services are often inferior to those of CRCs.

Accounts and Services

So far weve learned that self-storage earns the records accounts, while CRCs better satisfy customer needs. Doesnt it make sense to build a bridge between self-storage facilities and CRCs, as long as both sides make money? Storage operators are in an excellent position to sell accounts to CRCs. Below is a step-by-step plan for those interested in this new win-win venture.

1. Find the best local providers of traditional records-management services. These are easily found in the Yellow Pages under Business Records Stored or Records Storage. Avoid the national companies and look for entrepreneurial operators.

2. Set up a meeting with the CRC owner or general manager at your office. Holding the meeting at your own office gives you a home-court advantage and allows you to set the agenda.

3. Have a plan developed and be sure to take control of the agreement. The plan should include several packages such as economy, small business and professional. Each package is bundled with pricing and includes particular services. (Read more about Small Business Packages at www.insideselfstorage.com/articles/491RECOR.html.) 

4. Shop for the best deal, looking citywide for the best partner. Negotiate the deal and leverage your strengththat you will be bringing them high-yield accounts.

5. Determine a compensation plan. A fair amount of compensation would be 50 percent to 100 percent of the first years storage revenue. Since this is actually billed and received over a 12-month period, you should expect to receive payments over the next year, starting 60 days after the contract is signed.

6. Create a lead-generation program for larger accounts (which usually require client-needs assessments that self-storage sites dont provide, but CRCs do), entitling you to kickbacks for sales leads and prospects furnished to the CRC.

7. Provide the CRC with a turnkey system including marketing materials, personnel training to sell the service, accounting for compensation tracking and a partnering agreement.

Understanding the Benefits

Why would any self-storage operator want to give away business? If you offer records storage and are unable to provide all the services to customersparticularly those who have hundreds of boxes stored at your siteyou may end up losing business in the long run. Plus, industry observers report most small businesses that rent from self-storage facilities need space for materials and equipmentnot just business records. Creating an alliance with a CRC means you can have your cake and eat it too.

So if you dont want to do records management yourself but wish to capitalize on business that already walks in your door, this may be just the opportunity for you. 

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

This month, I gathered a roundtable of experts to discuss how the storage industry is faring in the Southeast. Lets hear what they have to say about their respective cities and regions. Our roundtable panel includes: Bill Barnhill and Stuart LaGroue, Omega Properties Inc., Mobile, Ala., representing the Florida Panhandle; Dale Eisenman, Midcoast Properties Inc., Hilton Head Island, S.C., representing North Carolina, South Carolina and Georgia; Malcolm MacLeod, The Huntington Group Inc., Palm Beach, Fla., representing South Florida; and Frost Weaver, Weaver Realty Group, Jacksonville, Fla., representing North and Central Florida.

Cap rates are beginning to tick up in some areas. What trends are you seeing in your area?

Eisenman:

Cap rates remain stable, but theres a growing impression we may start to see them increase if long-term interest rates rise.

LaGroue:

Cap rates have been holding steady in the 8 percent to 9 percent range. I believe with rising interest rates, well see cap rates follow. Its not going to be drastic, but the overall cap-rate range will be affected.

MacLeod:

Southeast Florida is still such a hot market that sellers think their properties are worth more than they really are, and commercial deals are being presented at low cap rates.

However, most Realtors sense a slow-down in the market, and commercial and residential properties are staying on the market longer, meaning sellers have to be more realistic about their asking prices. Based on projects Ive seen, I sense cap rates are starting to skew higher.

Weaver:

While cap rates are a useful tool in our industry, theres a difference in how they are being used by sellers and buyers. Sellers are continuing to be very aggressive in their asking prices, based on listing prices for properties around the country. Therefore, most quality facilities are still being listed based on a 7 cap rate or lower.

However, buyers are looking at a leveraged return on investment. As interest rates begin to rise, this negatively impacts the cash flow of the property. Therefore, buyers are being more conservative in their offers. In our area, this has caused a wider spread between the asking price and what is being offered, making it more difficult to consummate these transactions.

What is the general consensus in your territory about the threat of overbuilding?

Eisenman:

Owners in the Carolinas and Georgia, as in most markets, are concerned new competitors will add more capacity than needed, especially if they neglect to do their homework on supply and demand in the area. Overbuilding creates a downward pressure on pricing. Some owners are concerned industry conferences and some seminars might promote building to the detriment of existing and future owners.

LaGroue:

People are interested in entering the Florida markets. Ive spoken with interested parties from nearby states as well as California, Colorado and others in the West. Construction costs and insurance rates have drastically increased and that, along with the threat of overbuilding in some areas, may make potential developers and investors more cautious when moving forward with their plans. However, a phenomenal population growth is still being experienced in the Florida panhandle, and that should keep projects moving forward despite the increase in development costs.

MacLeod:

It doesnt appear that overbuilding is a big concern for storage developers in Southeast Florida right now. Several projects have been recently completed or are under construction in Palm Beach County, and all appear to be doing fairly well. The area has thousands of new residential units being built and none will have basements, which should lead to increased demand for storage space. Numerous people have asked me about properties available for storage development, so it appears business is good.

Weaver:

The supply and demand for self-storage varies significantly in Central and North Florida. Generally, theres more oversupply in urban areas and a stronger demand in the smaller markets, but this isnt universally true.

For instance, in Jacksonville, the self-storage market could be characterized as stable and growing. According to the 2005 Self-storage Almanac, there are 138 facilities in the city comprising 5.1 million square feet. Even though numerous facilities have been recently completed or are under construction, the city is considered undersupplied according to national standards.

Another example is Gainesville. Its a smaller market but has a large university, and the city is growing rapidly. There are 39 facilities in Gainesville. Occupancy is in the high 80 percent range on an annualized basis, but there are seasonal influences from the student population. Rates are lower than in some other markets and are obviously influenced by the student body.

Are you seeing more non-storage owners interested in buying facilities? Why or why not?

Eisenman:

Theres a steady stream of new investors interested in the industry for the same reasons anyone, past or present, has found it attractive. Unfortunately, many seem to underestimate the challenges associated with the business, particularly the on-site and off-site management component. Conceptually, self-storage isnt vastly different from other commercial real estate investments, but the devil is in the details. Its increasingly importantand difficultto provide the services customers value, and to do so on a daily basis.

LaGroue:

The inquiries remain steady, and I expect the trend to continue throughout 2006 due to high population growth in the Gulf Coast. The key thing buyers are looking for is room to expand, and thats what Im most frequently asked about.

MacLeod:

Ive had numerous calls from current owner/operators and first-timers looking for facilities in South Florida. Our economy here is somewhat different than other parts of the country because we have a constant influx of new residents; most are retirees or second-home buyers. As a result, probably 50 percent of buyers arent part of the traditional workforce; with all of the baby boomers reaching retirement age and inheriting money, we expect to see continued growth for a long time.

Weaver:

A few years ago, many inquiries came from outside the industry. That hasnt been the case in the past year. Nearly all have been from investors and developers already in self-storage who are looking to expand their portfolios. These buyers are highly focused on property location, area demographics and the presence of competition.

Are you seeing rental-rate increases in your market? What about occupancies?

Eisenman:

Rental rates and occupancies vary from location to location, so its risky to make any general observations. However, it seems rates and occupancies are stable.

Barnhill:

The coastal areas of Florida have experienced rate increases and excellent occupancy, partially due to the 2004-05 hurricanes. Notwithstanding increased need created by the storms, the Florida Panhandle has an underlying demand that should secure steady occupancies. Inland, the rates vary by city. Generally, they appear to have increased slightly in larger metropolitan areas, and remain unchanged in rural locales.

Weaver:

Due to oversupply in most markets, rates havent increased much in the past year. In smaller markets, even where demand is strong, owners seem to be content with their rents and are reluctant to raise them for fear of losing local customers. Location plays a big part in rates. For example, in Jacksonville a 10-by-10 unit rents from $69 to $100, whereas in Gainesville that same unit is $54 to $65.

Is bank financing available in your area for buyers and new construction? What would terms look like?

Barnhill:

Bank financing is available for purchase and new construction. Bankers are not only scrutinizing the property, theyre requiring either an existing banking relationship or the purchaser have some experience in the storage business. Banks typically require 25 percent to 30 percent equity for a purchase, with interest rates around 7 percent to 7.5 percent for five-year money.

Eisenman:

Financing is available and the terms vary, in part, with the size of the loan and whether its for an existing facility or new construction. You can get fixed-rate financing for stabilized and sizable properties, usually tied to the Treasuries. Many nonrecourse borrowers are seeing rates ranging between 120 and 160 basis points over the 10-year Treasuries, amortized for up to 30 years, with loan-to-values of 75 percent to 80 percent. Banks will often offer recourse or partial recourse loans with either a variable or fixed rate, but prepayment penalties likely will be more liberal than nonrecourse loans.

Financing for self-storage is readily available, but the best loan for a borrowers needs and objectives may not be available from every lender. I encourage borrowers to seek professional guidance. Again, the devil may be in the details.

MacLeod:

Bank financing is available in my market. A recent project I worked on had the following terms: 80 percent loan-to-value (LTV), 10-year fixed interest rate, 30-year amortization, 130 to 140 basis points over the 10-year treasury, one-point fee, nonrecourse.

Weaver:

Bank financing is most often used in the acquisition of existing facilities with redevelopment or expansion opportunities. The terms are generally as follows:

• LTV: 75 percent.
• Interest rate: 225 to 275 basis points over LIBOR on a floating basis. This would be a rate of 6.5 percent to 7 percent.
• Loan term: 24 months for new construction, followed by a two- to three-year mini-permanent loan. The loan would have a recourse provision to the borrower.
• Long-term rates: These are still available on quality properties at 5.75 percent to 6 percent fixed. The amortization is normally 20 years, with a balloon in seven to 10 years. Most of these loans are nonrecourse if the property is stabilized. 

Michael L. McCune has been actively involved in commercial real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In 1994, he created the Argus Self Storage Real Estate Network, now the nations largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.selfstorage.com.

Building a self-storage company in Europe isn’t the easiest way to make a living, though a well-executed and professional project can certainly be rewarding. Like any other emerging and still immature market, self-storage faces a variety of problems in most European countries. Perhaps the biggest is lack of financing. Equity from institutional or private investors is still rare, while bank financing can be a sheer impossibility due to the industry’s lack of reliable data and undocumented track record. The public’s lack of awareness about self-storage also remains an enormous obstacle.

Before delving deeper into the topic of finance, I’d like to make a quick observation about the need for public education about self-storage. For the European industry to thrive, it must reach a certain kind of customer, one who will use storage facilities as a continuing extension of his home’s limited capacity. We need to lure these kinds of long-term tenants, not just those with a temporary need, because they are more numerous and will rent smaller units at higher prices per square meter.

These consumers exist, but operators need to find better ways to target them and convince them to start using self-storage. Only when that happens can we speak about a truly mature European market.Immaturity

Much has been written about financing being the most critical issue controlling industry growth. This is certainly true for the self-storage market, as most European operators are starving for cash to expand their businesses. Of course, not all countries are in the same situation. In the United Kingdom, where the industry began in 1980, equity and debt financing is easier to obtain than on the Continent. Self-storage started in different countries at different times, and it appears the more mature the market, the easier it is to secure financing.

But blaming a lack of proper financing on lenders alone isn’t entirely fair. It’s true that we need investors and bankers with guts and creative minds who are unafraid of change. It’s also true that financiers are like lemmings: If one goes, they all go! But doesn’t the same rule apply to operators jumping into the self-storage market? The proliferation of nonprofessional outfits has done nothing to further the cause of finance.

An unpleasant circumstance is unfolding in European countries with immature storage markets. The first facility is started by a daredevil with money; when his venture appears to be a success, a plethora of novices jump into the industry. As a result, many self-storage businesses are operated by amateurs unable to show good financial results. This news travels fast and widely, especially with bankers.

I don’t pretend to know if this is the case everywhere, but based on my experiences in France, Germany, Holland and Spain, I can say the majority of banks look at self-storage with extreme caution and hesitance. This is largely due to bad management by people who convert their empty real estate to a mini-storage, which they decide to operate themselves despite having no feel for the industry.

Self-storage is considered a trendy, fashionable investment in many countries, further encouraging amateurs to underestimate the difficulties of marketing, renting and keeping the facility clean and appealing. Let’s face it: Too many operators are 30 percent or more behind on their budgets. As long as that occurs, banks will be skittish and financing sporadically available.

Having made some constructive criticism, I don’t believe new storage owners should pack up and leave. Looking back at the last 10 years, which is the approximate age of the industry in Holland, it’s clear that self-storage is growing overall and will surely reach maturity somewhere in the future.

To make it successful, operators should make an effort to beat or realistically alter their budgets. It’s crucial to produce realistic financial plans for self-storage conversion, and more important to successfully predict the number of units that will rent at a certain price. When operators accept these standards, the industry will slowly realize a wider availability of capital.Franchise or Independence?

As the industry grows in Europe, it will become increasingly necessary to train employees as well as executives. Maybe the Federation of European Self Storage Associations has a role to play in this area. Being a member of a national association is a must for every operator. Membership means adhering to certain standards of professionalism—a difficult feat for some. Unfortunately, skills such as accounting can only be learned at school, and qualities such as a positive attitude and customer service can rarely be taught.

Many of those eager to join the industry are hesitant about going it alone. Sometimes their financiers prohibit them from becoming lone operators; sometimes it’s the hard work and marketing that scares them. Because capital remains the limiting factor to growth (at least for now), some larger operators have decided to make their expertise in self-storage available to third parties in the form of a franchise opportunity.

When working in a franchise situation, success is directly connected with professionalism. Of course, local expertise is also a factor. I once told an American investor that Holland is my backyard, and I happen to know where all the toys are! Knowing the local community is an advantage for this market; being a local expert without professional know-how, however, isn’t enough.Internet Marketing

Marketing and a willingness to work 24 hours a day are vital to self-storage success. In Europe, I’m seeing rapid changes in how to market a facility for maximum results. The old method of buying a big ad in the Yellow Pages doesn’t work anymore. Nowadays, smart companies spend a significant portion of their marketing money on the Internet, not only for advertising purposes, but to build their list of e-mail addresses.

Once they possess a large e-mail database, they can do direct marketing for a fraction of what they would have spent in the past, enabling them to substantially increase the frequency of direct mail. These days, even small Yellow Pages ads hardly seem worth the money. The big advertising battle of the future will be about top rankings on Internet search engines.Minimal Staff

Staffing costs can quickly run up an operator’s budget. For this reason, some operators elect not to maintain offices or any full-time staff at their facilities. In this case, most communication with prospects and tenants is done from corporate headquarters. Customers who are unfamiliar with the concept can watch short videos posted on a facility website. Tenants can still be required to physically sign the lease and other documents at the sites, but only by appointment. In such situations, one manager can handle three or more facilities, provided they are relatively close together. One duty not possible from headquarters is facility maintenance. My guess is new technology, such as kiosks, will soon make any other physical presence obsolete. To be equipped for such a future, facilities will need advanced security, such as individual unit alarms, CCTV surveillance and other safety features suitable for unmanned sites.A Bright Future

Yes, the industry is changing and growing. To ensure an overall brighter future, operators can benefit by noting their common major challenges and addressing them head on.

• Operators on all levels need to be self-storage professionals and truly enjoy their business.
• Self-storage is a profession and should not be treated as a fashionable hobby.
• To any financier, a budget is a budget, so operators had better treat it that way.
• European operators need to share data, possibly through the national self-storage associations, so they can build a collective track record.
• Marketing is changing fast, with more and more emphasis on the Internet and e-mail.
• The big prize for the future is to find “lifestyle tenants,” the huge pool of prospective customers who will rent for convenience and longer terms.
• With the availability of the latest technology, big expense items such as salaries are eliminated, and the savings benefit owners and tenants. 

Paul Logchies was a founding member of the first self-storage facility in Amsterdam, in 1996. After buying and converting properties into self-storage facilities in France, Germany and Holland, he founded Safe Storage International BV, of which he is a principal and president. The company offers self-storage franchise opportunities. For more information, visit www.safestorage.nlor www.safestoragefranchise.nl.