U.K. self-storage company Safestore has partnered with online marketplace eBay to offer its “PowerSeller” customers a 50 percent discount on storage. eBay customers who sell large quantities can rent a storage unit on a weekly basis for as long as they need. These tenants can access their unit 24 hours a day, seven days a week. Deliveries are accepted and stored free on behalf of the eBay customer. For more information, visit www.safestore.co.uk/ebaypromo.

Evansville is the regional center for a large trade area in Illinois, Indiana and Kentucky. The broad economic base of the region has helped to build an economy known for its stability, diversity and vitality. Major industries include manufacturing, warehousing and distribution, retailing, healthcare, and finance and business services. In 2007 the metropolitan area was ranked 88th in the nation in terms of growth and economic impact.
 
The Evansville region is best known for the production of appliances, nutritional products, pharmaceuticals, aluminum sheet, automobiles, auto glass, coal, oil and plastics. The region is also recognized as an agricultural center for corn, soybeans and wheat.

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The Canadian self-storage industry experienced a year of significant growth despite several challenges. The biggest self-storage news item one year ago was the formation of InStorage REIT, the first Canadian real estate investment trust focused on the acquisition of self-storage. In one year (August 2006 to August 2007), InStorage moved to first place in Canada in holdings of self-storage. The REIT closed on 52 stabilized properties or approximately 3 million square feet of net rentable area.

Public Storage, which has 48 locations across Canada, has been relatively active in the past year, including the purchase of a 35,000-square-foot facility comprising 300 units in Woodstock, Ontario, in May ’07. The property has additional expansion potential of 20,000 square feet or approximately 270 units. Two new facilities were opened in June 2007: an 84,000-square-foot, 947-unit four-story building in Laval, Quebec, and an 86,000-square-foot, 962-unit property in Scarborough, Ontario. In September, the company purchased 1.8 acres in Laval, Quebec (at $412,000 per acre) for the development of self-storage, and in December, the company acquired 3.3 acres in Richmond, Ontario, for $1.03 million per acre.

Since August of 2006, the Depotium portfolio in Quebec has expanded by 11 facilities to a total of 18 self-storage properties, the majority of which are on the Island of Montreal. Due to the scarcity of land in Montreal, all the Depotium facilities in the city have been developed in buildings converted to self-storage from industrial or service commercial uses. However, a new multi-level facility was opened in 2007 near Joliette in Notre-Dames-des-Prairies, and new multi-story buildings have been added to existing facilities in Montreal East and Longueuil. There are approximately 7,600 units under the Depotium brand.

Individual Markets in British Columbia

The supply of self-storage in the Vancouver Lower Mainland will reach 5.8 million square feet by the end of 2008, or about 2.4 square feet per capita. Approximately 480,000 square feet of self-storage will be added in 2008 in six new facilities and expansions to existing facilities. Two of the expansions comprise the addition of portable units rather than new construction because of rising costs. The current estimated average facility size is 55,000 square feet. An estimated 420,000 square feet was added to the supply in 2007 in four new facilities and two expansions.

Rents are stable in most areas, and portfolio managers report that rent increases are planned for spring or mid-year in most sub-markets. The range in rents is $19.80 per square foot per annum in rural areas to $34 per square foot in Vancouver. Occupancies appear to have softened somewhat from 95 percent-plus to the low 90 percent excluding facilities in lease-up.

Absorption of new facilities has slowed and significant promotions are being offered at new facilities, which are being matched by the closest competition. There have been no sales other than one small facility that sold twice in 2007.

In the Capital Regional District (Victoria), no new supply was added in 2007, although a facility of approximately 29,000 square feet was opened in Central Saanich last February. The current supply is estimated at less than two square feet per capita and comprises approximately 640,000 square feet in 20 facilities. The average facility size is 32,000 square feet.

Rents were increased significantly in the trade area in 2007, following the lead of the two facilities that entered the market in 2006. The last survey was made in May 2007, and the range in rents was from $17.88 to $22.56 per square foot.

Total supply of storage in the Nanaimo Trade Area is 317,000 square feet in 14 facilities, or approximately 4 square feet per capita based on the population of Nanaimo City or 2.14 square feet per capita based on the regional trading area population. The average facility size is 22,647 square feet. The inventory of self-storage includes a large proportion of container storage (13.5 percent of the supply) as well as first-generation older developments.

Rents in Nanaimo are significantly lower than those of either Victoria or the Vancouver Lower Mainland, ranging from $9.36 to $16.20 per square foot per annum. High occupancies of 95 percent or more were recorded when the trade area was surveyed in May and September 2007.

Overview of the British Columbia Market

The effect of the tightening of financing is to slow development in the B.C. region. Developers seeking financing are faced with higher equity requirements, more stringent qualification requirements, higher interest rates and higher fees.

In the past year, the B.C. market has been characterized by very few sales except for three sales of smaller facilities in smaller towns, and one sale of a smaller suburban Lower Mainland facility that changed hands twice in 2007. A four-property portfolio was tied up for eight months, but the prospective purchaser recently decided not to complete the transaction.

High land prices and rising construction costs are resulting in developers having difficulty making the numbers work on new projects in urban areas. Three developments have been dropped because of high costs, and one large expansion to an existing facility has been deferred. However, rents are still stable or rising in most markets.

Overview of the Alberta Market

There has been significant sales activity in the Calgary trade area in 2007, including the REIT purchase of three facilities in Calgary, as well as one in Okotoks and another in Airdrie. Overall supply is still estimated at approximately 2 square feet per capita.

Maple Leaf Self Storage reports the leasing performance of its two new facilities is on track. Each site offers more than 125,000 square feet of net rentable area (1,300 units) in a multi-story configuration with full climate control. One of the facilities opened in December 2006, the second in May 2007.

Multi-story development is new to the Calgary trade area, and education-oriented advertising has been necessary. Actual absorption is estimated at approximately 2 percent per month.

There was also considerable sales activity in Edmonton in 2007, including the sale of one former StorageMaxx location to InStorage REIT; the sale of a smaller facility to a local investor; and the recent sale of the largest facility, Storage King, (133,600 square feet of net rentable area plus 4 acres of land used for RV storage) to a B.C. investor.

The area is experiencing significant self-storage development interest with several sizeable developments in the planning process. Industrial land prices have doubled in the past few years from a range of $350,000 to $375,000 per acre to $600,000 to $700,000 per acre.

There is potential for movement in rents, which are at lower levels than Calgary and significantly lower than those of Vancouver. Occupancies were very high in most facilities when the trade area was surveyed in November 2007.

Storage Strong Despite Challenges

The Western Canadian market has been affected by the sub-prime mortgage meltdown in the United States. The most significant effect has been the tightening of financing for self-storage. This has slowed development and is creating problems for developers in addition to rising land and construction costs.

More than ever before, it is crucial that prospective developers with limited experience in self-storage do their homework and investigate the market thoroughly when putting together financial pro formas and projecting future performance.

On the positive side, there are now considerable resources “made-in-Canada” to assist new developers and investors in evaluating opportunities in the Canadian markets. The growing list includes brokers who specialize in the marketing of self-storage; appraisers who specialize in the valuation and feasibility analysis of self-storage; management companies who train personnel and offer management services to the self-storage industry; construction companies and engineers with extensive experience in self-storage development; and insurance brokers with self-storage focus.

The market of today is not the market of six months ago—deals are harder to make and financing is more difficult to arrange. However, self-storage will continue to be an excellent investment opportunity and there are significant development prospects in the majority of Western Canadian markets.

Candace Watson is a professional real estate appraiser who has been appraising self-storage for 30 years. Her company, Canadian Self Storage Valuation Services Inc., specializes in the valuation and feasibility analysis of self-storage, and conducts regular surveys of supply, occupancy and rents in the Vancouver Lower Mainland and Victoria, as well as in several Alberta urban centers. In 2007, the company provided valuation services in Winnipeg, Regina and Montreal in addition to Western Canada. For more information, call 604.681.2929; e-mail [email protected].

It began with a few modest increases—10 percent here, 15 percent there. But by April, self-storage manufacturers who rely heavily on steel were feeling the pinch. In just three months, steel costs had risen more than 30 percent. And it’s not just steel, but also the raw materials that go into making the steel.

Several reasons for the increase have bounced around in the media and in company boardrooms—a weakened American dollar, surging ocean-freight costs, an increase in exports from domestic steel mills, and strong markets in foreign countries.

At the time of this writing in April 2008, manufacturers were bracing themselves for two more huge increases: one in June, followed quickly by another in July, bringing the total increase to about 50 percent in just seven months.

While the volatile steel market is reminiscent of what happened in 2003-04, there are some subtle differences. At that time, the sudden jump in price was attributed to supply and demand—there simply wasn’t enough steel to go around. Foreign countries like China were gobbling up steel at a rapid pace. Now there’s plenty of steel—so far—but at a higher price. Whether a shortage comes into play will be determined in the months to come.

However, there are also some similarities—the aforementioned ocean-freight costs to transport steel into the United States, the rising costs of energy, and a weak American dollar.

In the self-storage industry, builders, developers and suppliers of steel have been hit the hardest. During the ’04 crisis, many of them lost business and chunks of money. Some tried to absorb the increases rather than pass them on to the customer; others were locked into contracts and unable to raise prices. Some simply slowed or stopped production until steel prices leveled and were more affordable.

Despite the soaring costs this time around, most builders and developers remain optimistic, knowing rough waters are definitely ahead, but calmer seas will prevail by the end of ’08. Inside Self-Storage (ISS) caught up with a handful of builders and developers to get their perspectives on the explosive steel market. Our panel consists of (in alphabetical order):

• John Baragona, vice president, Diamondback Metal Systems
• Bob Boilini, systems sales manager, Components Plus Inc.
• Vern Cannon, owner, Cannon Storage Systems
• Chip Cordes, vice president, U.S. Door & Building Components
• Scott McHugh, general manager/sales USA, MBCI
• Buster Owens, president, Rabco Corp.
• Mike Parham, CEO, NDS Construction
• Phillip Wilkerson, vice president/manufacturing, components division, MBCI
• Caesar Wright, president, Mako Steel Inc. 

ISS: What’s happening with steel prices?

Boilini: Until last January, 26 percent of the steel used in the U.S. was imported. But with the devaluation of the dollar, a lot of that foreign steel in going elsewhere. To compound that problem, the U.S. steel mills are selling a lot of steel overseas because they can get more money for it.

Cordes: Right now, they’re escalating monthly. The increases will peak around July or August, and I don’t see them coming down until November or December.

Parham: In the past, steel went up because a lot of it was going overseas to support China and that’s over with. If you take a look at production orders, they’re way down. If you’re talking about typical supply and demand, there shouldn’t be any reason for it going up right now. We have a lot more of it now than we did when it was going up over the last five years.

If you look across the country, construction is down 35 percent. Government spending as it relates to particular projects is down. Exporting is down. The million dollar question is, in a supply-and-demand economy, how could steel be going up?

Wilkerson: There are several well-publicized factors driving monthly increases from our steel suppliers. Limited supply of imported steel, raw-material cost increases, scrap escalating to all-time highs, rising fuel and energy costs, value of the U.S. dollar, etc. All of these have created an opportunity for domestic mills to continue the price escalations. Although non-residential construction is down in this country, the limited availability of imported steel forces U.S. consumers to purchase from the domestic mills. As a result, their order books are full and, as we all know, prices are driven by supply and demand.
 
ISS: How is it different from or the same as what happened in 2004?

Boilini: We went through this four years ago when prices doubled in six months. Then they fell 50 percent. Nobody seems to think things are going to fall now because the demand around the world. We’ll all bracing for a long period of this. Business is good because people are trying to get ahead of these price increases. It’s not quite the same because the increases aren’t as dramatic and we’re not allocating steel yet. But it has thrown things in a tailspin.

Owens: There’s not a big difference. A lot of the supply in 2004 was going to China. What happened was, at the time, there was a shortage of steel. We’re hearing the rumblings of there’s possible allocations coming, but we haven’t seen that happen yet. In ’04, the prices were going up because there was a shortage of steel. Now it’s not necessarily because there’s a shortage, but with the dollar being so weak—in conjunction with the increase of all the material costs—they can sell it offshore for more money than they can sell it in the United States.

So, basically, the demand in China is a little different because they have built there own mills. We can’t blame everything on China like we did before. Canada’s economy is booming, so is Mexico’s. It’s more the devaluation of the dollar that’s affected us.
 
ISS: In what ways has the increase in steel prices affected the self-storage industry?  

Baragona: That’s hard to say. The increases in the first quarter were not so dramatic. Everyone is concerned about what the next couple of quarters are going to hold. The increases we saw in the first quarter are probably tolerable to most companies and customers.

If we see similar increases over the next two quarters, we’ll have a chance to see some significant impact to project viability. But I don’t think we’re at that point yet. Everyone is obviously quite nervous, and people that are in the process of getting their projects ready for construction that are still six months out, those people need to keep a close eye on it.

Boilini: It’s going to impact the smaller developers and owners more than the big guys. We’re starting to see some of the smaller developers—the ones who do one project at a time and are totally dependent on commercial lending—have some of these projects delayed through financing. Let’s face it, commercial lending at this moment is getting much more conservative. For the larger ones that have a lot of cash, this is a hiccup.

Cannon: We’re in for a slowdown. You’ll see a lot of the people that jumped in because they thought it was great try and get out of it. It’s not going to be: “At what price can you do it?” It’s going to be: “Can you get the steel? Do you have the manpower to do it?”

And the people that do have the money to build, they’re not going to take the guy who works out of the back of his pickup truck. This may even be good for the industry. It may get rid of some of the fly-by-nighters who give us a bad name. The ones who came in when times were good, we’ll be gone.

Cordes: There are two things affecting the storage industry right now. One is the cost of construction. Two is the equity market. It’s harder for people to borrow money today. Because of the residential market, the borrowing guidelines are getting much stricter. A year ago, you could have a million-dollar piece of property and borrow $5 million against it, and build a $6 million project with only a million dollars out of project. Today, for that same project, banks are asking that you put up $2 million.

What does that do? If a group of developers had $2 million, it could build two projects last year. The higher the equity you have to put in, the lower the return on your investment. The strict guidelines the banks are going by for financing is dropping the return on investment. And the steel prices are driving up the costs of construction, which further enhances the decrease on the return on investment.

What really hurts with the way the steel is increasing is, when a guy starts a project, he can’t lock in his pricing because he doesn’t know what that building is going to cost until he gets his permitting done, the site work done. Even if he goes ahead and contracts the metal building, if he doesn’t need it for five or six months, the price could go up.

McHugh: Managing existing backlogs and bidding new work is difficult in the current steel market. When you are developing a mini project, it’s typically not a quick turn. Domestic steel guidance is only giving us a 45- to 60-day picture with changes to that guidance being made every day. Trying to hit a moving target can be frustrating for not only the contractors but the owners of the projects as well.

Owens: It’s certainly slowing it down. We have more than one factor; it’s not just the cost of steel. Deals were tight to begin with, but when prices go up, tight deals are no longer tight, they’re not feasible.

Wright: We’re going to find that out very quickly. There’s definite concern among the developers right now. Not only is just my scope of work, but there’s many other aspects of the project, such as the rebar that goes in the concrete, the electrical conduit, the sprinkler pipes. When you take all these things into consideration with these increases, we don’t really have a strong solid number we can attribute to how it’s going to affect the industry.
 
ISS: How has your company been affected?

Baragona: It hasn’t really affected us at all. It’s pretty standard to have price escalators in your contracts. The price increase generally gets passed on to the customer and we try to minimalize that as much as we can. We have not seen any projects fall off the board yet because of the price increases, but we’re still in the first quarter of what has potential to be a volatile cycle.

The other point to keep in mind is, at the end of the day, the cost of steel in the overall development cost of self-storage is not necessarily the make-or-break figure in the financial viability. As long as the cost increases aren’t overly dramatic, I don’t anticipate it having a traumatic impact on the industry. But if we see 10 percent in May, 10 percent in June, 10 percent in July and 10 percent in August, all back to back, then there’s a story there. We’re advising our customers that they need to be aware of some significant increases.

Boilini: As a roll-form manufacturer, we’re caught in the middle. We have to continue to buy, but there’s no price protection. We’re getting increases even if we’ve had an established purchase order. In the Texas market, we’ve had a 35 percent increase. We’re seeing increases in May production 13 to 15 percent. 

Cannon: I have developers backing out of projects left and right. We had 800,000 feet under contract. We have 500,000 square feet that we put on hold indefinitely. They can’t get the appraisal values higher. The banks won’t lend them the money. Basically, it is the United States steel suppliers; they can sell it over seas for more money because the U.S. dollar is so low. A lot of these projects that I’m building right now—they borrowed the money, bought the land, signed the contract, and they can’t get anymore money. They’re prices have gone up 50 percent.

Cordes:On our backlog. A lot of our jobs that we contract, we may not ship for four or five months. So our costs are going up, but that doesn't mean our pricing does. When we go back to our customers and want to raise our price, they tell us they’re going to put it out to re-bid. Then I take the chance on losing the job. I’d rather lose it than sell it at a loss. It’s a very uncertain situation right now. And because of the slowdown in the industry, everything is competitive to begin with because there are fewer places being built.

Parham: We have people who have to go back and see if it works. Cross Metal Buildings [a Parham Group company] is doing good business. But this is not just affecting the metal buildings, it’s also the roll-up doors. Just buying the doors for hallways and outside is a gigantic increase. Forty percent of the costs of a project is going to be steel, whether it’s doors, rebar or the steel components that go into a building.

Owens: We’ve had a slowdown in sales. We have a great backlog for a while. But the volume of quotes has dropped off significantly.

Wilkerson: Unlike in 2004 when non-residential construction was trending upward, attempting to get these types of increases in a down market has been extremely difficult. As steel continues to increase, conventional products like wood become an alternative construction product. In some of our markets, this definitely impacts our customer’s ability to close work. This, coupled with our customers trying to bid work several months out with no idea what impact the increases will have to their bottom line, makes it difficult at best.

Wright: Margins. It strictly comes to margins. We’ve priced these projects some time ago. Banks have approved these loans. We can’t sometimes—and don’t want to sometimes—go back and ask customers for more money. We’ve made the decision as a company to eat most of these price increases. It’s affecting our margins significantly. We’re hopeful that we’re strong enough that we will get through this.
 
ISS: What can builders and developers do?

Baragona: They need to try and anticipate some of those increases now. If you’re not building until summer or fall, you need to be aware these increases are coming and be sure you’re project is still viable financially. For example, you need to determine if there is a 50 percent increase in the costs of the steel buildings, does the project still work? So that if that moment in time arrives—and you hope that it doesn’t—you can still proceed with the project. If that’s not the case, you need to take a hard look at what you have going on.

Cannon: Absolutely nothing. If I keep raising my prices to reflect the price increases, it takes the developers longer to get a return on their investment because they can’t charge any more rents because of the way the economy is going. I’ve been in the business for 30 years and I’ve seen it before. Until the steel prices come back down, which they’re not going to, developers are going to stop building. It doesn’t make economic sense to continue to build mini-storages. It’s going to come quickly.

Cordes: Developers need to go into it realizing they need to put a contingency in their pro forma for escalating prices. Builders need to put it in the contract with the developer that prices could change from the contract based on raw material increases. However, they have to be documented. You have to put in an escalation cause, but you have to tie it to some kind of index that is believable.

McHugh: Open communication between the builders/contractors to the owners and from the owners to the banks as to the reality of the current market is crucial. We see a lot of folks gambling right now, hoping it will come back down quickly as some of the cycles have shown in the past. I think the market is finally realizing the magnitude of these increases.

Right now, the trends show the increases will continue. Today, most manufacturers are keyed in on the price and availability at the time of shipment, and not on giving numbers on bid day with extended “good-for” dates. It’s hard to hold a number when the target is moving as fast as the steel prices are moving today.

Contractors can only base their bids on the best forward-looking information they have at the time, and insert verbiage that gives them some opportunity to look at it again when a ship date is established. If they lock them down to a number with the current volatility in the steel market, it could create expectations that cannot be met at the time of shipment. In that situation, no one wins.

Owens: I try to paint the bright side as opposed to the dark side. The biggest consumer of steel in the United States is the automobile industry. A slowdown in new cars should bolster steel supply to other areas. The interest rates are very attractive. Construction money is cheap. The availability of low interest money is there. I’m hoping toward the end of the year, we’ll see land prices readjust; so if they come down some, that should help the tight project better.

Lastly, when you have the volatility in the financial markets like we’re seeing here today, people get nervous and start pulling their money out of the market. When they do that, they have to find someplace to put it. Typically, a good place to put it in a repressed real estate market is in real estate because there are some good buys out there. Self-storage is still a good investment. If we have some strengthening of the dollar and more availability of steel and little bit of luck, it still looks positive.

Wright: Educate themselves within the industry with contractors such as ourselves. Be somewhat conservative when they’re putting together their feasibility study and pro forma as far as the overall construction costs.
 
ISS: What’s expected in the next the months?

Cordes: Some of the smaller guys are going to have trouble riding this out. They’re going to have to cut back and hold on. And the people who can’t hold on are going to be bought by someone bigger or go by the wayside. It’s going to be very competitive. There’s going to be a lot of uncertainty.

McHugh: Current indications are that steel will continue to rise through mid-summer. After that, it is anyone’s guess. As domestic prices get more in line with the world market, hopefully prices will begin to stabilize. It looks like this trend is not going away anytime soon.

Parham: It’s going to have an impact and slow the industry down some. I hope the government will figure out that something is going on. I hope it will stabilize. Normally, the market will take care of itself. If it’s subsidized by the government, you’re taking that part of free enterprise out of the market. When you do that, that’s what causes these kinds of problems.

I have never seen a marketplace where there was free enterprise and free competition that failed. We’re going into a period of economics and the way the government is getting involved that I’ve never seen before. I see a big slowdown, which is already starting to happen, over the next to six to eight months.

Wright: What we think is going to happen is these steel companies will take full advantage of this current marketplace. They’ve created somewhat of a supply issue themselves. What I think will happen, come fourth quarter this year, hopefully fuel and oil will come down a bit and that offshore market will be one our vendors can seek again to keep our domestic suppliers honest.

The first month of 2008 was beset with significant financial and political "rock-n-roll." If you are like me, much of it doesnt seem to fit into a neat package and signifies what the rest of the year will bring. However, if you will indulge me, I will give you two thoughts on the self-storage real estate market that will hopefully provide some perspective for you to ponder.

The Credit Crunch

The sub-prime residential loan debacle has caused problems in the commercial real estate world as well. It was clear the commercial underwriting standards (how lenders value properties and how much they lend) were quite loose by most historic patterns in late 2006 and early 2007. It was a great time to get a real estate loan, as rates were low and loan proceeds were high.

In late 2007, the rating agencies began to tighten underwriting. The largest source of funds for commercial mortgages came from Wall Street firms, which created commercial mortgage backed securities (CMBS) loans that were repackaged and sold to investors. In late summer 2007, loan underwriters decided commercial loans were too generous in terms of loan proceeds and values were overestimated.

Sound familiar? At present, the problem is not nearly as serious as the residential situation, but no one is certain what will happen if the credit crisis becomes worse. This situation has also affected values of commercial real estate as cap rates have generally increased by about 1 percent (from 7 percent to 8 percent, depending on locales).

With the change in underwriting trends and the general concern about mortgage-backed securities, the CMBS market for funds has now become dramatically less available to real estate borrowers. Life insurance companies and many banks have stayed in the lending game for commercial properties, but they are being very conservative about valuations, projections and loan amounts.

The good news is loan interest rates havent changed much since the "good old days" of early 2007. This is because a lot of money has been invested for safety reasons in U.S. Treasury securities and the Fed is lowering the discount rate driving down rates on the benchmark 10-year Treasury bond. The dark side of the situation is that the risk spreads (the amount that lenders add on to the T-bill rate to get the loan interest rate) have gone up dramatically. Over the last year, spreads have gone from about 1.2 percent to about 3 percent at the time this article was written.

My take-home message from this: If there is evidence of potential inflation, the 10-year Treasury rate will rise and, if there is a liquidity problem in the credit markets, the spreads will also increase. What this means for you is that while loan rates are still lowby any historic measure (say 6.5 percent)it might be a very good time to lock in financing for the long haul. These times appear to be very volatile and the future cost and availability of financing may be quite uncertain. Plus, you might sleep better with a loan locked in for 10 years!

The Market for Facilities

The uncertainly in the economy has also impacted the marketability of self-storage facilities. However, unlike the changes in finance availability, the changes have been more moderate and rational. Prices of facilities (per dollar of net operating income) hit absolute all-time highs in about mid-2007. Buyers would accept the validity of just about any projection and would finance the project to the maximum allowed.

The early 2008 market has seemed to find equilibrium at a level that is about 5 to 10 percent below the historic highs. The reality is many sales at higher values were made by investors with OPM (other peoples money), which may have meant they were not as discriminating as someone with experience in the business might have been. However, since the majority of self-storage projects are bought by current owners, the fact that prices have seemed to stabilize is a good sign that serious, experienced buyers recognize good value at the slightly lower prices.

The current market equilibrium may not prove to be very durable for the longer term for several reasons. For example, if the financing market becomes either less liquid or more expensive, the prices for a facility will fall. The math is simple: If you pay the lender more, you cannot pay the seller more, and if you put in a larger investment, you need a larger return.

Additionally, the current concern about a possible recession could cause potential buyers to be more concerned about future revenues. A 10 percent decline in revenue equates to a drop in value (at an 8 cap rate) of about 15 percent; if the property is leveraged at 75 percent of value, the equity would drop about 60 percent.

Clearly, any of these events could have a material impact on an owners investment if the investment horizon is short term, say less than three years. Thus, if you are planning to sell sometime in the not-too-distant future, you may want to give some thought to accelerating the process and putting your equity into T-bills.

Michael L. McCune is president of the Argus Self Storage Sales Network, a self-storage real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for owners in the self-storage industry. For more information, call 800.55.STOR.

Canadian storage markets are bursting at the seams as skyrocketing consumer demand drives the building of new facilities. Unit rates have steadily increased as Canadian developers discover a mother lode of gold in the industry.

Over the past 10 years, there has been dramatic self-storage growth in nearly every province. The larger more urban areas, of course, have recognized the lions share of this development. But even the Midwestern cities have experienced significant positive changes in their individual storage markets.

The western reaches of British Columbia were the first to embrace the business. Over the past decade, industry growth has been nothing but stellar. During the mid-90s, the average census for market penetration in the greater Vancouver area was approximately 1.7 square feet of storage per capita. The U.S. concept of off-premise rental storage echoed in Canada, but never as strongly as the current market penetration, pushing 3.2 square feet per capita. Across the continent, the greater Montreal metropolitan area has seen incredible growth just within the past five years to almost doubling all expectations.

Ontario and particularly the greater metropolitan Toronto markets have exploded over the past decade. Since 1997, market penetration at 1-square-foot per capita has increased to the present 2.5 square feet per capita. This growth is driven by new site construction or commercial buildings that have been retrofitted as conversions to self-storage.

Investment and development growth is not confined to the cities either. Suburban and rural Canadians, while slow at first, have come to heartily embrace the concept of self-storage. Suburbs that eight to 10 years ago may have had one or two storage facilities now have many new state-of-the-art sites competing for market share.

Farming the New Customer Crop

While initially slower to accept the self-storage concept than their U.S. neighbors, Canadian consumers not only fully grasp the concept but expect facilities to offer the latest amenities and conveniences. To attract this new crop of consumers, older, first-generation properties have to consider major improvements and offer more diverse products. The most common consumer-driven improvements are:

Increased security. Facilities need to install operating software, coded gate and unit alarm systems, and video surveillance for safekeeping the site and ensuring customers safety. Tenants now expect ongoing property protection, and security is a necessary sales tool for competing in the new frontier.

Appearance. Older facilities need sizable investment renewal programs for re-branding and repositioning of existing storage sites. Stores need to upgrade from an old, worn look to a new, fresh one to level the playing field in many markets. Consistency of appearance and presentation designed to compete with competitive new sites is resulting in a constant overall market upgrade.

Design. For many early sites, the original self-storage concept was to use the land short term in a profitable way until a more lucrative use presented itself. As these temporary buildings sprang up, design was not a major concern. In the developers mind, the buildings were not intended for extended use. Who knew, in the beginning, that the self-storage concept would become such a cash cow?

Better Design Leads to Increased Profit

Canadian developers now have their attention on better utilization of the space, building lots and the building envelope. Increasingly, the focus toward better and more cost-effective building design options has resulted in projects that are far more efficient on all levels. These contemporary designs incorporate customer preference and increased functionality.

The newest generation of facility offers many design features such as controlled access openings, automatic corridor lights, HVAC systems that adjust to the customer presence, and loading porticos to protect customers during inclement weather. Increased aisle widths result in less vehicular damage to buildings. The customer-friendly designs result in better return on investment over the long haul of ownership.

Good design also results in more efficient use of the lot and building and yields more rentable square feet of storage space. Design elements such as reducing dead-end corners or constructing efficient corridors that marry two buildings rather than a drive aisle all add up to properties that deliver more rentable square footage than the first-generation product.

Improved Quality

Developers in the Canadian self-storage industry have steadily recognized that higher quality materials, craftsmanship and design add very little extra cost on the front end. A low-maintenance project using superior design and materials actually increases profitability.

Quality panel and door systems result in less maintenance and repair and increase customers sense of security. Higher quality, 16-gauge structural load-bearing steel framing and sturdy 24-gauge paneling coated with highly reflective gloss finish protect the structure from the elements. These materials offer superior flexibility and corrosion-resistance, and provide buildings with maximum trouble-free longevity.

Staff Professionalism

The professionalism of a facilitys staff is absolutely the most critical of any property upgrade. Professional onsite management often is the factor between whether a customer rents with you or heads off into the sunset to the nearest competitor.

Over the past decade, software advancements help site staff to become real multifaceted managers, not simply clerks or caretakers. Employees can be trained to be active participants in the marketing, administration and merchandising of their sites. The advent of professional certification programs further frames this position as a career with real future growth potential.

Richard Leach with Richard Leach and Associates Inc., Brampton, Ontario, is a marketing consultant for Canadian Metal Manufacturing Inc., a manufacturer of turnkey self-storage systems. He may be reached at 905.456.9908.

Mobile-storage company Store to Door has acquired Collegeboxes, the nation’s largest collegiate shipping and storage provider. Collegeboxes will benefit from Store to Door’s patent-pending box and bar-coding system, online tracking, date stamping and other infrastructure improvements.
 
At the beginning of the storage process, each student receives a Starter Kit, ordered at www.collegeboxes.com. Two days later, UPS delivers five large double-walled boxes, label pouches, markers, tape and a video showing students how to build their boxes. 
 
Originally the subject of a class project at Duke University, Collegeboxes was created as a solution to the inadequate storage options available to students. Today, the company has 50 schools as customers and provides services such as Ship to School, Study Abroad and Summer Storage. It has developed a shipping and storage system that includes online registration, account management, toll-free customer support and door-to-door pickup and delivery.