The topics of third-party and remote management are vital for existing self-storage owners, as well as for builders and investors who are entering the industry through acquisition or development. We know that facility managers provide the character and customer-service image of our businesses. Now, the quality of site management is emerging as one of the key indices of facility success.

Because we've been building to meet the pent-up demand for storage space for several years, in many cases, facilities filled up despite the quality of the management and not as a result of it. Those times have changed forever. While I always recommend that owners consider engaging a third-party management company when buying or building a facility, I now find myself discussing the topic with those who have already operated their own stores for years.

If you are a self-storage owner, consider bringing in an industry expert to provide you with an objective arm's-length assessment of your site. A consulting engagement that involves sharing the statistics of your current operation and complete marketing strategy with someone outside your company will force you to ask yourself important questions.

For example, when I ask an owner for a copy of his tenant ZIP-code marketing report and customer-longevity analysis, he often candidly explains that he didn’t realize his software could produce those types of reports. Knowing exactly where your customers come from can provide significant insight into the the effectiveness of your marketing dollars. Knowing that your 10-by-20 or 10-by-30 customers stay an average of 10 to 20 months longer could impact the deals you're willing to make to capture that type of tenant.

In countless cases, an outside review can quickly identify problematic items that owners have ignored or managers thought were proper. The robotic reply from some employees, “We do it that way because that is the way we have always done it,” could point to an underlying lack of critical knowledge or misunderstanding about vital day-to-day operational details.

A Second Opinion

There's nothing like having a detailed, professional management audit conducted by an objective third party to shine new light on problems and shortcomings within your operation. For example, knowing your managers have a consistent pattern of waiving the first late fee for every delinquent customer could cause some owners' blood pressure to climb. Or coming to the painful realization that 45 percent of your current customers are paying well below street rates just because the manager convinced you that you shouldn't raise rents. Seeing the details a skilled management audit can produce is one of today’s best investments.

Some owners may realize they have internal problems but are too close to the situation to put their finger on it. Realizing after a review that 50 percent of staff need to be replaced with employees who realize we're in business to make a profit can be sobering. The flip side is a detailed report can also point to all the areas where your established systems are working and strong. 

Advertising and Marketing

Another area in which an expert review can help you is marketing. You need to know if your marketing dollars are being used effectively and if your strategies are being properly measured. Spending dollars in a vacuum of information can never achieve the intended results. The reason is because you don’t know what expenditure achieved what outcome.

I'm always amazed when I hear an owner say he spent $1,500 per year on Valpak mailings, but he can't answer how many of those mailings resulted in rentals. If you aren't measuring results, you can never know the effectiveness of a market compaign.

An objective analysis can help you determine if you're turning over every digital rock in search of low-cost or no-cost promotional opportunities. Even the largest operators sometimes miss free Internet options. If you've never “claimed” your business listing on Google, Yahoo, MSN, MapQuest, etc., you do not have a full appreciation for the portals that could bring in your next customer.

The bottom line is you don’t have to clap your hands and walk away from the table to engage a third-party management company or other industry expert to help you see where you are and where you want to go in 2009 and beyond. As a real estate asset class, self-storage continues to enjoy one of the highest relative occupancy levels, despite recent setbacks. There has never been a better or more crucial time to make sure your facility's performance report card shows straight As.

Jim Chiswell is the owner of Chiswell & Associates LLC, which has provided feasibility studies, acquisition due diligence and customized manager training for the self-storage industry since 1990. Jim has served for a number of years on the Inside Self-Storage Editorial Advisory Board, is a moderator on the SelfStorageTalk.com interactive online community and is an instructor of the Self-Storage Training Institute. He can be reached at 434.589.4446; e-mail [email protected]; visit www.selfstorageconsulting.com.

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Storage World, a self-storage facility in Lewisberry, Pa., was recently sold to a first-time self-storage owner. The 22,800-square-foot facility with 202 units was 71 percent occupied at the time of sale, and included 2,470 square feet in office/apartment space. John Gilliland and Jason Kolivoski of Investment Real Estate LLC brokered the transaction for seller and buyer.
 
In addition, Smith Country Storage, a 6,400-square-foot storage facility in Huntingdon, Pa., was sold to a first-time industry buyer. The property consists of 44 units on almost 3 acres and was 98 percent occupied at the time of sale. Gilliland brokered the transaction with Nancy Mitchell, also of IRE.
 
IRE offers self-storage brokerage, construction and property-management services in the Northeast and mid-Atlantic states.

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The Carey Group Inc. of Santa Barbara, Calif., is celebrating 30 years in business. A company that started as a small, boutique architectural firm has grown to offer architectural services, construction, real estate development, self-storage and, most recently, wine storage. Owner Trudi Carey has been joined in the business by her two sons, Sam, who heads up the company’s marketing department, and Nathan, construction manager.
 
The firm averages 15 to 20 employees. Self-storage director Jane Jewell has been with Carey for more than 10 years. The company branched into the storage industry with the construction of All Store Self Storage in Buellton in 1996. Carey continued to manage that property, and later built two more self-storage facilities in Santa Barbara: Patterson Allstore and Patterson Plus.
 
The company continues to grow as it ventures into wine storage. Its Santa Barbara Cellars have been referred to as “over the top” by reviewers.
 
Source: Noozhawk.com, Carey Group Celebrates 30 Years

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Firefighters battled a blaze early this morning at Everest Self Storage in Anaheim, Calif. Nine engines were called, and the blaze was extinguished in approximately 15 minutes. No injuries were reported, and the cause of the fire is yet unknown.
 
Source: Orange County Register, 9 engines sent to fight early-morning self-storage fire

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These are difficult times for most businesspeople to maintain a bottom line let alone start a new venture, but self-storage may still represent a secure investment opportunity. If we consider the financial changes that have occurred over the past year, we realize it’s not self-storage as an industry but lenders that are having difficulty.

Many financial institutions have collapsed or do not have the funds to be in the finance business. Although the government has provided funds to banks for well-founded business ventures, very little of that money is finding its way to new commercial or industrial enterprises.

The Canadian self-storage industry began about 15 years behind that of the United States. Interbay Funding LLC, a commercial lender based in Fort Washington, Pa., saw an opportunity to harvest Canada’s budding industry by investing in small to mid-size self-storage facilities. The company was a driving force in Canadian development for five years, until the sagging economy fueled its withdrawal from the country in 2008.

Did Interbay simply forget to take stock of its own potential or that of the Canadian self-storage market? Yes, the economy is in trouble. Yes, there are changes to consider when seeking financing today. No, self-storage development in Canada is not a dead issue.

Changing Lending Requirements

When considering the requirements for financing a new self-storage project, we have to recognize the new parameters lenders use and why they have evolved. Lenders have pulled in their horns as they reel in the shockwave of losses faced in other areas. Once burnt, twice shy does not mean business is nonexistent, it means it has gone ultra-cautious. Lending institutions, banks, trust companies, credit unions and private lenders have increased their standards to qualify financing on any project.

These standards start with examining the board of directors of the prospective company―the members’ personal financial status, expertise in the industry and past business accomplishments. The team is now a major consideration, and any flaws in its members’ credit history or ability to raise additional capital weighs heavily in the lenders’ decision to finance a project. If the team is strong and the risk of management is nonexistent, the project moves to the next level of qualification.

Lenders always need an exit strategy, especially with a single-purpose property such as self-storage. However, in a market where unloading a property to withdraw financing is unrealistic, they will look at other means to ensure the exit strategy, like attaching personal guarantees from the principals. This means they must now look harder at the viability of the principals to repay should the venture not come to fruition of the business plan.

The next step is increased scrutiny of the business plan and financial forecast, which needs to be completed by financial professionals (i.e., chartered accountants or certified general/management accountants). The do-it-yourself business plan without reference to industry standards and how the key ratios are established will not cut it. The lenders are looking more at who is doing the plan and how the numbers are developed.

A reference often used by banks and lenders is a business report compiled by The Risk Management Association (RMA), formerly known as Robert Morris Associates. RMA financial reports are completed annually on all types of commercial and industrial operations. The group collects information from financial statements provided on all types of businesses including self-storage. It then compares key ratios based on actual sales volumes, allowing lenders to compare your projections to business financials of companies already in operation.

Should the test of your forecasted numbers be out of line with RMA averages, your business is likely to pose a financial risk to the lenders in this economic climate. Banks manage risk, and if they cannot mitigate it, the deal is turned down. Therefore, it is best to compare your financial projections to RMA standards prior to submission for financing and explain any irregularities in the business plan.

Project costs and timelines are the next to be addressed. The permits and licensing for new operations should be in place, or there should at least be verification that permits are available for the project. A marketing plan based on demographics and competition should also be assessed. The marketing team with its track record will help in determining the projected time it will take to lease up the project. Initiatives should be detailed and include team members’ personal resumes.

A complete, detailed construction budget with timelines and a provision for possible extras (supported by a Phase II environmental assessment and an appraisal on the property) should complete your credit application. A plan without the above provisions and information has little likelihood for gaining successful financing from the lenders.

Light at the End of the Tunnel

While the economy has many developers and owners running scared, there are lenders available to assist with self-storage ventures. But only if you proceed with a strong business plan that addresses ownership, financial projections and marketing plans will give you be considered for financing.

So there is light at the end of the tunnel. All you have to do is modify your approach and seek out the lenders that are still prepared to do business. Many lenders have unwisely committed their operating capital to unworthy mortgage ventures and are now simply short of funds to lend. This makes funding any venture a challenge. However, there are still Canadian lenders ready and able in this economic climate, with funding available at reasonable fees and rates.

Dan Cardinal is the vice president of commercial lending for the Ontario office of Asset Capital Mortgage Corp., an Alberta, Canada-based company. Cardinal has more than 35 years of experience in commercial financing as a banker and mortgage broker. For information, call 905.672.5626; e-mail [email protected].

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Investment Real Estate Construction LLC was awarded two construction contracts for self-storage projects in Pennsylvania. The first is for Providence Self Storage, a 27,000-square-foot facility in Upper Providence Township. The second is for Moove In Partners, a 43,000-square-foot facility in Lancaster.
 
IREC provides construction-management services to self-storage owners and investors in the mid-Atlantic states.

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Real estate investment and management firm The Pegasus Group owns 30 self-storage facilities nationwide. The Walnut Creek, Calif.-based company recently expanded its investment portfolio into the hotel industry, opening 10 Value Place extended-stay hotels throughout North California. Inside Self-Storage caught up with Bob Dailey, partner of The Pegasus Group, to discuss the company’s new venture.

Bob Dailey, partner of The Pegasus Group

In 2006, The Pegasus Group sold 22 of its properties. What was the reasoning behind this decision? 
The partners felt the cap rates were at an all-time low and it was a good time to generate cash, not only for new acquisitions, but to fund investment into Value Place. The company still holds investments in mobile-home parks with approximately 2,000 spaces, marinas with more than 1,000 boats slips, and 30 self-storage facilities. 

How has the company evolved to manage these two distinct business ventures? 
For 25 years, The Pegasus Group has specialized in special-use properties including self-storage, marinas, mobile-home parks, office buildings and other property types. Although the lodging industry has some unique management aspects, the company has experienced lodging people already employed in the management division.
 
What are the similarities between the two businesses? 
There are many similarities between the lodging and self-storage industry including facility maintenance, employee management, marketing and construction. These are all disciplines The Pegasus Group has mastered over the years.
 
Why did you choose Value Place?
We chose Value Place for our entry into the lodging industry because of its simplicity of operation and the new concept of renting rooms by the week, not the night. The operating concept of renting rooms by the week is similar to the operation of self-storage. There are also similarities in the operation model, footprint of the building, demographics of customers, traffic counts and the low overhead. Essentially with self-storage, we house our customers’ stuff. With Value Place, we house our customers.
 
Do you believe more self-storage companies will consider other commercial ventures in the future?
Absolutely! Although the real estate industry is in turmoil due to the credit crunch, The Pegasus Group believes opportunities still exist for well-located properties in strong markets. Due to the operating similarities, Value Place is very complementary to the self-storage industry. And with more budget-conscious travelers, both business and consumer, there is going to be more of a demand for affordable lodging like Value Place.

For more information about The Pegasus Group, visit www.pegasusgroup.net/index_content.html.  

Door to Door Storage Inc., a national provider of portable-storage containers and moving services, will donate the free use of containers and related transportation during Loyola University Chicago’s second annual "Think Green & Give" campaign. The containers will be used to safe keep items donated by students moving out of the dorms April 24-May 9. Donations may include gently used, clean clothing, small household items, nonperishable, unopened food, and toiletries. All items will benefit America's Disabled and the St. Ignatius Food Pantry.
 
"Think Green & Give" is presented by the university’s Facilities Management Department, Residence Life, Consumption and Reduction Recycling Committee, and Center for Urban Research and Policy. The campaign will take place at both of Loyola's lakeside campuses. For more information, contact Gina Lettiere at 773.508.8255 or [email protected].

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