How Self-Storage Operators Will Be Affected by Health-Care Reform

Apr 02, 2010

With the passage of health-care reform, many self-storage operators are wondering how they will be affected.

According to the national Self Storage Association, 90 percent of all self-storage companies are single facilities run by owner/operators, which puts them in the small-business category. Many small-businesses owners do not have health care insurance through their businesses or offer it to employees.

The current health-care reform will require businesses with 50 employees or more provide health insurance to employees or pay a small fee. The reform also calls for more affordable health insurance policies for smaller businesses, which can include tax credits and federal subsidiaries.

In 2014, there will be the option to join Small Business Health Options Programs, which allows several businesses to band together to buy insurance at better rates.

Source: Extra Space Storage, How Will Health Care Reform Affect Self Storage Companies

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Everest Self Storage Co-Hosts Easter-Basket Drive for Phoenix

Apr 02, 2010

Everest Self Storage of Phoenix will co-host an Easter basket drive Saturday for underprivileged children. The company’s two facilities are working with AZ-Compassion-in-Action, a charitable organization supported by the Phoenix Fire Department.

Representatives from the Phoenix Fire Department will lead the collection and distribution of Easter baskets and candy to underprivileged children.

AZ-Compassion-in-Action has been coordinating with schools and local community organizations to conduct drives for candy and items to put in the baskets. Everest Self Storage has offered a prize to the organization that brings in the most. Donations can be made at either of Everest's two locations.

In addition to candy and Easter baskets, AZ-Compassion-in-Action accepts donations of food, clothing and household goods that help families recover after devastating events such as a fire.

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The Canadian Finance Market: Alternative Options for Self-Storage Owners

Apr 01, 2010

Financing remains one of the most critical issues in the world of Canadian self-storage. Lending is returning to the forefront with clear improvement over the dismal state of financing last year at this time. The big banks and lending institutions are slowly but surely beginning to poke out from underneath the proverbial “dark rock,” the looming guise of the recession.

But let’s not get too ahead of ourselves. Although there has been a marked positive turn, there is a list of definitive prerequisites today that were more relaxed three years ago. Further, values are significantly more conservative, leverage is lower, amortizations have decreased (the lowest in 12 years) and, generally speaking, there’s a lot less flexibility.

An additional point to highlight is there’s no specific formula that determines how loans are currently being allocated by the lending institutions. Creating consistency with buyers and sellers, cash flow is king and all that matters, which means no more pro formas.

In summer 2007, when the market was at its peak, financing was available based on the look and location of a facility. Today, those requirements still apply, but so does the borrower’s balance sheet, operating history and experience, as well as the facility’s cash flow on a trailing basis.

A positive aspect of the current finance market is the first-mortgage market is performing reasonably well, and self-storage is appearing stable with few distressed opportunities. There are many storage operators who maintain excellent operations and are currently eyeing expansions, acquisitions or development opportunities.

With respect to refinancing, the Canadian market has remained in a relatively good position. Self-storage continues to grow and perform better than most other forms of real estate, but still receives lower leverage, implying there should be few, if any, forced sales directly caused by debt or performance.

Finding Money

A challenge some operators face as mortgages reach their renewal date is a lack of interest from their existing lenders to reinvest, forcing them to look elsewhere for financing. Even with an existing cash flow, it’s difficult to find additional capital from a new source, as the relationship starts completely fresh. With no history or track record, it’s likely lenders will tend to be conservative until a solid foundation is established between the partners.

For example, we recently looked at a deal in which the owner built a new facility with high leverage, bringing higher interest rates. The loan is coming due, and the facility is still a long way from stable.

The owner now risks losing this asset plus another due to recourse or having to refinance with even more recourse to other assets. He has a very difficult decision to make, especially considering that, in the new environment, the facility isn’t worth the construction cost (even when it stabilizes).

If operators are able to reacquire financing from their investors, it will not come without additional costs. Owners may need to pay down some principle, which could mean finding secondary debt or investing/raising more equity. When all else fails, there are other options.

In Canada, there’s a growing opportunity for operators to seek capital through private sources looking to invest. This can help operators stay on course without capital restraints. It also allows investors who have little or no interest in operating or developing self-storage to instead hold preferred equity, participating debt or high-yielding debt while providing more needed capital to operators, who can use it to grow their business.

A second option is to find equity partners willing to invest capital and become a co-owner. The benefits are clear: Equity partners can be assured in many structures of a reasonable current return while getting a piece of the upside in the given opportunity; and the business will gain more control in its market by obtaining efficiencies with a larger revenue base.

Overall, we’re still seeing less competition from more traditional real estate asset classes, providing self-storage owners with a competitive edge. Our industry remains fairly healthy, with more self-storage occupied today than two years ago.

There’s no denying most markets have faced economic challenges, but the Canadian self-storage industry is still in high demand. As a result, most operators have remained in a good position. Even those markets that were hit significantly have managed to prevail on account of high occupancy rates. For example, a market that upheld a consistent 95 percent physical occupancy rate now holds an 85 percent rate, which is still pretty high considering the potential impact.

After a tough year in terms of financing, the lending institutions are making progress, with some interest beginning to resurface. The exact future of self-storage financing remains to be seen, as it relies heavily on the state of the economy. However, there are alternatives to traditional loans, which self-storage operators are starting to explore.

Jacqueline Blackwood is the research and communication coordinator for and Michael Foy is the founder of Foy & Co. Investment Real Estate Services, a full-service company that specializes in equity raising and brokerage services for the Canadian self-storage market. Established in 2002, the company publishes the “National Self-Storage Review," an industry newsletter. For more information, visit www.foyco.ca.

Man Who 'Fenced' Stolen Goods in Self-Storage Sentenced to 30 Months

Apr 01, 2010

A man who stored stolen goods in a unit at Locker Room Self Storage in Collegeville, Pa., was sentenced to 30 months in a federal penitentiary and three years of supervised release. Vallin Malcom, 67, of Harleysville, Pa., pleaded guilty to conspiring with the leader of a multi-state burglary ring, buying and selling more than $1.5 million worth of stolen property such as cameras, watches, perfumes and guitars.

Malcom’s sentence was reduced from a potential 70 to 87 months of imprisonment because of his cooperation in the case against Scott Allen Hornick, 38, the burglary-ring organizer. Hornick was convicted this year on six counts of interstate transportation of stolen property and two counts of conspiracy in connection with a six-year burglary binge. Prosecutors claim the ring hit more than 150 businesses in more than a dozen states. Hornick will be sentenced on May 14 and could face a sentence of 30 years to life.

Malcom was ordered to pay restitution of more than $1.75 million in connection with the case. Federal authorities also filed a notice of forfeiture against him, seeking to seize any property that constitutes or is derived from income traceable to the burglaries.The burglary-ring investigation involved several East Coast law-enforcement agencies, including Pennsylvania State Police and the FBI.

Sources: The Mercury, Clarification, Man sentenced for Collegeville fencing operation

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