Operating performance for self-storage real estate investment trusts (REITs) is up 11 percent, according to the FTSE NAREIT All Equity REITs Index first-quarter performance report.

FTSE is an independent company jointly owned by The Financial Times and the London Stock Exchange. The Index Series presents investors with a comprehensive family of real estate investment trust performance indexes spanning the commercial real estate space across the U.S. economy, offering exposure to all investment and property sectors.

According to the report, U.S. REITs continued to outperform the broader equity market in the first quarter of 2011. The total return of the FTSE NAREIT All Equity REITs Index was up 7.50 percent in the quarter, and the FTSE NAREIT All REITs Index was up 6.80 percent compared to 5.92 percent for the Standard & Poors (S&P) 500.

REITs delivered their first-quarter gains in spite of slightly negative returns in March. The Index was down 1.28 percent in the month, and the FTSE NAREIT All REITs Index was down 1.38 percent, while the S&P 500 was up 0.04 percent.

On a 12-month basis ending March 31, the total return of the FTSE NAREIT All Equity REITs Index was up 25.02 percent and the FTSE NAREIT All REITs Index was up 24.34 percent, significantly outpacing the S&P 500s 15.65 percent gain in the period.

The U.S. REIT industrys gains in the first quarter came on top of near 28 percent gains in both 2010 and 2009, years in which the S&P 500 gained approximately 15 percent and 26 percent, respectively. At the end of this years first quarter, equity REITs were up 205 percent from their market cycle trough in March 2009, but still remained 18 percent below their peak in February 2007.

The equity market capitalization of the U.S. REIT industry stood at $429 billion at the end of the 2011 first quarter, up 10.28 percent from $389 billion at year-end 2010. Income-seeking investors also continued to benefit from REIT dividend yields. The yield of the FTSE NAREIT All REITs Index at the end of the first quarter was 4.20 percent, while the FTSE NAREIT All Equity REITs Indexs yield was 3.46 percent. By comparison, the dividend yield of the S&P 500 was 1.91 percent.

The public equity and debt markets continued to provide REITs with a significant amount of fresh capital in the first quarter of 2011. REITs raised a combined $23.3 billion in 59 equity and debt offerings in the period. The amount raised put the industry on track to surpass the $47.5 billion in public equity and debt it raised in 2010, the second largest annual amount raised in the industrys history after the $49 billion raised in the record year of 2006.

REITs have used the capital theyve raised to de-leverage, helping to reduce the industrys debt ratio by more than one-third from its high of 66.3 percent at the end of February 2009 to 39.8 percent at year-end 2010, near its historical average. Their strengthened balance sheets also have provided REITs with the financial firepower to become the commercial real estate industrys most active acquirers of properties in the past year.

Today, REITs are both financially and strategically well-positioned to continue their track record of building long-term value for their investors, said Steven A. Wechsler, president and CEO of the National Association of Real Estate Investment Trusts. Wechsler noted that REIT returns have outpaced those of the S&P 500 for the past 1-, 3-, 10-, 15-, 20-, 25-, 30-, and 35-year periods, and that REITs delivered double-digit returns in seven of those eight periods.

Almost all sectors of the U.S. REIT market delivered strong returns in the first quarter of 2011, and three sectors provided double-digit returns. The timber REIT sector was up 24.61 percent in the period, while the industrial sector gained 11.17 percent, and self-storage REITs were up 11.03 percent.

Among other major segments of the REIT market, office REITs gained 7.61 percent in the quarter and apartments were up 6.87 percent. The retail sector was up 4.51 percent, led by the regional malls segment, which was up 6.30 percent.

By Jamie Lindau

Self-storage owners often want to know what other types of structures they can erect on their properties to complement their existing facilities and make more money, for example, large units for the storage of boats, RVs and other vehicles. A popular trend in the self-storage market is the addition of these bigger units, whose 12-by-14-foot doors can accommodate even the largest boats and RVs. Some units are up to 50 feet long.

However, these large units create one disadvantage for the self-storage operatorthe rental rate. In the current economic downturn, many of the well-heeled renters who once paid a lot of money to store their RVs in enclosed spaces are now looking to save money by storing them outside. Does this mean an end to these large units? Not exactly. Construction continues; but the increase is due to demand for large storage units from businesses, not necessarily boat and RV owners.

The newest trend in boat and RV storage is large units that include climate control and outside access. These units will typically have a well-insulated sectional door with an automatic door opener. The actual building design doesnt change much, but must accommodate the additional insulation and liner panel to make sure there are no clearance problems.

Solar Canopies

With the increasing awareness of green alternatives, a development trend thats getting a lot of attention is solar canopies. These canopies are basically solar generators that also serve as carports for boats and RVs. This concept allows the entire structure to qualify for solar-tax credits while generating income from the parked vehicles, enhancing the income of the property.

The solar canopy design is an attractive business model when the tax credits from the state, in combination with the federal credits, make it financially viable. Not all states have solar initiatives, so youll need to consult with your state to see if it is a viable solution.

Outside Parking

A storage trend thats actually disappearing is the development of outside parking for boats and RVs. Many self-storage owners have realized its more profitable to build another self-storage building than to just park vehicles and boats on a paved, open lot. In addition, many cities have forced facility owners to give up their outdoor storage if they want a permit to construct a new building.

For example, in Madison, Wis., the city has forced existing self-storage owners to obtain a conditional-use permit on all new construction. The city will not give them a permit unless they promise to get rid of outside parking. This trend is gaining traction in many townships around the country.

The same basic truths to building boat and RV storage apply today as they have for several years: Theres a nice business in providing outdoor space for parking boats and RVsas long as you buy a large tract of land at a reasonable price. If you build canopies to shelter vehicles from the elements, youll be able to charge double the rent for the same size space, simply because its covered. If you go all out and build completely enclosed units, youll get double the rent of that charged on the canopy-type parking.

The important thing to remember is not all customers will spend the extra money for enclosed spaces. In todays environment where people are thriftier than in the past, look long-term at your business strategy so you dont overbuild in your market.

Jamie Lindau is the national sales manager for Trachte Building Systems in Sun Prairie, Wis. Lindau has traveled the United States and Canada for 23 years helping people plan, develop, build and profit from self-storage. Drawing from his own experiences as a former self-storage owner, he has also led more than 200 Trachte seminars since 1988. For more information, call 800.356.5824; visit www.trachte.com.

According to a Securities and Exchange Commission filing last week, Strategic Storage Trust Inc. plans to buy 11 self-storage facilities in Georgia, New Jersey, New York, Pennsylvania and Virginia for about $44 million. All of the facilities appear to be currently owned by Extra Space Storage, according to the source. The parties are expected to execute the transaction fully in the second quarter.

As part of the filing, Strategic Storage Trust will buy a 630-unit, 59,600-square-foot Extra Space Storage facility in Spotsylvania County, Va., for $4.18 million. Another Virginia facility, in Henrico County, is also part of the deal. The complete filing can be read here: http://www.sec.gov/Archives/edgar/data/1410567/000119312511084679/dex102.htm

The Strategic Storage Trust portfolio includes approximately 41,000 self-storage units and 5.1 million rentable square feet of storage space. The companys sponsor is Strategic Capital Holdings LLC, which manages a growing portfolio of more than 7 million square feet of commercial properties, including 5.5 million square feet of self-storage, with a combined market value of more than $756 million.

Headquartered in Salt Lake City, Extra Space owns or operates more than 800 self-storage properties in 34 states and Washington, D.C. The companys properties comprise approximately 540,000 units and more than 58 million square feet of rentable space.

DNA Adventures LLC recently acquired Lakeside Self Storage in Winter Haven, Fla., from Carol & Wendell Mullis for $1.35 million, or about $45 per square foot.

The facility, 720 Avenue K S.W., has eight single-story buildings with more than 30,000 square feet. It was constructed in 1979.

DNA Adventures is owned by David and April Radermacher. The transaction was brokered by April Radermacher, who is employed by Keller Williams Jacksonville Realty. Robert Riley of Quantum Leap Commercial, a Murphy Commercial subsidiary, represented the seller.

Eight units were damaged Wednesday by a fire at a self-storage facility in Flagler Beach, Fla.

Firefighters arrived at Eagles Nest Storage, 2601 Moody Blvd., just after 5:30. It took fours hours to get the blaze under control and clean up the scene. No injuries were reported. The cause of the fire is under investigation.

Earlier this week, Tennessee senators amended a bill proposing changes to the states self-storage statute, sending it on its way back to the House of Representatives. The modifications include re-adding a newspaper-advertising requirement for self-storage lien sales.

As amended, Senate Bill 1293 (SB 1293) and House Bill 1265 (HB 1265) require self-storage operators to take out a one-time newspaper advertisement in a publication circulated in the general area of the facility conducting the auction. The existing law requires a two-time advertisement. The first version of the bill, which had removed the newspaper-advertisement requirement entirely, passed the House in March.

An earlier amendment also dropped the proposed maximum monthly late fee from $40 or 20 percent of the rent, whichever is greater, to $20 or 20 percent of the rent. Several other changes to the existing statute are still part of the bill's amended version, including the option for operators to contact auctioned tenants by a "verified mail" means, which includes e-mail.

The House will now vote on the amendments, though the voting date has not been established. Sherry Cole, a member of the Tennessee Self-Storage Association Board of Directors and chair of the associations legislative committee, said the bill should appear on the House's calendar Friday or Monday.

If passed, the amended bill will head to the governor for approval. If the governor signs the bill into law, the new rules will be effective July 1. The complete text of the bill and its amendments are available here at http://wapp.capitol.tn.gov/apps/BillInfo/Default.aspx?BillNumber=SB1293. To read an earlier article about the bill published on the Inside Self-Storage website, visit http://www.insideselfstorage.com/articles/2011/03/tennessee-bill-proposes-changes-to-self-storage-lien-sale-process.aspx.

Loxley Mini Storage in Loxley, Ala., sold March 31 to a local investor for $375,000. The facility was owned by Regions Bank. The property has 29,115 rentable square feet of storage space, 5,720 square feet of residential area and 10,642 square feet of commercial/retail space.

Bill Barnhill, Stuart LaGroue and Shannon Barnes of Omega Properties Inc. brokered the sale. The brokers are part of the Argus Self Storage Sales Network, covering the Alabama, Mississippi and Florida panhandle markets.

Based in Denver, the Argus Self Storage Sales Network was formed in 1994 to assist owners and investors of self-storage. Argus has 36 broker affiliates covering nearly 40 markets.

A recent article in National Real Estate Investor examines whether national self-storage real estate investment trusts (REITs) are grabbing more market share than smaller self-storage operators.

The article uses operating data from Public Storage Inc., Extra Space Storage, U-Store-It Trust Inc. and Sovran Self Storage Inc. to examine how the REITs have obtained a higher market share in many cities. The REITs help make up the top 10 largest companies in the industry, equaling only 13 percent of the total self-storage market.

However, in many markets, occupancy at a REIT facility is higher, operating costs are lower and revenue is steady. This is accredited to several factors, including Web marketing, and the ability to spread costs such as management fees across a larger portfolio, according to the article. Because of their size, REITs can also better handle declines in occupancy and rents in some markets.

Last year, the REITs posted total returns of nearly 30 percent in 2010, which was slightly better than the general REIT sector. Many of the self-storage REITs are expecting 2 percent to 3 percent growth this year, and continued acquisitions.

Renting storage space for boats or RVs is a lot different from renting space for the storage of household goods. For one, the value of the property being stored will generally be much higher than the value of the contents of a typical self-storage unit. Additionally, the boat or RV being stored will have a certificate of title connected to it, establishing a person or business as the legal owner. The boat or RV will also likely be registered with the state in which it is operating, so the state can track it. This, of course, is significantly different from personal property commonly stored at self-storage facilities.

Based on these issues, self-storage operators who chose to store boats and RVs must do so with special consideration to some of the legal issues relating to these unique circumstances.  

Value Concerns

The best way to address the potential high value of the boats and RVs being stored is to impose upon the tenant the obligation of having insurance for the property in case of loss or damage. The requirement of insurance is more significant when dealing with high-value items and, as such, its appropriate and legal for self-storage operators to require proof of insurance as a condition of storage.

The insurance issue needs to be addressed in the rental agreement or in the boat/RV addendum. A typical provision might read:

Occupants Insurance. The Owner does not provide any type of insurance which would protect the occupants personal property from loss by fire, theft, or any other type of casualty loss. It is the Occupants responsibility to obtain such insurance. The Occupant, at the Occupant's expense, shall secure his own insurance to protect himself and his property against all perils of whatever nature for the actual cash value of the stored property. Insurance on the Occupant's property is a material condition of this agreement.

Occupant shall make no claim whatsoever against the Owners insurance in the event of any loss. The Occupant agrees not to subrogate against the Owner in the event of loss or damage of any kind or from any cause. Occupant shall provide to Owner prior to occupying the space copies of all documents available to demonstrate proof of insurance (commonly a Certificate of Insurance) for the motor vehicle or boat. To the extent Occupant does not maintain such insurance as required, Occupant shall bear all risk of loss or damage.

Additionally, because of the potential high value of boats and RVs, a facility operator must consider the use of a limitation-of-value provision in the lease or addendum. The value limitation doesnt address any limits on liability, but instead provides a limit as verified by the tenant of the value of the contents stored. Commonly, that limit may be $5,000. The limit may be higher with the storage of boats and RVs, and may be increased pending the tenants proof of insurance for a higher value.

However, since some losses could be found to be the ultimate responsibility of the self-storage facility (notwithstanding contractual protections against such liability), the facility should have customers good legal liability insurance coverage that matches or exceeds the revised limit of value. A value limitation provision might read as follows:

Limitation of Value . The Occupant agrees that in no event shall the total value of all property stored be deemed to exceed $5,000 unless the Owner has given permission in writing for the occupant to store property exceeding such value.

The waiver of that limit to a higher amount must contain a protection for the facility owner if the insurance provided by the tenant lapses. The language should read:

Lapse of Insurance. If Tenant allows the insurance policy to lapse by failing to pay the required premiums, then Tenant shall be considered self-insured, whether or not Owner has been informed of such lapse. If Tenant allows the insurance policy to lapse by failing to pay the required premiums, then the limitation of value provision contained in the self-storage agreement shall be reinstated and Owners present waiver shall be deemed null and void.

Parking Liabilities

At facilities where the operator is required to park the vehicle or boat instead of the tenant, especially due to lack of access to the parking spaces and to avoid the risk of damage to other vehicles or the facility, the operator must carry the appropriate insurance. He should also get written permission from the tenant to move the property for that purpose. Although this type of valet parking is not always used, depending on the configuration of the storage facility, it may be less risky for the operator park the boat or RV then it would be for the tenant to navigate the parking areas himself.

Title and Registration Concerns

The enforcement of a self-storage lien for titled property is significantly different from the lien-enforcement action for non-titled property. A boat or RV cannot be sold at a public auction without first satisfying a transfer of title requirement. The transfer of title can be easy if the customer or owner of the property voluntarily agrees to sign the title over to the facility or to the high bidder at an auction. Its not so easy when the owner of the property cannot be located and the title must be transferred though legal means.

Generally, when a tenant defaults and a foreclosure occurs, the self-storage owner cannot officially sell the vehicle or boat in question until he has first obtained the vehicle title. The process of getting the title can be accomplished a number of ways. Title transfers are usually managed through the governmental entity where the property was originally registered. With a boat, it may be the Department of Natural Resources (DNR) or even the Department of Watercraft. With RVs, it will likely be the Department of Motor Vehicles (DMV).

A facility operator should be aware that some self-storage statutes do not even include a lien for boats and RVs. However, even without a lien, the operator can seek a replacement title for the vehicle or boat by claiming the vehicle has been abandoned at the facility. Fortunately, most state statutes provide specific procedures for obtaining replacement titles on abandoned vehicles and boats.

Commonly, storage owners must first attempt to notify the vehicle owner by Certified Mail, and inform him the vehicle will be deemed abandoned within 30 days if not otherwise claimed. Concurrently, the storage owner must request in writing from the appropriate state department a printout of all possible vehicle owners and lien holders of the vehicle in question.

If the vehicle owner doesnt respond within 30 days after the notice of abandonment, the storage owner can then file an application either with the governmental agency that holds the registration for the vehicle or with the local court to proceed with the foreclosure and sale of the vehicle. In addition to verifying all required prior notices have been sent, the applicant (storage owner) must provide the agency or court with the DMV or DNR printout of all owners and lien holders of the vehicle he obtained from the state.

All owners and lien-holders of the boat or vehicle are then notified of the application for abandonment. If no objection is filed in response to the application, the abandonment will be confirmed by the agency or court. If the process is handled by the courts, the storage owner should still proceed with sending the regular foreclosure letters and advertisements to sell the vehicle at public sale that he would normally send under his lien procedures, even after the court orders the right of foreclosure and sale. At the sale, the purchaser of the property can get a certified copy of the court order allowing the sale or a new title as issued by the DMV or DNR.

Many self-storage laws are being revised around the country to make the process of handling lien sales for boats or RVs much easier. Some states now allow, after notice to the tenant, the opportunity for the vehicle to simply be towed from the premises in lieu of a sale, entitling the towing company to later handle the sale of the property.

Facility operators who rent space for the storage of boats and RVs should take these legal aspects into consideration. Be sure your rental agreement provides provisions for the storage of boats and RVs, and tenants understand their responsibilities. In addition, read your states lien laws and speak with your attorney if you have any questions about your rights and responsibilities when it comes to the storage of high-valued and titled property.

Scott Zucker is a partner in the law firm of Weissmann Zucker Euster Morochnik P.C. in Atlanta. He specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He is a frequent lecturer at national conventions, and is the author of Legal Topics in Self-Storage: A Sourcebook for Owners and Managers. To reach him, call 404.364.4626; e-mail [email protected].