By Douglas Carner

Is your self-storage facility secure? Are you sure? Any potential thief can rent a storage unit. This provides a convenient place for him to store goods he steals from other units. If he replaces the unit locks once he cuts them, it can be weeks before his crime is detected. The thief can then vacate at his convenience, leaving you to guess who actually committed the crime.

This type of theft is increasingly common because it can't be stopped by video surveillance, guard dogs or perimeter beams. You can't be at every unit all the time, but door alarms can. Once viewed as a luxury item, individual door alarms are now an industry security standard.

Most of your customers have some form of security at their home or office. They expect a high level of protection, even when the threat of crime is very low. To remain competitive, your facility must offer the safest, least expensive solution for storing customers' prized possessions. By incorporating individual door alarms into your security program, you can provide an effective crime deterrent while simultaneously comforting nervous tenants.

At the same time, having door alarms will increase revenue and provide a marketing advantage. There are more than 15 million storage units in North America and it's a buyers' market. Your customers want advanced security and can get it from your competition if you don't provide it. Individual door alarms are a powerful marketing tool. If your competition has them, you can bet they'll be prominently listed in their advertising.

A reliable door-alarm solution requires planning. It should match your immediate needs and budget. It must adapt as your security requirements and unit mix change. Following is a collection of insights and advice from each of the major door-security vendors in the self-storage industry.

Site Layout and Design

The planning and purchasing of security hardware and software requires an understanding of your specific site layout. How will your access keypads and sirens interact with the door activity? Will your door activity reach the security panel by wires or radio signals? What path will the signal travel and what obstacles must be overcome?

Every door-security vendor has its preferred solution, but they all agree on one thing: They want to see your site plans so an appropriate security solution can be prepared. "The first step is to make sure all of your drawings are accurate and all conduit requirements are in place," says Franklin Young, vice president of business development for PTI Access Controls in Scottsdale, Ariz. "Taking care of your site preparation from the beginning will ensure you the greatest cost savings."

"Avoid hidden costs by asking about your security vendor," advises John Fogg, general sales manager for Denver-based Sentinel Systems Corp. "Do they include every part needed for installation? Do they offer quality installation, clear documentation and knowledgeable support staff? Do they manufacture their own boards and use waterproof enclosures? How long have they been making their products?"

According to Tony Gardner, lead security installer for QuikStor, "Your security vendor can run a comprehensive analysis to determine the proper placement and quantity for its equipment. Expect to see a timely quote with competitive pricing and very flexible options. The promised installation needs to be fast and simple, without disrupting your tenants or cutting pavement. Don't become an experiment. Your model/version of door alarms should have a proven track record at hundreds of sites."

"Look for a system designed to operate within the self-storage environment and made from scratch," suggests Steve Cooper, marketing director for Digitech International Inc. "It must be tamper-proof against magnetic force, entry into the unit or wall removal. Product installation and servicing are the most expensive part of your security system. Your main ongoing costs are from maintaining the door contacts."

Marketing

The fewer the parts, the simpler the installation and the lower your maintenance costs. The required parts must be matched to the construction and usage patterns unique to your facility. A one-size-fits-all mentality will not serve anyone's best interests. The same is true of how you promote your security. Your security vendor should be able to clearly explain the system benefits so you can pass this information on to prospective customers.

While Fogg suggests using the Yellow Pages to promote your security features, Young ads that even before your facility is open, "You want to establish a strong security presence based on the competition in your area. Your security vendor will help you from a competitive marketing point of view."

You will likely spend between $40 and $100 per unit for your door security, so make your money count. "Unit security isn't just an expense," explains Quikstor's Gardner. "It can also be a thriving source of income. These door alarms can be rented individually to the tenants who value this service. Your rental rates remain competitive while you purchase only the security you currently need. This marketing method has proven itself to be an amazing money maker."

But not all vendors agree this is the best approach. Fogg recommends alarming every unit and then raising rental rates across the board, not just charging a premium to those tenants who choose the security option. "By using a wired system, you avoid the need for installing and changing batteries in your equipment," he says.

Wired vs. Wireless

The initial cost of installing door security will depend on how much of your facility already exists. If your site only exists on paper, then you have the advantage of running conduit during construction. If this conduit is properly planned, you will avoid costly change orders and licensing delays. If your site already exists or is difficult to wire, then wireless is an easy and cost-effective solution.

Wired door security has been around for decades. "Wiring is often done in darkened areas," says Darrell Hoblack, president of Demco Electronics. "You can save time by ordering your unit wiring in pre-cut lengths with pre-installed connector plugs. Be sure to leave a few wire pairs free for adding future features like beams or motion detectors."

Wiring technology has advanced dramatically. Some electrical codes require plenum-coated wiring to reduce the generation of poisonous gas during a fire. If you live in areas prone to rats or lightning, you can buy specialized wires that offer environmental protection. Be sure to check your local code requirements to see if you will need special permits to wire a low-voltage security system.

"Wiring units can mean a tangle of wires leading to each door contact," Young points out. "A system that uses one wire as a shared common will reduce wiring confusion and cut wire costs in half. It also makes trouble-shooting much easier. By using contact leads exceeding 2 feet, you can also reduce the number of connections and potential failure points," he says.

According to Dan Webster, president of Wham Systems, "A matrix wiring scheme will dramatically reduce the amount of wiring required. This configuration lets a single wiring cable protect more than 500 doors." Digitech's Cooper adds, "Matrix wiring means fewer paths for static electricity to travel. Using a single common for a wired system is less secure because a single wire break can disrupt many units at one time. Wireless is the product of the future for both existing and new construction. It is less prone to losing blocks of units from a failing wire."

Wireless technology comes in two varieties. Narrow-band systems are best suited for compact facilities with metal storage doors. Narrow band uses the metal surfaces as mirrors to enhance the range of the entire system. Repeaters are used to further increase area coverage. Each repeater will require nothing more than a nearby wall outlet for its power. The primary benefit to narrow-band systems is their extremely long battery life, with some designs exceeding 20 years.

Systems with a 900-Mhz spread spectrum work best in wood and/or cement facilities where sheer force is required to reliably pass the message from a door contact back to the management office. They are also suitable for expansive single-story sites that have limited access to electrical outlets. The trade-off is battery life, which is about seven years. Replacement batteries cost about $5 plus a few minutes of labor. Security vendors that offer both wireless technologies will help you evaluate which solution is correct for your facility.

"The security system must remain fully operational during adverse circumstances," says Gardner. "If repeaters are required, they must include their own anti-tamper protection plus battery backup that can survive power outages over 18 hours." Wham's Webster adds that the use of wireless door alarms should be transparent to the user and be safely enclosed in a waterproof casing.

How They Work

"Some wireless sensors can be installed outside of the storage door within a few minutes," explains Gardner. "These units are installed without ever requiring access into the storage unit. Because these sensors fit securely on the door frame, they can't be knocked out of alignment by careless tenants. Each wireless door sensor acts as a visual crime deterrent, and a clear indication of your facility's level of protection. I have seen sites that suffered from perpetual break-ins become crime-free after the installation."

Door alarms work on a simple concept: When the storage door is opened, a magnet on that door is moved away from the security contact switch. These doors are made of thin metal that is frequently being slammed and bumped by busy tenants. Both wired and wireless door-security systems use a wide gap-magnet solution to compensate for potential door wiggle and misalignment. A 2-inch to 2.5-inch contact-to-magnet gap has become the industry standard.

"One solution is to embed the alarm contacts into the floor of the unit directly beneath the door," says Mike Skrentny, president of MSTC (Mystic Systems Technology Corp.). "Another solution is to use a switch that reacts upon door locking." These methods eliminate the effects of door play, but can be expensive to install.

Some problems do not show up until years after the installation. A small bend in the contact's mounting bracket can dramatically reduce the magnet gap you can rely on. Door contacts molded into a single-piece mounting assembly, and contacts that don't require any mounting brackets at all, provide the most reliable long-term protection from false alarms and expensive maintenance calls.

Sometimes extreme circumstances, such as violent winds, will cause the door contacts to briefly trip. The intelligence within your security controller determines how the sirens and phone dialers will respond. A system with self-learning logic will detect sensors with a history of "trigger-happy" behavior and place less credibility on momentary events that occur with those units. The controller will then recommend a service call.

"PC-based security controllers offer the widest range of features, servicing simplicity and real-time self-diagnostics," says Webster. Gardner adds, "PC-based controllers allow facilities to customize cause-and-effect actions for almost any type or group of events. An alarm on the second floor may be set to only sound the siren on that floor. A group of units covered by a specific video camera can begin digital video recording when one of those units goes into alarm."

Site Map or Graphics

All versions of security controllers accommodate a powerful marketing tool called "site graphics" or a "site map." These systems "show off" your security using a large colorful screen display of your facility you can strategically place in your front office for customers to see. The displayed color of each unit reflects its current status and the presence of that unit's tenant. The quality and size of this display is directly related to the size of monitor or television used.

The electronic site map is seen as a natural extension of your door-alarm security. It brings together all the elements of your access and door control into a dazzling visual report. Another display method is to have a large framed picture showing an overhead view of the entire site. "Small lights are inserted into the picture at each unit," says Hoblack. "This provides a clear indicator of tenant access activity without relying on a second computer monitor."

Individual door alarms provide many ways of increasing revenue and security as well as a marketing advantage. But most important, your system should be reliable. "If you want the best reliability, choose a company with a long- established record that offers software and security in a fully integrated package," Fogg recommends.

A well-planned door-alarm security solution will bring you years of economical and reliable performance. Your system must be scalable and grow with your business needs. If planned wisely, security becomes a powerful asset to your overall marketing strategy. When it comes to security, individual door alarms are your best return on investment.

Douglas Carner is a senior vice president at QuikStor, a security and software company that has installed more than 100,000 wireless door alarms and access keypads since 1987. For more information, visit www.quikstor.com.

By R.K. Kliebenstein

The self-storage industry is always looking for a "better mousetrap." After careful consideration of the merits of individual door alarms, I went to the marketplace to get as much information as I could about the wireless version. After spending some quality time with Steve Cooper, Jon Loftin and John Locke of Digitech International, I had a newfound respect for individual door alarms. Following is a transcript of our conversation:

Why would an operator want to have wireless door alarms?

Individual unit door alarms have proved to be the feature with the greatest appeal to prospective tenants. Knowledge that a storage facility has 24-hour security--alarms in particular--generally will attract a better clientele and generate an income premium over competition without equal security features.

What are the advantages of a wireless over hardwired system?

Wireless door alarms offer distinct advantages over hardwired alarms in ease of installation for new construction and retrofitting of existing facilities. With regard to construction, wireless alarms eliminate the need and associated cost for expensive conduit and wire runs. With hardwired systems, there is a relatively low cost of technology and a high cost of labor. With the wireless alarms, the cost of technology increases, but the labor costs are substantially reduced.

Typically, the security vendor is one of the last subcontactors on the site during construction. Wireless alarms require substantially less time to install, which translates into a quicker completion and earlier opening. The biggest advantage is in adding alarms to existing units. With wireless systems, units are installed on the exterior of the building with the transmitting device mounted to the door frame and an associated magnet affixed to the door curtain. Requiring only a few minutes and a minimal amount of skill, the units can be installed by almost anyone.

This fact lends appeal for some owners who would want to use the alarm unit for an incremental income opportunity by making it an option for individual tenants. Most consultants agree it is better to alarm all units and charge an overall premium, but there are owners who want to offer alarms on a unit-by-unit basis.

Given the wireless system's ease of installation, a site manager or maintenance employee can easily add a transmitter to any individual unit. This also makes it easy to add alarms in groups, expand the system with new construction, or mix and match with an existing hardwired system on a site that is being expanded.

What are the advantages of hardwired over wireless systems?

Hardwired alarms have been accepted by the industry as a good investment, even after a rocky history through their product- development phase. Equipment and installation techniques have improved significantly just over the past couple of years. Now it's easy for the manufacturers to prove that when the equipment is installed properly, the systems are highly effective and reliable.

There are some locations where using wireless alarms is not appropriate due to isolated transmission problems. Other than that, the only distinct advantage is that a properly installed hardwired system requires virtually no maintenance. The wireless system, through its built-in sensing circuits, will let you know when a transmitter battery needs changing. That should occur about every 10 years.

In an average application, without installation, what would it cost to fit a 300-unit project with hardwired alarms? With wireless?

There are essentially three variables in the cost of an alarm system. The greatest of these is labor, which can vary from city to city and installer to installer. On average, we're seeing installation costs in a range of $25 to $45 per door for hardwired systems. Another of the cost variables is the total number of units being added to a site. Volume counts and, typically, the pricing reflects it. Add to this the cost of hardware and you wind up in a range of $16,000 to $20,000 for a 300-unit project. However, this does not take into consideration the construction costs of adding conduit for both power and data lines, or the cost of the wire itself.

With wireless systems, the same variables exist, but at different levels. Most of the hard construction costs associated with the alarm system go away. Then, the cost of installation labor drops to a range of $3 to $6 per door. The number of repeaters required to handle the signals for each site can be somewhat of a variable, though some transmitters use the maximum transmission power allowed by the Federal Communications Commission. Added together, the costs for wireless alarms on a 300-unit project will likely land in a range of $15,500 to $19,500.

How does an owner/operator get a review of his site to determine the cost of installation of a wireless system?

Always, with hardwired or wireless systems, a site plan should be submitted. Notations should be made of any unique features of the site, such as high-tension power lines, cell towers or other radio- frequency devices in the immediate vicinity. They may or may not affect the effectiveness of the alarm system. A good security company will provide a site survey kit to discover any interference and the number of repeaters necessary for complete coverage.

The site I have in mind is under a utility easement with high-capacity power lines running over the property, causing no or poor radio and TV reception. Will this affect the wireless alarms?

Interference may be possible, but is unlikely. As already mentioned, they may or may not affect the effectiveness of the alarm system. Again, a survey kit provided by the security vendor should discover any interference before installation and implementation is attempted.

Our wireless telephones do not seem to work at the far end of the property. Why will the alarms be able to do better?

You should purchase a wireless system engineered to overcome limitations inherent in telephone systems. Both transmitter and receiver should be more reliable. The way the system transmits its digital information requires less fidelity than most voice transmissions. In addition, the system should use repeaters as necessary to extend the operating range far beyond the capabilities of a phone set.

With hardwired individual alarms, there is a high incidence of false alarms. Is the wireless technology more stable?

In most instances where hardwired systems have not operated reliably, the quality of the installation is far more suspect than the equipment. This has been especially true over the past couple of years as each of the manufacturers has measurably improved its systems. In some competitive systems where the wiring was installed properly, false alarms may have resulted from the use of off-the-shelf magnets and reed switches.

After this conversation, I felt I had a good grasp of wireless individual door alarms and the latest technology available. They can provide a distinct advantage in new installations as they save on wiring costs, and in retrofits because of their ease of installation. A special thanks goes out to the guys at Digitech for making this article possible.

R.K. Kliebenstein of Coast-To-Coast Storage provides consulting services for new and existing self-storage owners. The use of technology to increase the ability for older stores to compete with current sate-of-the-art construction is a specialty of Coast-To-Coast. Call 561.367.9241 to discuss a technology audit for your store, or to offer suggestions about other technology you would like to see featured in this column, e-mail [email protected]

 

By David Wilhite

Are you aware of the benefits of employee-dishonesty insurance? Many self-storage facility owners are not aware of the benefits of this coverage, which can be as important as fire or liability insurance when it comes to protecting your operation. If you have one or more employees, please take a few moments to learn how this useful and affordable coverage can help safeguard your business.

Employee theft ranks as one of the most under-reported crimes in the United States. Estimates vary, but it can safely be said more than $2 billion worth of money and property are stolen by trusted employees each year. And unlike burglary and robbery, losses due to employee dishonesty are excluded under virtually all commercial-property policies. In other words, without specific coverage, you are at risk.

Unfortunately, employee-dishonesty insurance is often overlooked by facility owners who choose not to be suspicious of the people working for them. This is an unfortunate situation, as your most trusted employees are in the best position to use their knowledge of your business operations to steal or embezzle from you.

So what can you do to protect yourself from employee dishonesty? In addition to securing adequate insurance protection, the best available defense includes implementing strict operating controls in combination with careful employee supervision. Some of these measures are listed below. But first, let's take a brief look at some of the commercial crime exposures facing self-storage facility owners and the coverages available to protect yourself against them.

Crime coverages can protect you against losses from robbery, burglary, theft, embezzlement and other risks, and can be tailored to fit the size and scope of your self-storage operation. In most cases, your business property and liability-package policy can be endorsed to provide coverage against employee dishonesty as well as the loss of money and securities from your premises, and the loss of other covered business property, such as computers.

One important point to remember about employee-dishonesty claims is that "dishonest acts" must be committed with "manifest intent"--that is, a loss resulting from an unethical act, such as lying, must be due to the employee seeking personal gain. Without manifest intent, such claims would be disallowed. Also, inventory-shortage claims are excluded from employee-dishonesty policies because losses can occur from a variety of reasons besides theft, such as accounting errors. Consider also that money and security claims and business-personal claims are not the only losses that can be covered under employee dishonesty. Riders are available to protect you against check forgery, credit-card misuse and computer fraud to supplement your existing protection at extra cost.

Several commonsense measures can help minimize your risk of theft. For example, checks should be immediately stamped "for deposit only" to ensure a dishonest employee cannot try to cash it, and invoices should always be stamped "paid" to circumvent the possibility of an unscrupulous employee submitting the same invoice twice. Implementing security controls and procedures, such as video-surveillance cameras in your manager's office and other key locations, can also help deter the risk of theft. However, for true peace of mind, your best bet is to purchase adequate dishonesty-insurance coverage. Consult with your insurance agent or broker for complete details.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; call 800.844.2101; fax 480.970.6240; e-mail [email protected]; www.vpico.com/universal.

Staffing Concerns for Facility Owners If you own a large self-storage facility, you know your success depends in large part on how effectively you recruit, train and manage your employees. But that's only the tip of the iceberg. Today, there are a wide variety of employee-staffing issues you need to be aware of in order to protect yourself and your operation from risk. For example, when interviewing prospective employees, you need to know the legalities of recruiting and hiring for your particular state, as well as federal regulations concerning workers' compensation and other issues. Federal law requires every employer to provide a safe working environment for his employees as well as safety training. And in nearly all 50 states, the law requires every employer to provide workers' compensation insurance for his employees, which protects him against lawsuits by injured employees. It is important for you to know that without workers' compensation, you may be found liable for accident injuries sustained by an employee even if he is clearly at fault in causing the accident. In fact, without workers' compensation, you may be held liable even if the employee is injured while committing a crime, such as burglarizing your facility! That's why, in addition to securing workers'-compensation coverage, it pays to keep your employees informed at all times about any existing hazards. Take the time to listen to their concerns. Finally, give them the proper tools and training to do their jobs, and the proper supervision to see those jobs are done safely.

By Christopher Shope

Facilities should maintain no more than two master keys at any given time and store one of them in a "key safe" at a remote location, such as the company's main office.

Mention "master keying" to many self-storage operators and the immediate response is a nervous "I don't want to leave myself open to liability." It's natural to fear the unknown--especially when you add to that fear the messages put out by some industry attorneys who have advised against operating a facility with this capability. It's easy to understand why some would have that reaction.

Operators worry a master-keyed system may put them in the position of a warehouse operator rather than a landlord. And the concern may be justified to some degree. If you put up a facility, throw a generic master-keyed system on the doors and don't include any mention of it in your lease, you will definitely leave yourself open for problems.

Twenty years ago, industry experts recommended that operators not sell locks for fear of liability. Ten years ago, it was suggested there was a problem with the cylinder lock that had the overlock function. Now the big controversy is master keying of facilities. But the bottom line is: If you conduct your security program in a professional manner and draft a thorough lease that explains all aspects of reason for entry, you'll be legally protected. And you can reap the benefits master keying has to offer.

Operations

There are two elements to a successful master-key operation: a professional operating system with management controls, and a lease that addresses all the pertinent issues without getting you into the dreaded "warehouse" territory. First, let's talk about operations.

If you decide to operate with a master-keyed cylinder or padlock system, you must make sure the keys are restricted. A restricted key is one with a blank your local locksmith or hardware store cannot duplicate. You must also make absolutely sure the lock you use has sufficient key codes. For example, on our high-security system, we can achieve approximately 3 million different key codes. This assures that every unit has, without question, a different key number.

Key control is an essential part of this program as well. Facilities should maintain no more than two master keys at any given time and store one of them in a "key safe" at a remote location, such as the company's main office. A key safe creates an audit trail, which accounts for the keys' location 24 hours a day. Each authorized person has an individual code, so when the safe is opened, it logs who removed the master key and the time and date. Our customers who use this type of program also typically employ 24-hour video surveillance, access control and, in some cases, individual door alarms.

Lease Construction

Now, let's tackle the legal side of this system. It is critical to draft a clear and detailed lease that has an addendum explaining the master-key system and conditions for entry in simple terms. One of our largest customers operates with master-keyed cylinder locks in 21 facilities and six different states. A section of their lease clearly states the landlord's right to enter. As you can see below, they have laid out all the instances where the master key would be used to enter a renter's unit in simple and plain terms. (The following excerpt is for illustrative purposes only. You should consult with a qualified local attorney in the construction of your own lease. Be advised that self-storage laws and regulations vary from state to state, and sometimes even from one local area to another.)

Landlord's Right to Enter

Upon the reasonable request of Landlord, Tenant shall provide access to the Landlord to enter the Premises for the purpose of inspection, repair, alteration, improvement or to supply necessary or agreed services. In case of emergency, Landlord, its agents or employees may enter the Premises, without liability there-for and without affecting Tenant's obligations under this lease, for any of the above stated purposes without notice to consent from Tenant. The term "Emergency" shall mean any sudden, unexpected occurrence or circumstance which demands immediate action. Tenant agrees to allow Fire Department and Landlord, its agents and employees to enter the premises at all times which are reasonably necessary to insure the protection and preservation of the facility or any personal property stored therein.

Communicating the lease and this particular section to potential renters, as well as re-emphasizing it in your rental agreement, will ensure your tenants have full knowledge of the system's capability and when it would be put into use.

Liability?

Another important issue to consider with master-keyed systems is the practice of "recycling" cylinders or padlocks after they have been returned by renters. Our clients usually charge a security deposit for the lock and two keys. If the tenant does not return both keys to the lock he was issued, the lock is taken out of circulation and the tenant loses his deposit. If both keys are returned, the facility returns the lock and keys to circulation after six months.

This is where operating with a restricted-key system comes into play. If you operate with a run-of-the-mill standard keyway where keys can be duplicated, you take a big risk. If you employ a restricted-key blank and a 3-million key-code system, there is virtually no chance of unauthorized access to any unit.

Liability is a constant concern in this industry, and for good reason. No one wants to be accused of criminal acts, especially in his own business operation. However, in self-storage we face far greater liability issues than those associated with a well-run master-keyed facility. For example, look at all of the companies in this industry that sell tools that manipulate locks, such as drilling tools, "disk busters" and--even scarier--lock-picking tools, the advertisements for which clearly state they allow users to "gain discreet entry in seconds."

Such tools are the last thing in the world I would want at my facility. I was once out making sales calls and stopped at a storage facility. The assistant manager was on duty but got called out to the yard by a customer. When she left, I noticed a video on her desk containing instructions on how to break locks. Imagine if I weren't an honest person--I could have stolen the tape and started robbing storage units for a living. Imagine if I were a potential renter and had seen that! Tools of this kind belong in the hands of bonded professionals, plain and simple.

Since 1986, when my company pioneered master-keyed systems for the storage industry, neither we nor any of our clients have been faced with liability issues or a key-duplication problem. A master-keyed system isn't for everyone, but if you operate a professional security program and write a lease that accommodates your system, the worries of liability are better saved for other aspects of your business.

Most of our clients who operate with master-keyed systems aren't cowboys out to rock the boat--they are industry leaders, attorneys and even association officers. What they get with master-keyed systems is the highest level of security. Master-keyed systems feature flush-mounted cylinders with hardened steel fronts that resist the threat of break-ins. At the same time, they provide managers the ability to safely and legally access units in an emergency, under carefully controlled circumstances. The only people who love high-security master-keyed facilities more than renters and operators are local fire marshals and zoning boards. The payoff is significant market visibility as a safe and secure facility.

Christopher Shope is the national marketing and sales director for Lock America Inc. (d.b.a. L.A.I. Group), which manufactures a complete line of security locks and custom-designed security hardware for the self-storage and other industries. The L.A.I. team is committed to taking knowledge gained from other security industries and applying it to the self-storage market. For more information, call 800.422.2866; www.laigroup.com.

By Lance Comstock

One of the most effective ways to move your self-storage facility into a class of its own is the installation of a state-of-the-art communications system. Yes, the quality of the security system you select is critical. Of course, the location and general appearance of the property plays a major role in attracting customers. However important these basic considerations may be, they represent only the nuts and bolts of your operation. The key to leaping ahead of the competition is to offer an added dimension of service--which is exactly the edge a communications system can provide.

What do we mean by a facility communications system? These systems combine intercom and paging capability with the option to provide a musical background of your choice. Relatively new to the self-storage industry, a communications system is based on proven, state-of-the-art technology. Once you have purchased a system from a reputable supplier with installation expertise, the benefits are immediate.

Literally overnight, your storage facility transforms from an isolated, silent labyrinth of corridors into a more comfortable, welcoming and accessible place of business. Customer assistance is now available at the touch of a button should a problem arise. Important messages can be transmitted in a heartbeat. Let's take a close look at customer advantages as well as the new tools for sales and marketing.

Intercom Convenience

Imagine one of your customers entering your facility on a Saturday morning, already burdened with a long errand list and frustrating time constraints. Perhaps the location is Miami in August--or maybe Minneapolis in January. Spending one more minute than absolutely necessary at the storage unit is the last thing on his mind. Although this customer has never encountered trouble with the lock in the past, it happens to freeze up inexplicably. After jiggling key and lock to the point he is seeing red, he finally crawls back into his car and drives to the office for help. Can you anticipate the mental and emotional state of this customer as he walks through your door?

Most customers will never require office assistance or reassurance that someone is readily available, but every customer can appreciate the level of courtesy an intercom system provides. Should a problem or question arise, the office personnel are as close as the push of a button. "We are here for you" becomes more than an empty promise or a catch phrase in sales literature. If need be, the manager can hop on his golf cart and greet the customer face to face to resolve any issues. Conversely, the facility personnel have an opportunity to convey messages to visiting customers over the same intercom.

Paging Capability

In a world where cell phones and pagers are as commonplace as wallets and combs, the value we place on being "accessible" is beyond debate. Being able to receive personal messages during a visit to the facility will be especially valuable to busy customers who make regular trips to their unit. Whether they forget to bring their cell phone or just don't own one, with a paging system, their family, friends and associates still have an open line of communication.

Similar to the paging/telephone system in a large airport, the facility paging capability works in concert with the intercom. Should a call come into the office for a visiting customer, the manager already knows whether he is still on the premises. A facility-wide page can request a specific customer to intercom the office immediately. This approach makes it possible for the original caller to remain "on hold" for a quick answer to an urgent question.

As you can see by these examples, the ability to page customers also includes facility-wide messaging. Have you ever called a business that promoted its image, products or services in a recorded message that played while you were waiting to speak to a representative? The concept is very similar but even more positive. Visiting customers are a "captive audience" for your messages, but they are free to continue their activity without experiencing the annoyance of being "on hold."

Musical Background

Along with paging capability comes one of the most appealing features of a facility communications system--the ability to fill the air with soothing music. The value of music as a calming, uplifting influence has been so definitively proven that silence seldom prevails in public areas where an atmosphere of warmth and comfort is important. In fact, our culture is so accustomed to the lulling affect of background music that we are not always consciously aware of it playing. Still, we respond emotionally.

By their very nature, self-storage facilities are not high-traffic properties. In spite of the confidence encouraged by sophisticated security measures, many customers--especially women--feel uncomfortable with the isolated aspects of visiting their storage unit. Being able to listen to a constant flow of music or human voices can diminish the sensation of being alone, much the way a radio or television provides a streaming background of song or chatter to a house. Knowing assistance is available at the touch of an intercom button adds yet another layer of subliminal reassurance.

Sales and Marketing Advantages

Studies have shown customers remain at their storage units an average of 20 minutes per visit. Perhaps you are offering a special incentive for customers who refer new business to your facility over the next 60 days. Maybe you are introducing a service like the sale of packing materials in the office. The opportunity is open to create messages that enhance your image, extend appreciation to your customers, amuse and entertain, promote your business, offer helpful hints or storage tips, convey important announcements--or all of the above.

From the moment you introduce a potential customer to your facility, the added convenience and courtesy of your communications system can serve as a strong selling point. Any direct mailings, posters, signage and advertising materials can highlight these customer-oriented benefits and run circles around your competition.

Universal Application

Communications systems can provide value-added service to any mini-storage facility, from sprawling single-story properties to multistory structures with long hallways and elevators. The system itself and every feature can be totally streamlined around your exact needs:

• Number of intercoms and intercom placement.
• Selection and source of music, including CDs, radio or tapes.
• Type and the frequency of paging messages.

According to John P. White, marketing director for PTI Access Control Systems in Scottsdale, Ariz., the facility communications system is a relatively recent innovation on the self-storage scene, but gaining rapidly in popularity. PTI usually bundles its new communications system with its security systems. "We wanted to make this product readily accessible to as many facilities as possible. When the goal is enhancing the overall appeal of a mini-storage facility, adding a communications system is one of the simplest and most cost-effective solutions on today's market," he says.

Lance Comstock is the CEO of Preferred Technology Inc. (PTI) and PTI East, with offices in Scottsdale, Ariz., Baltimore, the United Kingdom and Australia. PTI has specialized in self-storage security for more than 22 years. For more information, call 800.331.6224; www.ptiaccess.com.

By John Fogg

Building the plan for your security system at a self-storage site can be a monumental task. More and better technology is being developed in the security industry, and some of it will apply to our industry. Some of the choices for securing your property will be easy. There are basic items that should be incorporated into the design of the site. Other security options will require more research and planning. Basic factors you will want to consider are:

• How unique is the design of my project? What "special" security is required to protect the site, my customers, my personnel and the business? Most facilities are fenced around the perimeter or between buildings. Some unique buildings or building conversions require securing all entrances, including entrance doors, emergency exits and overhead access doors. The physical layout will impact your decision. Single-story, multistory, inside units, hallways and outside units all play a part in how you will configure your security system.
• Early consideration of the security system is important for several reasons. Budgeting the proper amount of money is crucial. Trying to save money by cutting corners on security does a disservice to the marketability of the business and your tenants.

Budgeting the proper amount of time for installation of a complete system is just as crucial. Nearly 90 percent of the security-system installation needs to be accomplished after buildings are erected and doors are hung. Installers need access to storage units and common areas. While the temptation will be to start renting units to generate revenue, the wise and patient owner will budget time to ensure a quality installation.

Entrance, parking and controlled-access areas warrant a certain amount of space based on the layout and traffic flow of your site. Architects often draw up plans with little knowledge of how a gate entry should be laid out. Most of the plans that come across my desk show the entrance gate as a one-inch straight line, labeled "gate." This should be given greater consideration at the outset of the project.

• How sophisticated do you want your system to be? Many different systems are available, such as access controls, individual door alarms, cameras, perimeter beams, graphics displays, etc. Each of these has different options or features to choose from. New technologies are being incorporated all the time. A state-of-the-art facility often attracts a high dollar if sale to a major developer will be pursued down the road.
• What your competition has to offer makes a difference on how you will want to approach security. Do they have an access gate, cameras, 24-hour access? Does the neighborhood dictate that you have individual door alarms on each unit?
• Use your security system as a marketing tool. Let your prospects know you have a leg up on your competition because your storage units are more secure. Have you advertised your cameras in your Yellow Pages ad? Does your sign mention that you have individual door alarms?
• The more time you spend researching and evaluating the security aspect of your project, the more informed a decision you will make. Consult the professionals who specialize in these systems exclusively for self-storage. Find out about the companies you will deal with. How long have they been providing these kinds of systems? Do they manufacture their own products? Do they have the infrastructure to support these systems? Are they equipped to keep up with new technology as it changes?

Now for the nuts and bolts. An overview of self-storage security options will help you focus as you do your "homework." The choices for securing your site can be categorized into four major areas: access control, individual door alarms, closed-circuit television (CCTV) and additional security options. But first, I'd like to make a few comments on software.

Software

Your software decision will have an effect on the security of your site. There are companies that supply management software for the operation of your rental office as well as the systems for securing access and door alarms. Providers of both management and security systems should offer a completely integrated product. When these systems are integrated, information necessary for the operation of and access to the site is exchanged automatically.

For example, when a move-in is entered on the management software, the customer's gate-access code or gate-access card number is immediately logged into the access system. When someone moves out, the gate code or card number is automatically removed from the system. If a tenant is late on rent and should be denied access to his unit, the management software again communicates this to the access-control system. When that tenant pays up, their original access code or card number is reactivated. This makes for a smooth operation.

Some companies provide one piece of the puzzle--either the management software or the access-control/door-alarm system. With no communication between the two, transactions like move-ins, move-outs, denying access to late pays and re-enabling their code when they pay up becomes a process of making "double entries." This can be time-consuming and leaves more room for human error.

To eliminate the necessity for these double entries, software and security suppliers have written various "interfaces" to other companies' products. These interfaces work with some companies and some products only some of the time. Representatives from most of these software and security providers have met in the past to establish specifications for one "universal interface." This universal interface would become the industry standard for making two different suppliers' products communicate, thereby eliminating the need for double entries and allowing for smooth facility operation. The exact requirements for the interface were determined, outlining required features and functions. Any reputable supplier to the industry accepts this universal interface. When choosing your software, be sure the brand you consider complies.

The decision on what software to use should be based on the individual needs of the business. The information the program provides should be what the owner or manager most needs. Owners should be wary of purchasing solely on manager recommendations, however. They should be very familiar with their software program, or they put themselves at risk of employee theft or embezzlement.

Access Control

Most self-storage sites are fenced or have a combination of fence and buildings around the perimeter. This warrants the need for an access gate. First-generation sites had a manual drive gate, which was left open during yard hours and locked after hours. This allowed free access in and out throughout the day. To secure access to the property, automatic gates are now a necessity.

There are three basic types of gates. Swing gates are seldom used for self- storage. The number of cycles for a facility gives too much wear and tear on this style of gate. Traffic flow is also restricted because of the area needed to swing the gate back and forth.

Vertical-lift gates pivot like an elbow on a table. They are counter-balanced so they can be easily raised manually if needed. This design is used when there are space limitations. When no area is available to roll a gate back, vertical gates are used. (Though I do know of one owner who chose a lift gate so it could be viewed swinging up in the air from the street to attract attention.)

The most popular gate style is the slide or roll gate. Earlier designs had these gates on rollers on the ground. Recommended now is the cantilever design. The cantilever gate has rollers that roll on a mid-rail attached to a fence section. This mid-rail supports the gate and allows it to open and close without touching the ground.

Sometimes the layout will require more than one gate location. Keep in mind this can drive the costs up. If a gate is only to be used for emergency, moving van or garbage truck, it may not need to be automated.

The mechanism that automatically moves the gate is known as a gate operator. Vertical-lift-gate operators are usually purchased along with the gate itself. Slide- and swing-gate operators can be purchased separately. If you are working with a particular installer or gate company, they will recommend the brand of operator they are familiar with for this application.

Every gate layout should include a walk gate. It should be locked from the outside and unlocked on the inside. The manager can have a key, if it is necessary to enter. Wire mesh can be welded on to keep someone from reaching around the gate and gaining entry.

The "access system" refers to the keypad, card reader or proximity reader for restricting entry and exit to a secured area. Generally, it includes access devices, stands, wire, office components and access-control software. These access devices send a signal to the gate operator or door-lock device to open the gate or door. In the case of a gate, a detector loop is located in the drive to detect vehicles. This acts as a safety device and as a signal to close the gate.

Designing your entry/exit is something that should be done early in your project. Too often we see plans reflecting gates that don't fit, no provision for keypads or card readers, no conduit specified, and little consideration to the flow of traffic and parking spaces for prospective customers. As an industry, we spend many hours concentrating on square footage and unit mix, yet we neglect to address where the prospect is going to park and how he will get in and out of the office and yard.

Traffic-flow considerations should include:

• Sufficient driveway for rental trucks to pull in, out of the way of street traffic.
• A parking area for prospective customers outside the secured storage yard.
• Visibility of the office entrance from the parking area.
• Visibility of the parking area and gate from the rental office.
• Handicapped parking and office access.
• A safe distance between the keypad or access device and the gate.
• Left-hand flow, so the keypad is located on the driver side of the vehicle.
• Adequate safety devices and design to ensure pedestrians or bystanders are not at risk of injury.
• Any other local requirements.
• An exit keypad.

An exit keypad is necessary to track how long a tenant has been on site. If a security situation arises, gate-activity reports will be printed from the computer. Anyone who has been spending long amounts of time on site should be considered suspicious. Without an exit keypad, you won't know how long someone is on site.

Access-control systems are becoming more sophisticated. Different types of access can be assigned to different customers. One system can limit access to a certain area within the storage property, such as hallways or RV parking areas.

Keypads are the norm for access devices. Each customer is given a unique code to punch in when entering and exiting. Also available are touch-card readers, proximity-card readers and vehicle-tag readers. Garage-door "clickers" are also being developed for customer use. Deluxe keypads are available with a pinhole camera and intercom in one housing. Keep in mind these added designs and features will drive up the cost.

It is imperative you choose an access-control system designed for self-storage. Generic systems will limit your ability to assign separate codes and will not interface with management software.

Individual Door Alarms

Individual door-alarm systems are still the best way to secure your investment. Increasingly more owners are utilizing door alarms on new construction. How do they work? The tenant enters his code at the gate. The gate opens, his unit door alarm is turned off, and he does whatever he needed to at the unit. The door alarm is reactivated when he "codes out" of the property.

Most individual door-alarm systems are hardwired. Door switches are wired to a multiplexer in each building, which "polls" the status of many unit doors. This communication is sent back and forth from the office computer via a communication cable, which eliminates the need to run wire from each unit back to the office. Door alarms are also used for sites or parts of sites without gates. A central keypad is located at the entrance or on each building.

More than 60 percent of self-storage break-ins are executed by tenants. An individual rents a unit, probably paying cash. He spends a fair amount of time on site, observing activity where unit doors are open so he can see what's inside. When the opportunity presents itself, he cuts the lock and sorts through the contents, placing the valuable items at the front of the unit. He then closes the door and secures it with his own lock. Once he has eight or 10 units secured, in comes the truck and out go the goods. The unit doors are left locked and no one is the wiser until the original tenant returns to find his key doesn't fit. Individual door alarms eliminate this scenario. As soon as the thief opens the first unit door not belonging to him, the alarm sounds, and the office or monitoring company is notified.

Sites can use door alarms to their marketing advantage by posting signage, describing and demonstrating them to every prospect, and including mention of them in their advertising. With any luck, this will send problem tenants down the road. After all, why would a burglar choose a target that has individual door alarms when he can go down the street to a facility that doesn't?

The marketing potential for door alarms is huge. Through advertising and demonstration, prospects learn your site is more secure than your competitors'. Sites with individual door-alarm systems are able to charge higher rents, and tend to stay full in competitive situations. The idea of adding a door alarm at the time of move-in is not practical--hardwired or wireless. The additional revenue lost by not wiring every door and justifying top-dollar rents on every unit is leaving money on the table.

Wireless door alarms should be used only as a "last resort." The front-end costs may be slightly less, but maintenance and battery-replacement costs more than offset the original savings. The reliability of these systems is uncertain, and changing conditions in the surrounding area can have affect. They may have some usefulness, however, in some retrofit situations.

Door Switches. Several different types of door switches are used. A floor-mounted switch is one design for roll-up doors. The device is anchored to the floor on the inside of the unit. The magnet is mounted on the inside of the door with a bracket. Another type of switch, used on swing doors, is mounted to the door header and the magnet is mounted on the door. A bracket is usually not needed, unless the swing door has no header.

Some sites will use the swing-door switch on overhead doors to cut costs. The magnet is mounted on the upper part of the door (inside) and to the side. The switch is positioned by using a bracket, which is mounted to the unit wall.

A new switch has been developed for roll-up doors called the quick switch. This mounts on the door track by the opening that receives the door latch. The door-latch opening and closing triggers this switch, which installs in about one-fifth the time of other switches. It requires less wire than a floor switch and is more economical. It is important to let your door manufacturer know if you plan to use the quick switch so the right type of latch is specified for the door. These switches can be used with any reputable door-alarm provider's product.

Individual door-alarm systems are reliable and can be a productive security and marketing tool for an extended period of time. It is an active form of security. It is essential to get quality material and installation of the system.

CCTV

Closed-circuit television systems are being used more frequently in self-storage. New technology has helped this boom. In the beginning, camera systems ran one camera to one monitor. Then switchers were developed to allow different cameras to be viewed on one monitor through different locations. The problem was the recorder only recorded whichever camera position was showing on the monitor screen at any given time. I know of sites that still use switchers. One recently missed the opportunity to catch someone running into its gate because the switcher and recorder were set on another camera position.

Multiplexers are common now. They allow viewing and recording of up to 16 cameras on one monitor and recorder. When playing back a security incident, the image is enlarged on the full monitor screen.

Digital cameras are also available, which have improved image quality. Digital devices will record camera activity to a computer hard drive. Playback and real-time viewing is done through a monitor. This means an owner can use his laptop computer to view, in real time, his site in California from a hotel room in New York. These devices can also be set to only record when there is motion at each camera location.

Cameras can be costly. Lighting changes on site can impact the choice between equipment that records in color or black and white. An auto iris lens adjusts to the change, but black-and-white cameras still show better resolution in these situations. The decision on how many cameras to buy should be based on the site design. Hallways and multiple entrances will increase the number. If door alarms are utilized, it may decrease the number of cameras needed. Cameras at the gate, in the office, in all hallways, or just the entrances are all considerations. Keep in mind that cameras are a more passive form of security. You may not see a break-in when it occurs. Individual door alarms are a more active form of security.

Camera systems do have marketing value when monitors are displayed in the office. They act as a deterrent to the potential burglar, hopefully sending him down the street to rent elsewhere.

Additional Security Options

Site-Graphics Displays. These systems provide a full-color map of the yard and buildings, etc. Unit colors are changed based on the status of the unit--rented, vacant, delinquent, on-site, door open, etc. They will often include the latest gate-activity message across the bottom of the monitor screen.

Graphics are most effective when displayed in the office on a separate color monitor, especially along with camera monitors. If site graphics will be incorporated into the office display, planning should be done early for the location of this and all other equipment. You may have monitors flush-mounted in a wall or in its own separate cabinetry. Some offices will place monitors on a shelf with brackets. There will be some components that need to be connected behind the scenes, such as the recorder, multiplexer, etc. The uniqueness of each rental office dictates the design of this security option and construction should be done at the site.

If a storage prospect is still uncertain about renting at your property when he walks in the door, one look at your security display, with graphics and camera monitors, should tell him, "This place is safe. These people are in complete control of this operation." Some software programs will also have the graphics on the computer monitor as an option for the manager. This is a nice glitzy feature, but probably a crutch for the manager. The true value of site graphics is displayed as a security/marketing tool for prospects visiting the site.

Intercoms. Intercoms are an easy way to provide voice access between the rental office and key points throughout the facility. Intercom systems include a master station and one or more substations. Master stations are designed to support one, two, three, five, 10 or 20 substations. Other variations, including piped-in music, are available and priced accordingly. Substations are relatively inexpensive, generally come with a plastic or metal face, and should always include a call button to provide a way for each substation location to call the office.

All primary security systems should include provisions for an intercom system. At a minimum, intercom substations should be associated with the keypads or card readers supported by the primary system. The use of intercoms has been one of convenience in the past. Today, intercom systems are viewed as security and safety devices and are being installed throughout the site, particularly in inside corridors, multistory buildings, etc. The real decision is not whether to install an intercom system, but how large a master station to buy to meet your existing and future needs.

Perimeter Beams. Perimeter beams are a line-of-sight projection of an infrared beam that, if interrupted, will sound an alarm. They are commonly used along fence lines surrounding the facility, but can be installed at other points if that is useful. They are referred to as PIR beams.

PIR beams were originally introduced as a single-beam system where only one beam was transmitted to a receiver/reflector. They were only moderately dependable, as almost anything (weeds, birds, dust, etc.) could interrupt the beam and cause an alarm. Dual beams followed and reliability increased, since both beams had to be interrupted at essentially the same time to cause an alarm condition. Quad beams are now the most common and are much more reliable than dual- or single-beam systems.

PIR systems are priced on a distance-sensitive basis, i.e., the longer the beam, the more it costs. Many beam systems offer control-enhancing equipment to allow the system to stand alone and operate as an independent entity. Beam systems used in self-storage are more commonly connected to the site access-control system and operate under its control. PIR systems should be treated as ancillary security, used only when a specific need is identified. They have limited value as a general security system.

Fence Sensors. Occasionally, someone will inquire about fence sensors for self-storage. Fence sensors employ a cable running through or along a fence, which senses vibration or change in the line. Any vibration would trigger an alarm. Sensitivity settings are adjustable. These systems are stand-alone and can be quite costly.

Lighting. It is a proven fact that a well-lit site is a deterrent to theft and vandalism at any location. There are an abundance of lighting options to choose from. Consult your electrician in the planning stages about adequate lighting.

In the end, successfully secured and marketed self-storage properties consider, plan and budget early on. Rely on the expertise of self-storage security vendors and installers to provide you with input on your project.

John Fogg is the general sales manager for Sentinel Systems Corp. of Lakewood, Colo., which has been manufacturing self-storage software and security systems since 1975. Though he has worked in self-storage since 1986, Mr. Fogg has been with Sentinel for the past nine years. He can be reached via e-mail at [email protected]; call 800.456.9955; www.sentinelsystems.com.

By Jim Oakley

The good old days of scratching feasibility on the back of an envelope are gone. Yesterday's answers are not good enough for today's lenders. If you don't show profitability simply and clearly at the outset of your self-storage project, you might not get another chance to do so. Lenders review several packages weekly and pick only the best. You can't go back and change the numbers once you have been turned down without losing credibility.

The Lethal Questions

A banker has three lethal questions he wants you to answer: 1) How will you make payments during construction?; 2) Can the project pay for itself through rent-up? and 3) Can you prove the project's feasibility in a monthly format? An appraisal will prove a facility's worth once it's completed, but you better have a financial business plan to prove how you will make payments during rent-up.

The transition between development and occupancy is critical as a project is most vulnerable to negative cash flow during this period. Occupancy is increasing while interest expense is needed. Loan payments are required every month, and bankers need assurance that money is on hand to meet them.

The Loan Package

An effective loan package should include documentation of six key financial events, tracked on a monthly basis and presented in a one-page summary: construction draws, occupancy level, rental income, operating expense, loan payments and cash flow. Then a seventh event, overall return, should show the investment from conception through hypothetical sale.

Projects are often shot down unknowingly by developers themselves. Such is the case in Exhibit 1 (page 50). The six vital events are displayed monthly during rent-up to unmask where the shortages in cash flow occur.

Notice that by month seven of construction, negative cash flows of -$43,469 have accumulated. After the first eight months of operation, the project is in a negative cash-flow position of -$88,689. Surprisingly, this situation is often hidden from the developer, even though it's easily curable with proper diagnosis and treatment.

The deal-breaker question your banker will ask is, "Where is the money (that -$88,689) that will make the loan payments?" This question can cripple your attempts at securing financing unless your financial plan has been engineered to address this deficiency in advance.

Interest Reserve

Interest Reserve is a financial mechanism used to defeat negative cash flow in the first year of a project. It allows the loan to "make its own payments" for a short period. These payments occur in the starting months of the loan and are made by increasing the principal balance for each payment made.

To determine interest reserve, it is necessary to map monthly cash flow. This map is also necessary to prove the need for interest reserve to the lender. (See Exhibit 2, page 52, which shows the critical monthly loan-payment calculation with interest reserve and construction draws.) This calculation shows the total amount of negative cash flow needing to be addressed (-$88,689). In order to put the development in a positive cash-flow position, $11,311 is added, bringing the interest reserve to $100,000. (Note: Don't assume spreadsheets calculate the complex construction loan. They don't. Such loans require variable take-out draws and unequal payments. Most important, there is interest reserve, a key factor that must be interwoven monthly.) Notice how interest reserve is depleted as it is used to make payments on the loan.

In Exhibit 3, an interest reserve of $100,000 has been implemented. The same project is now showing positive cash flow of $18,202 as a result. The loan has made its own payments to the extent of the interest-reserve limit.

Vacancy is Expensive

When the six vital events of the project are exhibited on one page in the loan package, it is obvious vacancy can be a crippling factor. Construction-loan payments are being made on units sitting empty for several months. This is a red flag indicating this project should be phased.

Delaying construction of units until they are needed is making better use of capital. This becomes extremely clear when cash flow is mapped monthly, as in Exhibit 3. When loan payments and absorption are shown on the same page in your loan package, decisions can more easily be made to maximize the efficiency of construction draws.

By developing the project in two phases, loan payments have been reduced in the initial months of construction. Instead of payments of $15,023 after four months of construction (Exhibit 3), the payments are reduced to $9,014 (See Exhibit 4). Now compare the cash flow of Exhibit 1, in a negative cash-flow position of -$88,689 at the end of month 15, to Exhibit 4, which is in a positive position of $5,126 after the same month. This is an overall difference of $93,814.

Improved Lender Confidence

In the case of construction loans, lenders generally require collateral or recourse. When a project is phased correctly, less collateral is required because less capital is borrowed at any one time. Lenders are then more confident about what they have extended until rent-up on the project proves itself. And having less recourse to provide can make or break a project.

Securing a permanent loan can be a major source of profit to the developer, but it must be justified to the lender in his own terms: net-operating income, debt-coverage ratio, loan-to-value, etc. The permanent loan should be larger than the construction loan--hence the developer's profit. In Exhibit 3, the construction loan is $2,060,250 while the permanent loan is $2,427,292. The difference comes from a much higher value determined during an income-approach appraisal. An amount of $367,042 more can be borrowed in this case, which is profit the developer can put in his pocket. Don't shortchange your profit because you haven't made monthly calculations in your loan package or lack a professional presentation.

Lay The Groundwork Now

The permanent-loan terms should be negotiated with the lender at the same time construction financing is secured. Using a full monthly cash-flow presentation ensures the developer his biggest profit. Seldom do developers negotiate the term of the construction loan. In most cases, developers don't even bother calculating the best time to bring the permanent financing on line, much less propose it to the lender.

Is there an advantage to paying higher interest and points on a construction loan to extend the term? In the examples we've used here, the loan proceeds can be increased from $367,042 to $561,225 if the permanent loan is brought online 12 months later. That's 53 percent more profit! What if you extended the construction loan by only six months?

Conclusion

Cash flow in the first year of a project should be optimized through the use of interest reserve. Moreover, the timing and amount of the permanent loan can be the source of greater profits. If you are not using critical financial feasibility, you don't have the tools to prove your case to a lender, and you're probably making "guesses" rather than decisions. Sure, a developer can get financing with a spreadsheet, but is he leaving his real profits on the table? Taking time to run the numbers and present them in a way that appeals to lenders can make all the difference in the success--and profitability--of a self-storage project.

Jim Oakley is a pioneer and national authority in computer-modeling feasibility. His methodology was taught at Arizona State University and its Center for Executive Development. He has addressed major national conventions including the National Association of Corporate Estate Executives and the National Association of Real Estate Educators. His articles have appeared in Inside Self-Storage, Professional Builder and Lodging magazines. Mr. Oakley consults from Prescott, Ariz., and can be reached at 520.778.3654; www.mrfeasibility.com.

Exhibit 1 thru 4

"Who let the dogs out?"

I don't actually speak more than eight words in French, but having just returned from Brussels, Belgium, where a large portion of the population is French-speaking, I am now inspired to learn more. Brussels was the site chosen by the Self Storage Association of UK and Europe for its annual conference and tradeshow, March 8-10. It's a fantastical city with gorgeous architecture--and the best chocolate-covered waffles I've ever tasted.

With large companies such as Shurgard and Devon Self Storage concentrating their efforts on European development, the attention of other developers is being drawn over the Atlantic as well. Facilities are sprouting throughout the UK, Sweden, the Netherlands, Italy, Germany, Belgium and France. And industry suppliers are quickly seizing the opportunity to distribute product throughout these unpermeated areas. Shifting our focus to include overseas expansion seems to be the next natural phase in self-storage evolution.

But on the homefront, there are plenty of companies--independents and chains alike--working to fine-tune their operations and optimize profits. This effort is greatly simplified by advances in automation, and with more than 20 companies offering software packages specifically tailored to self-storage management and accounting, an owner or manager should have no difficulty finding a program to suit his needs. On page 24, you'll read about the latest software features, tips on purchasing and the future trend toward web-based systems. You'll also find profiles of 16 different vendors, complete with contact information and summaries of their products and services.

This month you'll also read Douglas Olson's summary of the Phase I environmental site assessment, which may be required of you by your lender during the initial phases of financing (see page 46). Starting on page 52, Jim Oakley explains how to simply and clearly demonstrate profitability to your lender at the outset of your self-storage project. And Claude and Gregory Hawkins emphasize the importance of training on page 78, saying employees must become comfortable with the mechanics of your operation before they produce the results you expect.

Inside Self-Storage is in the process of compiling articles and information for a supplement publication it will be distributing to overseas owners and developers in June: ISS Europe. Keep watch in upcoming issues for features on self-storage projects in Italy, the Paris market, the European association and more. Let's see where this all leads us.

And for those of you who have never travelled to Europe, I'll impart just a few little pieces of advice based on my recent experience: Don't exchange currency at the airport or train station (you'll get a horrible rate). Don't wear high-heeled shoes (the cobblestone streets are treacherous!). Take advantage of the train system to see as much as you can (Major cities such as Brussels, Paris, London and Amsterdam are all within mere hours of each other). And watch out for swiftly closing doors on the subway car (you'll never see them coming!).

Au revoir,

Teri L. Lanza
Editor
[email protected]

For a complete list of references click here

By Douglas A. Olson, P.E.

Has your lender required you to have a Phase I environmental site assessment (ESA) conducted on your self-storage facility? Are you are thinking about conducting an ESA on a property you might like to acquire? This article will provide you with a general overview of environmental due diligence, the components of an ESA, the ESA process, and general pricing and timing.

The reason typically given for conducting a Phase I ESA is the potential property-owner liability created by the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as "Superfund." CERCLA liability for the cleanup of hazardous substances lies with the current property owner unless, at the time of acquisition, he did not believe--or have any reason to believe--that hazardous substances had been or may have been released on the property. In order to safeguard himself from CERCLA liability, a property owner must establish the defense that he had no reason to know of an actual or threatened release of a hazardous substance on his property. To do this, CERCLA requires he undertake, at the time of acquisition, "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial practice in an effort to minimize liability."

Obviously, lenders do not want to loan on an environmentally impaired property due to liability under CERCLA as it may effect their exit; however, there are additional reasons to conduct ESAs. For example, CERCLA excludes petroleum products and asbestos, often the most common causes of environmental contamination. There may also be potential environmental liability on a state or local level. A mandated environmental cleanup by a government agency will likely impact your self-storage income stream, which may be tight to start with. Moreover, contamination identified during site development can substantially increase your hard and soft construction costs. Finally, on-site contamination can significantly impact or negate your exit strategy.

The ASTM Standard Industry Practice

Initially, there were no established standards for conducting Phase I ESAs. Many banks, insurance companies, governmental agencies, REITs, etc., had their own unique protocols for conducting such assessments. But varying levels of inquiry and formats made comparison of reports difficult; Phase I assessments would vary from a single-page letter report for $250 to and in-depth study costing thousands of dollars. In order to provide a level of consistency, the American Society for Testing and Materials (ASTM) created industrywide standards in 1989.

The result of the ASTM's efforts was the creation of E 1527 (Phase I Standard) and E 1528 (Property Transaction Screening). These standards meet the requirements of "appropriate inquiry" established under CERCLA and are now considered the industry standard and good, customary practice. However, there are potential items of environmental concern that are not addressed under the ASTM Standard.

An analysis or discussion of wetlands, which may impact the amount of your site that can be developed, is not required under the ASTM standards. Moreover, asbestos and lead-based paint, items of potential environmental concern that may significantly impact construction costs of a building's conversion to self-storage, are not addressed by the ASTM standards. You should establish the scope of the Phase I with your environmental consultant. Often, this will result in conducting a Phase I in accordance with ASTM Standard E 1527 enhanced for an analysis of wetlands, asbestos-containing materials and lead-based paint.

The Phase I ESA Process E 1527-00

The purpose of the Phase I standard is to identify recognized environmental conditions in connection with a property using the methodology recommended by the ASTM. The objective is for the property owner to qualify for the innocent-landowner defense against CERCLA liability, or to help understand potential environmental conditions that could materially impact the operation of the business associated with the property.

Recognized environmental conditions are defined by ASTM Standard E 1527-00 as: the presence or likely presence of any hazardous substances or petroleum products on property under conditions that indicated an existing release, a past release or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, ground water or surface water of the property. The term includes hazardous substances or petroleum products even under conditions in compliance with laws. The term is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.

The ESA process essentially consists of four components: records review, site visit, interviews and report preparation:

Records Review
The records review consists of the reviewing of records maintained in certain governmental regulatory databases, and the review of historic, topographic and hydrogeologic information. The governmental-database review includes the review of federal and state regulatory databases such as lists of leaking, underground storage tanks. The lists are reviewed to determine whether the subject property--or surrounding properties within a defined distance of the subject property--has known environmental conditions such as a leaking, underground storage tank.

The history of the site is analyzed to determine whether former site usage or the historic usage of nearby properties have resulted in environmental degradation of the site. Essentially, the ASTM Standard E 1527 requires the history of a site be determined back to the earliest of either 1940 or the site's first developed use.

Site Visit
The site-visit portion of the process includes a site reconnaissance of the subject and nearby properties. The purpose is to characterize the on-site conditions and obtain visual evidence of recognized environmental conditions that may impact the subject property.

Interviews
Interviews are often overlooked, but are an integral part of the site assessment. This portion of the process should not be "skimped on" as people knowledgeable of the site and/or its environs can be an invaluable source of information. Interviews should be held with current and former property owners, tenants, neighbors and local and state regulatory agencies. The interviews should be documented in the report along with the interviewee's title, affiliation and phone number.

The Report
Finally, the findings and conclusions are assembled with the supporting documentation in a report. Although providing recommendations is not required, the report should include recommendations and cost estimates. In any event, the inclusion of recommendations should be discussed with the environmental consultant at the start of the assignment.

The Transaction Screening E 1528-00

The transaction screening, ASTM Standard E 1528, is typically conducted on smaller loans--usually those ranging in size from $250,000 to $1 million--because the lender has less exposure. It is much easier to write-off a $500,000 loan than a $5million one. However, inasmuch as environmental remediation costs are based on the size, level, type of contamination and the media impacted, and not the purchase price of the property or the amount of the mortgage, I do not recommend transaction screens for those taking any equity position in of a property.

The transaction screening consists of three steps:

• The completion of an ASTM-designed environmental questionnaire regarding current and past uses of the property and surrounding sites;
• An inquiry and review of governmental records and specific historical sources pertaining to hazardous-waste activity on or near the property; and
• A site reconnaissance and visual inspection.

The checklist or questionnaire is to be filled out by at least three parties, usually the owner, the occupant and the person conducting the assessment. Since the transaction screening is not as thorough as a Phase I ESA, the site will often fail the transaction-screen process, resulting in a recommendation to conduct a full Phase I ESA.

Timing and Costs

Typically, the cost of a Phase I ESA ranges between $1,500 and $2,500 for a standard turnaround time depending on the location, size and complexity of the site. Turnaround times range from two to three weeks, with three weeks being the norm. Transaction screens range in price from $500 to $1,200, and can usually be completed within one to two weeks.

When choosing a consultant, make sure his report will be acceptable to the lender, that he has at least $2 million in Errors and Omission insurance, and he has the depth to follow up on any potential recognized environmental conditions he identifies.

Douglas A. Olson, P.E., manages the Phase I environmental site-assessment department at IVI Environmental Inc., a full-service environmental-engineering firm. IVI is a recognized firm headquartered in White Plains, N.Y., with branch offices in Washington, D.C., Miami, Dallas and Los Angeles. The company, which has extensive experience with investment banks, the CMBS market and rating agencies, conducts more than 1,200 Phase Is per year on behalf of developers, owners, buyers, lenders and insurance companies. In addition, IVI's Phase II and Phase III departments and asbestos department conduct investigations, and remediations and abatements throughout the United States. Mr. Douglas can be reached at 914.694.9600; e-mail [email protected].

 

By David Wilhite

Every self-storage facility owner should be aware of the need to protect his income against business interruptions. If you should sustain a direct physical loss from a fire or other covered cause of loss, the chances are good you will also suffer an indirect loss of income. (Indirect losses refer to the lost profits and fixed expenses that continue month to month whether your facility is operating or not.) You are also likely to incur extra expenses as you attempt to resume your normal business operations.

Business-interruption insurance--specifically, loss-of-income insurance and extra-expense insurance--are designed to minimize your risk in the event of a loss. "Loss of income" refers to the suspension of your business operations by direct loss or damage as a result of an insured cause of loss. "Extra expense" refers to any extraordinary expenses you incur during the period of restoration that you would not have incurred had there been no direct physical loss or damage to property. The "period of restoration" begins with the date of direct physical loss or damage resulting from any covered cause of loss.

Also known as time-element coverage, business-interruption insurance provides several important benefits: 1) it protects you against reduced sales income (and increased expenses) that result from damage to your buildings or business-personal property; 2) it allows you to retain key employees by maintaining their salaries and benefits; 3) it encourages prompt settlement of building and business personal-property losses; 4) it helps you to retain your tenants; and 5) it can restore you to the same position you were in before the loss occurred.

Business-interruption insurance is usually included in most business-owners' policies as a standard endorsement, which might lead you to take it for granted. However, when you consider that business-interruption losses can easily exceed direct-damage losses, the importance of this coverage becomes clear. Business-interruption insurance is of particular value to self-storage facility owners who sustain a covered loss in that it compensates you for lost profits based on your self-storage operations' projected monthly earnings, thus taking into account the seasonal nature of the market.

When shopping for business-interruption insurance, keep in mind that loss-of-income and extra-expense coverages are limited to the actual length of time required to rebuild, repair or replace your damaged buildings or business-personal property. In other words, the amount of financial loss is determined by the length of time it takes to get your facility back in business. For loss-of-income coverage to kick in, the suspension of your business operations must be caused by direct loss or damage as a result of a covered cause of loss. Payment is based upon your operation's past history of seasonal profits and losses. (Note that it is your responsibility to make every reasonable effort to resume complete or partial operation as soon as possible in order to minimize loss.)

It is a surprising but true fact that a small percentage of self-storage facility owners choose to operate without business-interruption insurance, perhaps because the coverage is not required by most lending institutions. However, when you consider the value of this insurance and its very reasonable cost it's very difficult to understand why anyone would knowingly skip this essential coverage.

As a general rule of thumb, it's a good idea to secure a full 12 months of loss-of-income coverage to protect yourself against business interruptions. While it may only take three to six months to rebuild your business after a covered loss, you will first be required to remove debris, obtain bids and building permits, and perhaps face ordinance and zoning requirements prior to starting reconstruction. Since most conventional coverage ends when rebuilding is complete, you should ask your insurance agent about an extended period of indemnity.

This important enhancement provides for loss of rental income during a specific period following reconstruction. While an average retail store or restaurant can begin generating profits as soon as it is re-opened after a covered loss, self-storage facilities may take several months to locate enough new tenants before becoming fully profitable. No matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; call 800.844.2101; fax 480.970.6240; e-mail [email protected]; www.vpico.com/universal.