A Morning Star Mini Storage facility in Norfolk, Va., is the unlikely home to a burgeoning track-and-field training center called the Dungeon, which sits on the self-storage facilitys third floor in a 4,000-square-foot, unfinished space. The center is the fitness hub of more than 30 track-and-field athletes, including several of Virginias top high school performers.

Started in 2011 in a 500-square-foot space by Nansemond River High School track coach Justin Byron and his business partner Jessie Grant, the training center quickly became popular with local athletes who experienced improvements to their technique and event times. When the partners approached Morningstar property manager Felicia Rodriguez about expanding, she offered them the third-floor space, which they rent for $2,000 per month. The gym is equipped with workout equipment as well as track equipment, including hurdles and a 30-meter, three-lane track.

The areas walls are comprised of corrugated metal partitions from the storage units, which Byron and Grant have partially covered with gymnastics mats. There are exposed pipes and insulation visible from the ceiling, but the aesthetics and dim lighting have not deterred athletes traveling from as far away as northern Virginia and Maryland to seek guidance from Byron, Grant and other coaches on staff.

Although successful with its performance results, the Dungeon has not yet proven lucrative for its business partners, who have invested about $12,000 of their money into the venture. Athletes contribute what money they can, but the training center has relied heavily on donations.

"The well is definitely going to run dry one day, so we have to learn how to turn our passion into a profit," Byron said.

Morningstar Mini-Storage operates several self-storage facilities in the mid-Atlantic and southeast states, as well as Nevada, Ohio and Texas.

Ed Burrows, a self-storage manager for Stor-All Systems Inc., which operates self-storage facilities under the Stor-All Storage brand, is participating in several 5K races this year to benefit the companys charitable arm, Loc-all Good. Launched in March, the company initiative promotes employee-community involvement and charitable work in the markets of its 44 facility locations.

Burrows, a manager at a facility in Stuart, Fla., has participated in three races: Torrey Pines Institute for Molecular Studies Race for Research 5K and Half Marathon, the 10K/5K/2K Run for Brianna Cooper Heavenly Smiles Foundation, and the Autism Awareness 5K Run/Walk for Florida Atlantic University's Center for Autism and Related Disabilities.

Although a runner since 2009, Burrows began participating in races in November 2012. I wanted to stay healthy, so I started running every day. I posted my times on Facebook for about a year, and all my friends said I should run in a 5K, he said. However, I didnt feel confident enough to run a 5K until I found the Beach2Bar race. I completed it and, boy, was it fun. Since then I started doing as many as I can and I love it.

Stor-All Storages Loc-all Good program has empowered Burrows to talk about the companys charity with other runners and event coordinators. My peers are impressed that a company would do this for their employees. Being with Stor-All for the past four years makes me proud to be a part of a goodness-driven family business.

Every Stor-All team member is allocated a certain number of Loc-all Good paid hours each month to encourage them to participate in the goodness efforts taking place in their stores hyper-local market. Employees are encouraged to support efforts that address a local communitys environment, goodness-based organizations and compassionate needs, company officials said. Stor-All Storage plans to develop a Loc-all Good website that will serve as a source of information and promotion of employee efforts.

The ultimate goal is the possibility of allowing others to join in hopes of establishing a nationwide network of affiliated Loc-all Good companies and organizations, company officials said.

Founded in 1967, Stor-All Storage operates facilities in Colorado, Florida, Georgia, North Carolina and Virginia from its headquarters in Deerfield Beach, Fla. The company also provides real estate brokerage, asset selection, underwriting, construction, development, property management and investor-relations services to its individual investment partnerships.

While self-storage owners are enjoying a surge in occupancy, revenue and, most important, property value, the U.S. economy continues to work through some messy politics while still registering modest growth. In the face of tax increases and the sequester budget cuts, the U.S. gross domestic product (GDP) is still on pace to grow around 2 percent in the first half of 2013, according to Moodys Analytics U.S. Macro Outlook.

Self-storage continues to benefit from the mobility of the U.S. population, with more than 36 million relocating in 2012. That's an increase of 2.5 percent from the record low of 35.1 million in 2011, according to the U.S. Census Bureau. Most important, consumer spending remains resilient, as demonstrated by increased retail sales in late 2012 and recent trends in big-ticket items such as homes and vehicles.

The same-store revenue reported by self-storage real estate investment trusts (REITs) also indicates a positive trend. It seems the U.S. consumer is comfortable enough continuing to spend money on storage.

Self-Storage Fundamentals: Positive But Still Uneven

The self-storage markets are clearly on the mend. The demand metrics for all major markets have indicated positive occupancy gains for two straight years. More than 80 percent of the country is currently absorbing excesses self-storage space. However, the performance varies greatly by location and market.

The record occupancy levels reported by Public Storage (91.5 percent) and Extra Space Storage (87.8 percent) would indicate that demand is exceeding pre-recession levels, with same-store revenue growth of 4.9 percent and 6.6 percent respectively at the end of 2012. It would be safe to assume that were reaching new levels for self-storage demand.

The unevenness in the self-storage recovery links back to the abnormally slow economic recovery. With a GDP growth rate of 2 percent, theres simply not enough growth to go around. The best properties in each market will continue to outperform the other properties that are competing for the same customer. This is consistent in markets across the board, and I expect the fight for equality to continue through the first half of 2013.

On a positive note, were seeing signs that the demand and the consumers price elasticity for the self-storage product are beginning to trickle down across the entire sector. Were also seeing all properties enjoy an uptick in occupancies and revenue.

Credit Is Flowing

Over the last three years, we experienced a very choppy capital market. However, in the first half of 2013, were seeing a compelling lending environment emerge, at least for the time being. With the self-storage fundamentals firming up, lenders are once again targeting self-storage assets that can earn higher returns.

Over the last three months, the commercial mortgage-backed securities (CMBS) market, which is responsible for about 25 percent of all commercial real estate loans, has provided nearly $21 billion in new loans. This is nearly double the volume during any other stage of the current recovery. Its also worth noting that the pricing of these loans is getting increasingly aggressive, but its also comforting to see the underwriting is generally conservative compared to pre-recession levels, with loan to values remaining in the 65 percent to 75 percent range.

Traditional banks are also becoming more active as commercial real estate trended upward for the better part of a year and a half. With job growth spreading beyond just the usual markets (New York, Washington, D.C., etc.), combined with the loosening credit markets, its safe to assume that investment sales (self-storage properties included) will continue to climb at a steady clip throughout 2013.

Enjoy the Ride

Unlike in previous years, the self-storage investment outlook is easier to spotand its poised for a robust run. Were enjoying increased occupancy, revenue and facility value. All of this is supercharged by the low interest rates and lenders that are willing to give self-storage the respect we all know it deserves.

Today, the downside risks are familiar ones, with the biggest being inflationary risk. This is followed by energy (gas) prices, the Euro crisis that seems to be creeping back into the headlines as of late, and the biggest wild card of them all, the U.S. fiscal policy. Seeing through all of the messy politics and possible downside risks mentioned above, the U.S. economy will grow between 2 percent and 2.5 percent in 2013, enough to create 1.9 million new jobs and assist the commercial real estate markets, including self-storage, in making significant stridesassuming the economy will have no external shocks or self-inflicted wounds.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail [email protected]. To learn more about cost segregation and accelerated depreciation, visit www.argus-selfstorage.com .

The four U.S.-based self-storage real estate investment trusts (REITs)CubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self Storage Inc.have released financial statements for the quarter that ended March 31, 2013. In general, all four entities showed gains in key areas, particularly funds from operations (FFO) and increased occupancy.

"Strong operational and financial performance continues to be driven by occupancy gains across our same-store portfolio," said Christopher Marr, president of CubeSmart. "Notably, we posted sequential same-store occupancy gains of 90 basis points during what is typically a seasonally slow first quarter, contributing to an expanded year-over-year gain of 640 basis points. Meanwhile, our pipeline of external growth opportunities remains steady, and we continue to maintain a measured and disciplined investment approach."

"We experienced another strong quarter. Solid operational performance and record high occupancies have once again helped produce outstanding financial results, said Spencer F. Kirk, Extra Space CEO. Disciplined growth continues to enhance our results, as we have benefited from recent acquisitions and the growth of our third-party management platform. We are optimistic and have confidence in our people, our technology and our properties as we enter peak rental season."

CubeSmart

CubeSmart reported FFO per share of $0.20, a 25 percent year-over-year increase. Same-store net operating income (NOI) at its 328 facilities grew 7.6 percent year over year. The company attributed this to 6.8 percent growth in overall revenue and a 5.4 percent increase in property operating expenses.

The operation gained 640 basis points in physical occupancy compared with the same quarter the previous year. The same-store physical occupancy was 85.7 percent as of March 31.

The company closed on one self-storage acquisition in Phoenix for $6.9 million during the quarter. CubeSmart also closed on dispositions totaling $11.4 million, including four assets in Houston and one in Indianapolis. The Indianapolis disposition completes the companys exit from that market.

On Feb. 21, the company declared a dividend of 11 cents per common share. The dividend was paid on April 15 to common shareholders of record on April 1.

CubeSmart owns or manages 517 self-storage facilities across the United States and operates the CubeSmart Network, which consists of more than 800 additional self-storage facilities.

Extra Space Storage Inc.

Same-store revenue increased 7.5 percent and NOI rose 10.8 percent compared to the same period in 2012. FFO was 46 cents per diluted share, resulting in 39.4 percent growth compared to the first quarter the previous year.

Same-store occupancy grew by 290 basis points to 88.6 percent as of March 31, compared to 85.7 percent at the same time last year.

The company purchased two properties during the quarter for approximately $12.9 million. They are in Illinois and Maryland. Extra Space also has five additional properties under contract for $53.6 million. The acquisitions are expected to close by the end of the second quarter.

The company paid a quarterly dividend of 25 cents per common share. The dividend was paid on March 29 to common shareholders of record on March 15.

Headquartered in Salt Lake City, Extra Space owns or operates 965 self-storage properties in 35 states; Washington, D.C.; and Puerto Rico. The companys properties comprise approximately 640,000 units and 70 million square feet of rentable space.

Public Storage Inc.

Revenue for same-store facilities increased 5.4 percent, or $21.1 million, in the quarter, as compared to the same period in 2012, primarily because of higher realized annual rent per occupied square foot and higher average occupancy. Cost of operations for the same-store facilities decreased by 2.3 percent, or $3.1 million, in the quarter as compared to the same period in 2012.

FFO was $1.57 per diluted common share, compared to $1.35 for the same period the previous year. NOI increased $30.3 million during the quarter compared to the same period in 2012, including $24.2 million for same-store facilities.

During the quarter, the company acquired two self-storage properties (149,000 net rentable square feet) in Arizona and Georgia for approximately $14 million. Public Storage is under contract to acquire another Arizona facility for approximately $8 million.

The company reported a regular common quarterly dividend of $1.25 per common share. It also declared dividends with respect to various series of preferred shares. All the dividends are payable on June 27 to shareholders of record as of June 12.

Based in Glendale, Calif., Public Storage has interests in 2,080 self-storage facilities in 38 states with approximately 133 million net rentable square feet. Operating under the Shurgard brand name, the company also has 188 facilities in seven European countries, with approximately 10 million net rentable square feet.

Sovran Self Storage Inc. (Uncle Bob's Self Storage)

Total revenue increased 17 percent over the previous year's first quarter, while property operating costs increased 14.9 percent, resulting in an NOI increase of 18.1 percent.

FFO for the quarter was 82 cents per fully diluted common share, compared to 75 cents for the same period the previous year.

Net income available to common shareholders for the first quarter was $14.3 million, or 47 cents per fully dilated share. For the same period in 2012, net income available to common shareholders was $11.1 million, or 39 cents per fully diluted common share.

Same-store revenue increased 8.1 percent year over year due to an increase in average occupancy of 530 basis points (87.4 percent), reduced move-in incentives and growth in insurance commissions. Average overall occupancy was 85.7 percent, with units renting for an average of $10.76 per square foot.

Sovran acquired three properties during the quarter in Boston; Long Island, N.Y.; and San Antonio. The properties were purchased through two separate transactions for $22 million and comprise approximately 131,000 square feet.

The company paid dividends of 48 cents per common share.

Sovran, which operates facilities under the brand Uncle Bob's Self Storage, operates 471 facilities in 25 states, with a large presence in Texas.

Strategic Storage Trust Inc.

Strategic Storage Trust, a publicly registered, non-traded REIT, also released its first quarter 2013 financial results. The company reported year-over-year same-store revenue and NOI increases of 9 percent and 19 percent, respectively. The increase in same-store revenue was attributed primarily to an increase in average occupancy of approximately 8 percent.

In all, same-store average occupancy was at 81 percent for the quarter, up from 73 percent year over year. Occupancy for the companys Homeland Portfolio increased to 75 percent from 51 percent during the first quarter 2012. The Homeland Portfolio consists of 12 lease-up self-storage facilities acquired in December 2011 for $80 million.

The company also increased IPA (Investment Program Association) modified funds from operations by 315 percent to $4.6 million during the quarter, up from $1.1 million during the same period in 2012.

Cash flow from operation increased by 103 percent from $2 million during the first quarter the previous year to $4 million for the three months ended March 31, 2013.

The Strategic Storage Trust portfolio includes more than 100 self-storage facilities across the United States and Canada that are branded as SmartStop Self Storage. It includes approximately 70,000 self-storage units and 9.2 million square feet of rentable storage space.

The Florida Self Storage Association (FSSA) will host a webinar that will help self-storage operators manage their online reputation, May 21, 1-2:30 p.m. EST. Presented by Matt Grant, an online strategist with The Storage Group, the event will teach facility owners and managers how to identify what people are say about their self-storage business and how they can influence the conversation. They'll learn about specific, free tools they can use to help with reputation management, best practices for generating positive reviews, and techniques for handling negative reviews.

Registration for the webinar can be completed at https://www1.gotomeeting.com/register/514854536. Interested parties can also click through to the registration page from floridassa.org.

Grant has spent more than 10 years helping people connect with new customers online.

 The Storage Group is an Internet-marketing company that provides self-storage companies with tools and solutions to generate more business. The company's packages include website design and development, search engine optimization, local search optimization, video development and integration, social media, pay-per-click campaigns, reporting and analysis, personalized account management and ClickAndStor, a program that "moves in" self-storage customers online.

The FSSA is a nonprofit organization of businesspeople involved in the self-storage industry in Florida. Its members include facility owners, operators, vendors, developers, investors, property managers and suppliers.

A-1 Sandy Hollow U-Storage in Rockford, Ill., was recently sold to Red Dot Storage I LLC for $648,000. The 25,560-square-foot facility at 5750 Sandy Hollow Road will be rebranded as Red Dot Storage.

The facility is situated on 2.3 acres and consists of five buildings. It contains 169 units ranging in size from 50 to 420 square feet. Located in a Chicago suburb, A-1 Sandy Hollow also offers auto and boat storage.

Red Dot Storage also operates a self-storage facility in Machesney Park, Ill.

Both the buyer and seller were represented in the transaction by Sean M. Delaney, a associate vice president of investments in the Chicago Oak Brook office of Marcus & Millichap Real Estate Investment Services. Delaney is also a director in the firm's National Self Storage Group.

By Rachel Adams

Three quarters of the tenants at U-Securit Self Storage in Conyers, Ga., were in delinquent status before the facility underwent a renovation in 2007. At that time, the office only had standing room for two people. Additional customers had to wait outside, and often left the facility in lieu of waiting in the elements to sign a lease.

The owner invested in a remodel, converting three existing units into a 400-square-foot office and adding a new facility façade. Afterward, delinquency dropped to 8 percent. The approximate $35,000 invested was recouped in only 24 months. Business went from dismal to booming.

While changes in management and marketing can help a struggling facility, sometimes the only way to attract customers and stay competitive is through a proper re-design. Depending on the needs and goals of a facility, a renovation can range drastically in cost and duration. Regardless, the end goal is the sameto stay competitive and increase performance.

Some common refurbishments include adding air-conditioned units, revamping a façade, repairing or replacing doors or roofing systems, adding or improving landscaping, and office TLC. Depending on the amount of work required, the process can be a large and extensive undertaking or simple minor updates and repairs.

To determine whether a facility is renovation-ready, operators should consider their business from their customers viewpoint, says Sharon Pallas, who was the area manager of U-Securit during its renovation. If you have a small area and you want to sell boxes for the extra income or you need to up your services, then renovation is the answer. Sometimes it's just a coat of paint, new flower beds or a little curb service, says Pallas, whos currently the training and special events coordinator for Universal Storage Group, a provider of third-party management services.

Starting with a design and ending with a finished product, a renovation is a multi-layer process. In between, operators will face the city approval process or zoning requirements as well as the back-and-forth design adjustments that often arise during construction.

Depending on the scope, a small project can take a month to design and as little as two months for city approval, according to Tarik Williams, vice president of TLW Construction, a Mesa, Ariz.-based company specializing in light-commercial and self-storage construction. A larger project that involves tear-down, new-build or both might require as little as six months but often at least a year to meet zoning requirements. Costs for minimal projects, like adding or improving an automated gate system, can start around $15,000. A larger project can reach $2 million and beyond.

The Welcome: Facing the Façade

Revamping a facilitys façade has become important in today's competitive market. The entrance to the management office not only provides the customer's first impression but is an important differentiating factor between one facility and another. "When you get back into the property, unless it's an air-conditioned unit, a storage unit is a storage unit," Williams says. "Customers' whole impression of how the whole property is run, how secure it is and how nice it is will be based on where they pull in, where they park, and what it's like when they walk through the manager's door."

Updating the façade can be as simple as new signage and office paint, or as complex as building a new office, repaving the parking lot, adding or moving an automated gate, or installing all-new landscaping. Larger offices have been a trend in self-storage re-design, as many operators now sell retail product that needs display area, Williams points out.

Whether big or small, the office is a key component to the overall look and feel of a facility. "The office lets people know who you are and how you do business," says Linnea Appleby, owner of Lime Tree Management, a Sarasota, Fla.-based third-party management company. "It's the first impression of your business your customers get."

 

Before renovating (left), Hypoluxo Self Storage in Hypoluxo, Fla., had a small office that was cluttered and had no room for retail product displays. See the refurbished office on the right.

Appleby says an office overhaul can be something small, such as paint and new ceiling tiles, or a $15,000 to $20,000 renovation. To find the starting point, operators should incorporate conveniences for themselves and their customers. This might include adjusting the counter height or improving seating.

While renovating the office may be an uncomfortable process, tenants will appreciate the initiative to maintain the property. "Usually, while the process of an office remodel may be uncomfortable for the manager, the inconvenience to tenants and customers can be minimalized," Appleby says. "As long as the operator has made reasonable arrangements to continue business as usual, tenants are usually happy to see improvements to the facility and understanding of long-term work."

Landscapes: Planting the Perfect Picture

When redesigning the façade, updating or adding the landscaping not only gives the facility a fresh look but can help cut costs and deter unwanted visitors. The price to maintain a landscape is an important consideration in the process, and can even be greatly reduced if the landscape is properly designed.

A facility with a lot of grass will require consistent watering and mowing, increasing the expenditure to maintain the look. Drought-tolerant plants, however, will reduce the amount of water needed.  "A properly designed landscape can stop the need for watering after a couple of years once the plants get established," says Ken Carrell, principal of ARE associates, an architectural firm that specializes in self-storage landscapes. "And maintenance can be reduced with the use of the correct types of plants."

"Hostile" plants can be used in a landscape to deter people from climbing fences and entering other off-limits areas, Carrell advises. These plants typically have thorns or other dangerous parts. Some examples include bougainvillea, roses and crown of thorns.

There are various routes to achieve the desired landscape design, including hiring a landscape architect, working with a local nursery or the do-it-yourself route. If cost is a consideration, many nurseries will provide a landscape design for a small fee, as long as the plants are purchased from them. 

The Essentials: Roofs and Doors Need Lovin' Too

Among other improvements, doors and roofs are particularly important because of the essential function they providekeeping tenants belongings secure and dry. While there are some simple fixes to repair roofs and doors, sometimes they just need to be replaced.

Dings and dents are acceptable signs of wear on a unit door. However, when a door is rusted beyond repair, no longer holds paint from excessive paint applications, or fails to open and close properly even after adjustments, it may be time to replace it. "From a visual perspective, doors that look to be in poor condition can often turn a potential renter off, so aesthetically its suggested your doors stay up-to-date," says Amy Fuhlman, director of marketing for Janus International, a manufacturer of steel roll-up doors and building components.

When purchasing new doors, operators should look for ones with tension adjusters and bearings as standard features, cylinder latches for additional security, stainless-steel latches and extruded aluminum-bottom bars to prevent corrosion and rust, suggests Terry Campbell, vice president of sales and marketing for BETCO, a single-source self-storage manufacturer.

Campbell also suggests purchasing doors with a bulb-type astragal over a blade-type to provide a better seal, and to look for a good paint warranty and long-life spring. "If you have a problem in a building, it will most likely be in the door and its most likely to be with the spring," he says.

Safety and maintenance are also important factors to consider. "A tenant's claim due to a poorly-operating door could be financially disastrous for an operator as well as the tenant," Fuhlman notes. "The door should open an close with ease and have an easy tensioning device on the springs to adjust when necessary."

The cost to replace a facilitys doors varies depending on the size, the number of doors and any additional services. The approximate cost to remove an existing door, document the replacement process, replace the door and dispose of the old door is $350, Fuhlman says. Approximately 20 doors can be replaced in one day, she says.  

Facility roofing is another common construction to-do. When a roof leaks in multiple areas, is weathered-looking, cracked, damaged or rusted, it may be time to repair or replace. But before making a decision, operators should have a reputable roofer evaluate the existing structure. If replacement is recommended, operators should solicit a quote from three quality companies, suggests Mick Handloser, national account manager for RoofConnect, a roofing trade organization comprised of more than 60 independent commercial roofing companies.

When comparing bids, Handloser suggests operators consider the manufacturer system, functionality, material warranty, workmanship warranty and cost. Once construction begins, the process can be as short as five days or last longer than two months, depending on the scope of work and size of the roof.

Costs vary depending on the type of roofing system, although operators should consider other factors than just the price tag. "There could be local, state or federal energy savings incentives for installing reflective roofs and/or additional roofing insulation," Handloser says.

Safety: Protect The Tenant and the Facility

Due to the delicate nature of self-storage, certain precautions are required when a unit will be exposed or entered, which is likely to happen during the construction process. Williams recommends constant communication with the facility manager about restrictions on the property. Its especially important to notify tenants when the construction team will have access to a unit, such as when a door or the roof is being replaced. "The more informed [tenants] are about what's going on, usually the less problems you have," he says.

Often, the construction team will invite tenants to supervise the unit if anyone from the construction team needs to enter. "They have certain rights as a tenant, and it's a courtesy to them," William says. "You give them as much opportunity to be there and watch as possible."

William also makes sure to have a member of the team video record the unit when its entered or exposed during construction.

Sometimes construction can be isolated within a facility to avoid safety  and privacy issues. Apple Self Storage in Ontario, Canada, was able to do this when renovating its downtown Toronto facility. In this five-story self-storage facility, tenants had access to the upper floors via an elevator while the lower level was under construction. "We were able to segregate all the construction on the main floor so it didn't impact our tenants whatsoever," says Phil Allan, president of ASL Properties and the owner of Apple Self Storage.

Whether big or small, a renovation can be the stimulus a facility needs to get back in the game. Fresh landscaping, a new roof or an updated office can keep a facility looking fresh, attract more customers and ensure operators enjoy improved functionality and profit. "A renovation can turn a property around in ways that nothing else can, Williams says.