The positive performance of self-storage facilities over the last decade has resulted in a flood of new supply into many markets with little sign of slowing. Even as we draw closer to the end of a prolonged growth cycle, many individual and institutional investors view self-storage as more resilient to economic downturns than other asset classes, such as office buildings and retail centers.

This has created intense competition, especially for owners of older facilities who need to contend with newly constructed properties. Short-term, or “bridge,” financing can help in these situations. Access to an infusion of capital allows an owner to renovate or expand, which can enhance business reputation and strengthen brand identity. Updated sites can also operate more efficiently, saving money and improving income.

An Overview

Bridge financing usually closes quickly and with flexible terms. Due to their short-term nature—often six to 48 months—bridge loans are more expensive than longer-term capital offered by traditional lenders; however, they also offer many benefits:

• Bridge lenders are generally able to provide financing of up to 80 percent loan-to-value and, in some circumstances, may be able to fund within 30 days or less.
• Bridge loans typically have a fixed-rate, interest-only or floating-rate structure, and their non-recourse component is generally negotiable.
• Bridge lenders can provide loan commitments far sooner than with conventional financing, which should provide borrowers a heightened level of confidence in closing.
• The loan-qualification process is more streamlined and less time-consuming.

As the name suggests, this type of financing is designed to bridge gaps and help owners quickly seize on opportunities, pay costs associated with improvements, stabilize a property or buy time to secure permanent financing.

Physical Improvements

Some self-storage borrowers have used bridge financing to reposition their properties and brand identity. From a physical standpoint, this might involve investment in renovations or expansion. Some owners tear down existing, outdated buildings and erect new structures with more space and desirable features, such climate control, which can command higher rent.

Even relatively simple makeovers can make buildings look cleaner and brighter. For example, modern, LED lights can provide better illumination than old-fashioned fixtures, and motion sensors on light switches cut down on waste. Both increase site safety and security while reducing electricity consumption. Other improvements to the physical plant can reduce utility costs, prevent losses and make the property more attractive to potential customers, who are willing to pay more for modern amenities, perceived as greater value.

Operational Improvements

Another way to take advantage of a bridge loan is to implement operational improvements, which can make a real difference in optimizing performance and providing a tremendous return. Investments in this area might include the latest software to help automatically increase unit prices when conditions are ripe, or modern technology and automation tools. Short-term capital can allow owners to implement these solutions and realize revenue increases.

Smaller self-storage operators can use bridge financing to fight other expenses, such as rising property taxes. Many cannot effectively battle these increases without some short-term capital to help prosecute appeals.

Staying Competitive

Making physical and operational improvements to storage assets is a strong way to fight newer competition. Despite the influx of fresh supply, new properties have largely been able to find customers during lease-up. In some areas, however, they’ve driven down rental rates, increasing the importance of property features and benefits just to keep pace.

Meanwhile, developers still plan to open thousands of new self-storage facilities nationwide. For example, in cities like Portland, Ore., and Nashville, Tenn., developers have planned new assets that, if completed, will increase market inventory by more than 20 percent. Development activity in those areas has already been high, with increased competition forcing down rental rates more than 5 percent over the last year, according to Yardi Matrix.

When challenged by competition, strategic owners look to invest in physical and operational improvements. Bridge loan are a smart and efficient way to infuse your plan with the necessary capital.

Billy Meyer is managing director of real estate bridge lending for Seattle-based Columbia Pacific Advisors LLC, which manages more than $1 billion across a variety of alternative investment strategies including private real estate, real estate lending, growth capital, private equity and distressed debt. To reach him, call 206.734.3979; e-mail [email protected]; visit www.columbiapacific.com.

U.K. self-storage operator Lok'nStore Group PLC has released interim financial results for the first half of its 2019 fiscal year, which ended Jan. 31. Self-storage revenue increased 10.4 percent year over year to £8.08 million, with revenue for same-store facilities growing 4.7 percent. Overall occupancy was up 8 percent compared to the previous year, while same-store occupancy increased 2.4 percent. The average price per square foot increased 1.4 percent across the company’s portfolio compared to the same period last year.

During the six months, Lok’nStore opened a new location in Dover, England. It also acquired an existing facility in Southampton, England, and two development sites. It has eight contracted facilities in its pipeline.

“Lok’nStore’s trading is strong and our outlook remains confident. With low gearing helped by capital recycling, we will continue to build more landmark stores in a structurally undersupplied market,” said CEO Andrew Jacobs. “Our objective is to open more landmark stores while remaining conservatively geared, delivering sustainable growth and consistently increasing dividends.”

Founded in 1995, Lok’nStore builds, buys or leases large warehouses or industrial buildings and rents storage units to customers on a weekly basis. It operates 31 self-storage facilities in Southern England. The self-storage portfolio is comprised of 14 freehold or long-leasehold properties, eight leasehold sites and nine locations under management.

Source:
Lok’nStore, Lok’nStore Group Plc Announces Interim Results for the Six Months to 31 January 2019

Shurgard Self Storage Europe SARL, the European affiliate of U.S.-based real estate investment trust Public Storage Inc., has released financial results for the first quarter that ended March 31. In general, the company showed gains in key areas, particularly in operating revenue and net operating income (NOI), according to a press release.

Highlights include an operating-revenue growth at constant exchange rate (CER) of 6.1 percent for the quarter. Same-store revenue grew 1.2 percent using CER, which was in line with company expectations. All stores’ NOI margin increased by 1.5 percentage points to 56.2 percent for the quarter, while same-store NOI grew 1.3 percent to 56.4 percent. Adjusted earnings on the European Public Real Estate Association (EPRA) Index are in line with company expectations at €22.3 million for the first three months of the year.

“After our successful last year, the first-quarter performance is in line with our expectations,” said CEO Marc Oursin. “Our revenue growth is positively impacted by the increased number of properties in our non-same-store pool. We have added one store in our development pipeline in Paris. Our balance sheet and financing allow Shurgard to seize multiple opportunities and to strengthen our organic development.”

Among the seven European markets in which Shurgard operates, the company’s U.K. same-store portfolio posted the largest year-over-year revenue gain at 7.2 percent. Germany was second at 2.9 percent. Same-store locations in Sweden performed the weakest, with revenue falling 5.1 percent compared to the same period a year ago.

Shurgard operates 231 self-storage facilities comprising 1.2 million net rentable square meters in Belgium, Denmark, France, Germany, The Netherlands, Sweden and the United Kingdom. Its network serves 150,000 customers and employs more than 700 people. Shurgard is listed on Euronext Brussels under the symbol “Shur.”

Based in Glendale, Calif., Public Storage has interests in 2,429 self-storage facilities in 38 states, with approximately 162 million net rentable square feet. Operating under the Shurgard brand name, the company also has 232 facilities in seven European countries, with approximately 13 million net rentable square feet.

You might face numerous challenges when designing a self-storage facility, but no matter the hurdle, you can usually clear it with a bit of planning. In fact, when confronted strategically and with some imagination, obstacles can often be used to your advantage. Let’s examine three common design impediments and how to overcome them.

Challenge 1: Steep Slopes

I like steeply sloped sites because you can use the hill to design a multi-story building with drive-up access. This maximizes profit and even saves money, as you don’t need elevators.

For example, at a two-story facility in Auburn, Calif., we used the slope to enable drive-up access to both floors. Tenants can reach the upper level from the front of the building or drive down a ramp to the lower level on the other side. The advantage is there’s no need for an elevator or stairs, which increased the net leasable area. Plus, the lower level is somewhat insulated by the earth, making climate control much more affordable.

Challenge 2: Small Lots

Small sites can be very good for self-storage. In urban and suburban areas, there generally aren’t large lots for big, sprawling facilities anymore. Small parcels provide development options, though you do have to build up or down to get the square footage you need.

In Whittier, Calif., one developer built a three-story facility comprising 59,000 net rentable square feet on less than an acre, despite several city restrictions. Even with competitors in the area, the property leased up in just a few months.

Another facility in Newark, Calif., comprises more than 100,000 square feet of rentable space on just 1.96 acres. The three-story, 135,884-square-foot building features a 2,000-square-foot office to showcase services and amenities, including a workspace where customers can sit with a laptop, access the Internet and print documents. There’s also a conference room. This site even rents offices with attached storage space, similar to executive suites. These have proven to be very popular and are almost always full.

Challenge 3: Conversions

Large buildings that were originally designed for a different use (grocery stores, warehouses, big-box stores, etc.) can be redeveloped into very nice self-storage facilities. A primary benefit is the cost of conversion is generally a lot less than new construction.

In Pasadena, Calif., a developer converted a warehouse into self-storage. The original structure, a small office, was built in 1945; but over time, seven single-story buildings were added. Fortunately, there was enough clearance inside the buildings to create a second floor, which dramatically increased the square footage. The finished product is 134,000 gross square feet with 100,000 square feet of net leasable space, including 5,000 square feet of high-security art storage and 10,000 square feet of wine storage.

Elsewhere in Pasadena, a four-story building with a basement and parking garage was converted to 123,000 square feet of leasable space. Since the retail building already had an HVAC system, the designer made the entire facility climate-controlled.

Another option with conversions, particularly where there’s a large existing parking lot, is to add new storage buildings against the current structure to offer drive-up in addition to interior units. This was done on one project in Hawaii, where an existing metal building was converted to self-storage. The designer simply added doors to the existing exterior at very little cost, and then added two buildings, including one with a covered loading/unloading area. The result was 48,000 rentable square feet. The approach cut down on the number of openings that needed to be cut into the walls, which can be expensive.

Overcoming design challenges means thinking outside the box. While there will always be sites on which you just can’t build, with careful planning, smart strategy and some imagination, even challenging properties can produce outstanding self-storage facilities.

Kenneth Carrell is the principal architect at ARE Associates in Lake Forest, Calif., an award-winning architectural firm specializing in the self-storage industry. For more information, call 949.305.4752; visit www.areassociates.com.

The governors of New Mexico and North Dakota have signed bills that allow self-storage operators to sell tenant insurance. New Mexico Gov. Michelle Lujan Grisham signed Senate Bill 378 (SB 378) on April 3, giving storage operators the opportunity to become licensed insurance producers under authority of the state insurance superintendent. In North Dakota, House Bill 1391 (HB 1391) was signed on March 28 by Gov. Doug Burgum and allows storage operators to sell tenant insurance with a limited-lines license.

The New Mexico Legislature passed a self-storage tenant insurance limited-lines license bill in 2017, but the measure was never signed by then Gov. Susana Martinez, and became a pocket veto. SB 378 allows operators to sell tenant insurance under an individual policy as well as commercial, corporate, group or master policies.

To obtain a license, operators must provide the insurance superintendent with a complete list of facilities where policies will be offered, along with a list of employees authorized to sell them. The list must be updated annually, kept for three years and made available to the superintendent upon request. Insurers must also maintain a registry of self-storage locations authorized to sell its policies and make it available to the superintendent upon request, according to the bill.

SB 378 prohibits self-storage employees from receiving commissions for selling tenant insurance based on the number of policies sold, unless the compensation would be considered “incidental” to “overall compensation.”

Authorizing insurers must oversee the administration of an operator’s insurance program and provide training to authorized employees who’ll be selling policies to tenants.

The new law goes into effect on July 1.

In North Dakota, HB 1391 allows self-storage operators to hold a limited-lines license from the insurance commissioner to sell tenant insurance. Similarly, the business owner or supervising insurer must maintain a list of locations authorized to sell insurance and provide a copy to the commissioner within five days when requested.

HB 1391 requires self-storage owners to assume responsibility for any representations of the insurance made by employees authorized to sell policies. Similar to the New Mexico legislation, it allows operators to sell tenant insurance under commercial, corporate, individual, group or master policies. It also requires the supervising insurer to help develop and implement a training program and limits the scope of commissions that can be paid to employees selling insurance.

Sources:
New Mexico Legislature, 2019 Regular Session - SB 378
North Dakota Legislative Branch, Bill Actions for HB 1391
SSA Magazine Weekly 4/29/19, Tenant Insurance Bills Signed in New Mexico and North Dakota

BinSwap, which provides valet self-storage services throughout the greater Chicago area, has launched a charity program to support to the local chapter of The Salvation Army. Through BinSwap Cares, it’ll now pick up donated items from its customers and transport them to the nearest donation center at no charge. To be eligible, customers must store at least one bin with the company.

BinSwap will provide donation bags and accept items of up to 50 pounds, according to a press release. Acceptable items include clothing, small household items and appliances. A receipt for tax purposes is supplied upon pickup. The donations will support The Salvation Army’s Adult Rehabilitation Centers, which assists those struggling with alcohol and drug addiction.

“Spring cleaning is not just a time to store what you no longer use through the summer months, but it’s also a time to donate items you no longer need,” said Alex Pearsall, who co-founded BinSwap with Angus Frost. “We are providing an easy, convenient way to do both—to store winter clothes, sporting equipment and more until they are needed, as well as to give away items to those in need.”

BinSwap launched with community service as part of its model. The company initially donated 25 percent of proceeds to local schools chosen by each customer. It has since expanded its philanthropic efforts to other initiatives, including the Oak Park Festival Theater and Roscoe Village Neighborhood.

The Salvation Army has been serving communities around the world with local programs and initiatives aimed at immediate relief, short-term care and long-term growth since 1865. The organization has more than 1.7 million members.

Launched in January, BinSwap serves more than 45 Chicago neighborhoods. The company uses an online platform that allows customers to schedule item pickup, maintain a visual catalog of stored belongings, and schedule delivery of specific bins or bulky items to their home.