US Storage Centers, which owns, operates or manages more than 75 self-storage facilities in 10 states,  has acquired the former Storage America facility in Delray Beach, Fla. The property at 1425 S.W. 10th St. encompasses 49,124 square feet of storage space and 568 units. It will be rebranded as US Storage Centers.

“We are very excited about this acquisition because of the opportunity to add value through revenue management and marketing,” said Drew Hoeven, vice president of acquisitions. “This marks our sixth acquisition within the Miami [metropolitan statistical area] and really adds to our local scale and brand.”

The company is also in negotiations on two other self-storage properties in the Miami market, and hopes to close the deals by the end of the third quarter, according to a press release.

“With our long-term outlook, we believe this property fits very well strategically within our portfolio,” said Charles Byerly, president and CEO. “It has all of the right fundamentals in place, and we were able to achieve some downside protection through acquiring the property at an above-average [capitalization] rate.”

Founded in 1985, US Storage Centers operates self-storage facilities in Arizona, California, Colorado, Florida, Georgia, Maryland, Massachusetts, Nevada, Tennessee and Texas. The company currently has more than 5 million rental square feet under management and employs more than 200 people.

By Lucia Darnell

Latin America is a part of a world primed for self-storage development. The area includes South and Central America, the Caribbean, and Mexico, all of which have seen an improved economy, cultural changes and an influx of foreign visitors in the last decade. Self-storage is still a relatively new concept in region, and all of these factors are shaping industry development.

The Economy

The improvement in the economic conditions throughout Latin America has made development a very worthwhile investment for self-storage companies and financiers. One reason is more of the populace is now considered “middle class.” They have some extra money left over after bills, taxes and other necessities are paid. A larger middle class means more small businesses are able to start up and thrive. Both of these groups are great target markets for storage!

An increase in middle-class citizens has also had an impact on living conditions. In the past, extended family members resided together under one roof, for financial reasons and because of tradition. Young, single people could not afford to move out on their own, and it was expected for them to live at home with their parents.

Nowadays, with better financial circumstances, many young adults are moving out of the family home and into newly built high-rise apartments. These affordable residences, however, are extremely small and lack storage space, creating a need for off-site storage rental. Urban areas are even building planned communities that have apartment complexes, retail outlets and storage facilities all within close proximity to each another.

More expendable income among the middle class allows small-business owners to flourish. Many have found they’ve outgrown the available storage in their home or small workspace. Instead of moving into a larger house or paying for an expensive office, it’s often more economical to rent off-site space to store their supplies and goods. Storage facilities are now catering to this niche by leasing workspace specifically designed for entrepreneurs. Small-business owners have access to their own climate-controlled “office” with fax machines, copiers and Wi-Fi. And, of course, they’re in close proximity to their storage space!

Cultural Changes

A change in cultural and religious views has played a large part in the increased need for self-storage development in Latin America. In these primarily Catholic nations, single people traditionally lived with their parents until marriage not only because of financial constraints but for religious reasons. Cultural views are changing, and many singles are moving out of the family home into their own apartment. From there, some move in with their partner before marriage, making temporary storage useful until further plans can be made.

Divorce is more commonplace as well, now that it has become more socially and culturally accepted throughout Latin America. (Chile was the last country in the region to legalize divorce, in 2004.) Temporary storage is again rented in this situation.

Foreign Visitors

Groups from all over the world are visiting Latin America for myriad professional and personal reasons. Foreign companies need to rent secure storage to house their equipment. Foreign travelers need temporarily storage for their belongings.  

The 2016 Summer Olympic Games will be in Brazil. Scores of global companies are currently involved in the preparation for these games, with the anticipation of thousands of international athletes and their families arriving in a few short years.

The newly elected Catholic Pope Francis hails from Argentina. His first official trip as pontiff was to Brazil, with more trips to the area expected in the future. This has made South America a land to which many devout Catholics wish to pilgrimage.

Machu Picchu is in Peru. Built by the Incas circa 1450, it is a bucket-list destination for history buffs and archeologists alike. The Panama Canal is also in Central America. It’s an important maritime passage with worldwide business interests.

Beautiful beaches are found throughout the Caribbean. Honeymoons, business trips and second homes are popular in this area.

Mexico has its close proximity to the United States and leads the way in Latin America for its number of self-storage facilities, with approximately 200 of them. Compare that to the 55,000 storage facilities in the U.S.

The scarcity of storage space available for rent, the increase in potential renters, and the lack of competition are all catalysts for self-storage growth in Latin America. Imagine what we can expect for this industry in the next 20 years!

Lucia Darnell is the assistant vice president and Spanish business director for PhoneSmart, an off-site sales force that provides self-storage operators with call-center services and employee-training programs. She was previously a secretary for the Latin American Self Storage Association as well as a liaison for Latin American operators. She's also an expert in operations and offers training in Spanish to self-storage owners and managers. To reach her, e-mail [email protected]. For more information about PhoneSmart; visit www.phone-smart.info.

In the business of buying and selling self-storage properties, the discussion for buyers and sellers always ends with capitalization (cap) rates. Unfortunately, most people don’t fully understand all the ramifications of this simple-sounding number. It’s also clear we have many new investors in the marketplace who have never bought an income-producing property and are just learning the basic math. Hopefully, this summary will help clarify this mysterious yet fundamental concept.

What Are Cap Rates and Why Use Them?

Real estate valuation is a very complex business, with many variables that affect the price. Over the years, real estate professionals found they needed a way to compare property values (price) in a market using a shorthand method, thus cap rates came into general use.

Essentially, cap rates tell an investor what he should expect to earn as a percentage if he purchases a property using all cash. For example, if an investor thinks a property is worth a 7 percent cap rate, then he expects to receive an unleveraged 7 percent cash-on-cash return.

When the net operating income (NOI) is divided by the cap rate—voila!—you arrive at a property value. This method is essentially a way to develop a price based on an income stream. The net result is the lower the cap rate, the higher the value; the higher the cap rate, the lower the value. This is only one of the three methods used by appraisers to value a property, but it’s the one most focused on by investors. It’s primarily used because it does a very good job correlating property values and helps facilitate comparison between markets.

The Underlying Assumptions in Calculating NOI

As with any good rule of thumb, there are certain assumptions that are implicit in the calculation of the NOI. For cap rates to be useful and comparable, the NOI must be calculated on a consistent basis on all properties. For example, the operating expenses must be similar in nature and somewhat standardized to compare “apples to apples.” The first assumption when calculating the NOI is that all revenue must result from reoccurring operations of the property (rental revenue) and not from an asset sale or insurance recovery.

Second, depreciation and debt service should not be deducted from revenue to arrive at the NOI. Depreciation and financing costs do not reflect value but merely tax issues and capital structure. These revenue assumptions are clearly defined and are almost universally applied.

However, assumptions related to expenses are less uniformly applied and result in significant misunderstanding, particularly among sellers. The assumptions should include that the property is properly insured and advertised in a professional way. Property taxes should be adjusted to what the new valuations will be at the time of sale.

Further, the expense numbers need to reflect the market-labor cost of running a self-storage property, which should include an onsite manager’s salary if the owner is currently doing the work for free. It’s also assumed the operating expenses include an off-site management fee over and above the onsite management expense. This will range between 4 percent and 6 percent of gross revenue depending on the size of the property.

Many owners will say some of the assumptions don’t apply to them for various reasons, but I can assure you there are almost no exceptions in the marketplace of real sales. In the end, ignoring these assumptions is, at best, self-deception and, at worst, can have serious impacts on the financing or sale of a property.

Why Do Some Properties Have Higher or Lower Cap Rates?

Since all properties are not alike, they can command different cap rates. The variations from normal cap rates (today between 6.5 percent and 8 percent) usually reflect the quality of the project and the risk to the investor. For example, a 40 percent vacant, metal-building project in a rural area would require a higher cap rate to reflect the increased risk and lesser-quality asset. On the other hand, a large masonry project with full security in a growing metropolitan area with consistently increasing rents would command a premium cap rate, perhaps in the range of 6 percent to 7 percent.

Once again, while the cap rate may vary, the underlying assumptions about the NOI do not. Property valuations are somewhat subjective, but our collective experience would indicate that knowledgeable buyers and sellers agree on the quality of the NOI and with the risk variances that lie in the very narrow range of cap rates.

Do Cap Rates Really Reflect the Market?

The answer is unequivocally “yes”! If cap rates did not reflect the marketplace accurately, we would not be using them in so many ways. The chart below will give you an idea of how cap rates have varied over the last 10 years. Please keep in mind it takes into consideration all self-storage properties around the country. Remember, a property in a small city or town will not command the same low cap rate as one in San Francisco or Midtown Manhattan.

As you can see, the market has seen a constant decline in cap rates for self-storage properties over the last 10 years, from an average of 10 percent in 2000 to 6.25 percent in 2013. This is largely due to the increased industry data now available that indicates the overall risk associated with owning self-storage is much less than once thought. Not to mention we have had a great run of low interest rates for the past decade that has also fueled the increase in value of almost all income-producing real estate, including self-storage.

However, the most intriguing metric in the chart is the spread between cap rates and interest rates, indicated by the red line. As you’ll notice, the trend is less constant than the more consistent cap-rate and interest-rate trends. The narrowing of the spreads between cap rates and interest rates today would indicate the market is realizing, once again, that the stability of self-storage income streams is very durable.

This review of cap rates provides you with the very basics of how they work and their effect on valuation. It should allow you to arrive at a ballpark value for your new investment or current self-storage property. However, you must be impartial when making the judgment call required regarding income and expenses, and then compare your project to other comparable sales in your market to arrive at an appropriate cap rate.

If you’re considering professional advice when evaluating a self-storage investment, it’s important to consult with a real estate professional who specializes in self-storage. Like any business, there are some things unique to this industry with which an average real estate professional may be unfamiliar, regardless of his other experience or intentions. Understanding and setting the value of a property is the single most important step in the investment process.

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]; visit www.argus-selfstorage.com.

A family-run car dealership and rental facility in Exeter, England, has launched White Horse Self Storage on an adjacent property. The owners of White Horse Motors and White Horse Rentals purchased a former wrecking yard next to the dealership and spent nine months converting it into a storage facility, according to the source.

The company has hired Paul Lamb-Cooper to serve as its property manager, but some dealership and car-rental staff will also have duties at the storage business, the source reported. Upgrades to the property include new perimeter fencing and closed-circuit television.

The facility offers portable containers for self-storage as well as covered storage for cars, boats, campers, RVs and horse trailers. White Horse used guidelines from the Caravan Storage Site Owners’ Association (CaSSOA) in setting up the facility. The association is a U.K.-based organization focused on site security that offers three levels of accreditation: gold, silver and bronze. White Horse earned a gold award from CaSSOA, according to the association website.

“We had a very extensive audit of the site, which specified things like where barriers, security gates and fire extinguishers had to be,” White Horse Marketing Manager Tim Wood told the source. “It gives customers that extra peace of mind and reassurance.”

The facility is targeting commercial and residential self-storage customers and has already experienced “strong demand” from vehicle owners, the source reported.

Safeguard Self Storage has purchased land in the Uptown neighborhood of Chicago on which it plans to build its 69th storage facility. The asset at 5026 N. Sheridan Road will be the company’s 12th in the Chicago market. The company currently has another facility under construction in Chicago’s West Rogers Park neighborhood. Both locations are expected to open next year.

Safeguard announced its intent to expand its market presence in January. “The Chicago area is a terrific market for Safeguard and provides the company with the opportunity to add value to the Safeguard portfolio,” said Allan Sweet, CEO. “This property is in a region where the company already owns and operates stores, and we consider its addition to our real estate holdings as an important next step for the company.”

The Uptown facility will comprise 52,000 square feet in 770 storage units. Amenities will include climate control, a drive-up loading area, coded access to the building and security video cameras. The building’s façade will be designed to blend in with the surrounding neighborhood, company officials said in a press release.

“The Uptown store, similar to all our Chicago facilities, is designed to provide an exceptional customer experience,” said Ken Finlay, senior vice president of operations. “This facility will complement our product offerings in Illinois and demonstrates our commitment to and confidence in this strong market.”

Headquartered in Atlanta, Safeguard Self Storage was founded in 1989 and currently operates more than 60 facilities in Florida, Illinois, Louisiana, New Jersey, New York and Pennsylvania. The company is owned and operated by Morgan Stanley’s Prime Property Fund.

Burlington Self Storage, which operates four facilities in the Northeast, recently opened its fifth property in Derry, N.H. The company converted an existing manufacturing building into a single-story, drive-in self-storage facility.

The building had existing mezzanine, which was extended to create an additional 30,000 square feet of storage space, according to a press release. After the loss of the interior driveway and hallways, the total rentable square footage of the facility is 53,000 square feet.

“When I saw the building, I immediately knew we could covert this to drive-in self-storage,” said company president Chris Capozzoli. “This has not been seen in this area. You drive in the building and out of the weather. The response has been tremendous.”

The property offers direct-access units off the drive along with first- and second-floor units, which can be accessed with lifts. The office includes a fireplace, customer seating, and a coffee and cookie bar. Additional amenities include Penske truck rental, video cameras, a conference room, vehicle storage, and packing and moving supplies.

  

 

 

SpareFoot, an online marketplace for the self-storage industry, is expanding its headquarters in Austin, Texas, to accommodate the company’s continued growth, according to “The SpareFoot Blog.” The expansion will nearly double the size of space the company occupies in the Perry Brooks Building at 720 Brazos St. in the downtown area.

SpareFoot currently occupies 13,683 square feet of office space on the third, fourth and fifth floors. A new lease will add 8,054 square feet of space in Suite B700 on the first floor and 2,950 square feet in Suite 520 on the fifth floor. SpareFoot employees are expected to occupy the new space this fall.

“When we initially occupied the third floor of the Perry Brooks Building in early 2012, it was hard for me to imagine that we’d ever fill up the space. It just looked so empty,” said Chuck Gordon, co-founder and CEO. “Through a series of add-ons since then, we have kept expanding our space. Now, we have taken our biggest leap yet in securing more space to provide room for our ever-growing team.”

SpareFoot expects to have about 190 employees at its headquarters by the end of the year. The company currently employs 160 people. “We need more team members at SpareFoot to serve our expanding base of customers who are shopping for self-storage units and to serve our expanding inventory of self-storage facilities across the country,” Gordon said.

The build-out of Suite B700, once home to bedandbreakfast.com, is set to start in late June and end in late August, according to Lucas Walters, SpareFoot’s vice president of finance. The company’s call-center representatives will work in the new offices. SpareFoot currently has 58 call-center representatives but plans to grow the division to 85 employees.

The fifth-floor build-out is set for late August and will end in late October, according to Walters. It will house the company’s product team, development team and cafeteria.

Doug Jones of Colliers International brokered the lease on SpareFoot’s behalf, and Austin, Texas-based S. Tipton Studio is designing the new space. The general contractor for the project hasn’t been hired yet, Walters said.

Founded in 2008, SpareFoot helps consumers find and reserve self-storage units, with comparison shopping tools that show real-time availability and exclusive deals. With a network of more than 7,000 storage facilities ranging from mom-and-pop operations to real estate investment trusts, the company reaches prospective storage renters though partnerships with brands including SelfStorage.com, Apartments.com and Penske Truck Rental.

A self-storage development proposed for Mesquite, Texas, received zoning and site-plan approval this week from the city council, countering the denial recommendation issued by the city’s planning and zoning commission. The project faced hurdles because the 3.78-acre property at 1350 N. Belt Line Road had been zoned for residential use, and the city adopted a new set of standards last July that specifically address self-storage.

To gain council approval, the developer submitted a design plan in which the façade of the structure will resemble a retail building. Retail liners are now required by city code to make self-storage facilities more aesthetically pleasing, according to the source.

Maxwell Fisher, a land-use consultant at Dallas-based Masterplan, a firm specializing in consultation services related to zoning, subdivisions, building permits and other development approvals, argued the property was not conducive for residential use due to its size, configuration and proximity to an auto-repair business. Fisher represented the developer during the proceedings.

The zoning commission had recommended against the project because it deviated from the ordinance adopted last year, which says any leasable space along the street side of a self-storage building must align with the city’s Community Appearance Manual and create activity along the outer perimeters of a facility, the source reported.

Although the look of the self-storage building will resemble that of a retail establishment, the developer does not plan to incorporate retail space on the site. “We have tried to comply with the ordinance as much as we can,” Fisher said. “It’s difficult to try and force retail into [this] site. We’d be putting retail on the front, and we think by doing that you are going to set yourself up for inferior retail or vacant retail for a prolonged period of time. We have tried to meet the spirit [of the code].”

Two alternative site plans were submitted by Richard Gertson, Mesquite’s community-development director, to bring the self-storage design in line with the city’s code; but the council ultimately approved the developer’s plan.

“Given the circumstances of the site, what the developer is proposing is a significant effort to give that appearance, rather than not seeing some [low-end] retail uses,” council member Greg Noschese said. “They have done a good job, and I am going to be supporting this. I really appreciate the applicant’s effort.”

Metro Storage LLC, which operates more than 80 self-storage facilities in 11 states, has purchased the three-property Atlanta portfolio owned by Georgia Self Storage. The facilities comprise 230,435 rentable square feet in 1,775 units. The acquisition increases the number of Metro Self Storage facilities in the region to 12.

“The acquisition of these three quality self-storage facilities fits well with Metro’s current Atlanta store portfolio and our overall strategic growth plans.” said Matthew Nagel, chairman of Metro Storage.

Two of the facilities are in Lawrenceville, Ga., and one is in Rex, Ga. The first Lawrenceville property, at 2220 Lawrenceville Highway, comprises six self-storage buildings, while the second, at 1935 Buford Drive, has three buildings. Both facilities offer climate-controlled and drive-up units as well as vehicle storage.

The Rex property at 6472 Highway 42 comprises seven storage buildings and offers climate-controlled and drive-up units as well as vehicle storage, including boat, RV and truck parking.

Metro Storage closed on all three properties on June 3. “This is an exciting acquisition for us.” said Blair Nagel, Metro Storage CEO. “It will enable us to leverage our strong presence in the Atlanta market to maximize revenue and occupancy at the new stores, while continuing to deliver an exceptional storage experience for our customers.”

Dale C. Eisenman, president of Midcoast Properties Inc., a commercial real estate brokerage specializing in self-storage, represented the seller in the transaction. The company offers brokerage services in Georgia, North Carolina and South Carolina.

Headquartered in Lake Forest, Ill., Metro Storage is a privately owned, fully integrated real estate operating company specializing in the development, acquisition and management of self-storage facilities nationwide.

Shepherd Self Storage in Boardman, Ohio, is hosting this year’s Armstrong Street Scene Car & Custom Bike Show on June 8, with all proceeds benefiting Second Harvest Food Bank of the Mahoning Valley. Sponsored by cable-TV provider Armstrong, the event will be held at 7469 South Ave. from noon to 4 p.m.

Vehicle registration is from 9 a.m. to noon and costs $10 per vehicle. Admission is free to spectators. Anyone who donates a nonperishable food item will be entered into a raffle to win prizes. The event will also include a 50/50 auction, food from Roberto’s Italian Ristorante and music by WBBG-FM DJ Thomas John.

The car show will include awards for contestants, including 26 first-place awards, 26 second-place awards and two “Grand Champion” awards. Goodie bags, dash plaques and door-prize tickets will be given to the first 200 registrants.

The “The Big Bad Dodge,” a 1964 Dodge 330 drag-race car with a limited-production, 426-race Hemi engine and 125 mph speed record, will be featured courtesy of Don Snyder. Rick Gurrera, host of the local television series “Street Scene,” will be joined by guest host Krysta Sylvester to provide a live recording of the event for the series premier on Armstrong Channel 20/100.

Armstrong is a broadband cable-services provider in Kentucky, Maryland, Ohio, Pennsylvania and West Virginia. The company’s charitable arm, Breaking Bread, is an ongoing initiative to feed the hungry.

Second Harvest Food Bank solicits, stores and distributes food to hunger-relief organizations in Ohio’s Columbiana, Mahoning and Trumbull counties in Ohio, also providing education and advocacy.

Shepherd Self Storage offers indoor, drive-up and vehicle storage. The facility regularly hosts events including outdoor exhibits, tradeshows and fundraisers. Its Shepherd Event Center offers up to 40,000 square feet of indoor event space and a 3.2 acre outdoor, paved lot for events or parking.