CORPORATE PROFILE

By Tom Brecke

When Hi-Tech, the makers of the Mini-StoragePlus management software system, decided to create a Windows-based software program nearly three years ago, the company tried a novel approach: It got a little help from its friends.

Mike Richards, president of Kailua, Hawaii-based Hi-Tech, recruited more than 20 self-storage-industry veterans to form an advisory committee to attain feedback on what would become Hi-Tech's newest software offering: RentPlus. The committee, made up of operators, owners, managers and construction personnel, among others, offered input to Hi-Tech during the design process of RentPlus. The group helped the 15-year-old company better understand what today's self-storage community is looking for in management software.

"We looked for a cross-section of skills and experience," says Richards. "What we did for more than a year was send out questionnaires to this group saying, 'This is what we're thinking of doing. What are your thoughts about this particular topic?'"

The questionnaires ranged from such software-specific topics as the move-in process to what size print works best when reading a print-out.

"In this way, we got a lot of people involved in the design process and it was very much a team effort as to the final design of our program," he says.

RentPlus Is Born

What resulted was a program that Hi-Tech began shipping earlier this year and has been met with rave reviews, according to Richards.

He says the RentPlus is very visual--a key to software programs that Hi-Tech attempted to build on--and offers several features, such as its color facility map that allows the user to click on an individual unit on the computer screen and be able to see its immediate status. If the unit is occupied, Richardson says all of the current renter's information appears on the screen, including their account, and gives the user the option to take payments, move the occupant out or change an address.

"When they're looking at the screen, they see a map of their facility, where the various units are laid out in the relative size, how they are laid out and where the corridors and aisles are," explains Richards, who adds that the units on the screen are color-coded as to their status. "What we've done is make it a very visual experience to run your facility. You're basically looking at a map of your facility and anything you want to do, you find the unit, click on it and off you go."

RentPlus also comes with a map editor that allows operators to place and drag units around the screen to match the facility's alignment. It also works with multi-floor and multi-building designs, as well.

Accommodation

Another feature of the new RentPlus system is its ability to handle rental periods other than monthly. Whether it's daily, weekly or monthly, RentPlus will process any time period the tenant wishes.

For Richards, this function is all part of adaptability and customer service that has become so crucial to being competitive in the industry.

"One of the key points we tried to program into the whole thing was the ability to accommodate all your different customers with whatever they want. For most systems, you choose whether the customer will be first-of-the-month or anniversary billing. With RentPlus, you can set them up to be due on any day," he says. "We also have a feature that allows you set-up different terms for different customers. For example, you may have a government account that is net-30 days, but you don't want them getting late charges and notices that other customers would get. So you can set it up so they won't."

Other features on RentPlus include:

• Full accounting system, including general ledger and check writing
• Inventory control
• Interface ability with popular gate systems
• Reports and graphs

Self Storage Legal Review on Disc

In a separate venture earlier this year, Hi-Tech joined forces with D. Carlos Kaslow, author of the Self Storage Legal Review, and Chateau Products to produce a CD-ROM of all articles published in the newsletter. With Hi-Tech writing the computer file and Chateau Products handling sales and distribution, the CD-ROM will include all of the newsletter's past articles in an easily cross-referenced Windows Help File format.

"You type in a topic or a key word. It will look for that and display a list of all the articles that talk about that topic," says Richards. "If I lived in the state of Florida, I might type in the word 'Florida,' and it may come up with 20 different articles that reference that topic."

Richards says the CD includes a glossary list of legal terms listed by Kaslow and will have an annual update.

"Every year we will take the previous year's articles and put them on a CD and make them available at a low cost to anyone who previously purchased it," he says. "It's an ongoing item that allows you do stay up-to-date. It's an amazing resource to have all of that information."

For more information, call Hi-Tech at (800) 551-8324; fax (808) 261-4447; Web: www.hitechsoftware.com.

Pricing Strategies
An Overview of Strategy Styles

By Jim Killoran

The following is the second installment of a two-part excerpt from Self-Storage Success, a manual for the development of self-storage properties. For order information, contact LeManx Information Products, P.O. Box 542, Shelton, WA 98584; (800) 764-1909.

Price It Right

OK, so how do I raise rents and not alienate my customers? Not so fast. Let's first determine which rates should be raised and by how much.

When to Raise Rates

The computer software that I use at our facility gives me a one-page report showing the occupancy of each type and size of unit that we have. In fact, it even highlights those categories that exceed 92 percent occupancy. Each month I print a copy of this report and file it in a folder marked "rate increases." And each month I flip through these reports to see which sizes and types of units have consistently exceeded 92 percent occupancy, then I raise the rent on those units. It's as simple as that.

I honestly don't have a hard-and-fast rule that defines "consistently" in terms of a fixed time period. Generally, I don't think that three consecutive months of 92-plus percent occupancy is long enough, but six months is certainly plenty. So somewhere between three and six months I apply the new rate, depending on my overall feel for how business is going.

All right, now we know when to raise the rates, but by how much? Again there is no hard-and-fast rule, but here's what I do: If the current rate for the unit is less than $50, then I'll go for a 5 percent to 8 percent increase, or about $3 or $4. Certainly not less than $3, and I choose to stay with even dollar amounts, although many facilities will allow a rate to end in 50 cents, for example, $34.50. For units with a current rate of $50 or greater, I will increase the rate by no less than $5, more if I think I can get it. How do I know if I can get it? I test the "street rate" first.

Street Rates vs. Across-the-Board Rates

The street rate is the rate that you assign to the units that are currently vacant and you would rent to the next person "off the street," as opposed to an across-the-board rate, meaning that the new rate is applied to all units, occupied or not.

By testing a new rate using the street-rate method, I can quickly make a determination on its acceptability. By observing how well the new rate is being received by my customers, I can further adjust the rate up or down as needed. When the new rate is "just right," it's time to apply it across the board.

Let me relate a situation that happened at our facility and opened my eyes. We have several, a dozen to be exact, very large units (12-by-40 with 12-foot-high doors) that were intended to house recreational vehicles. In reality, they tend to be rented by commercial concerns almost exclusively. But I digress. These units were seldom vacant. However, when one became available, our manager took it upon herself to experiment with a new rate for this size unit. Actually, I'm glad I didn't know about this until after the fact because I probably would have squelched her plan. (I suspect she knew this, which prompted the whole cloak-and-dagger scene). Anyway, she increased the street rate a whopping 60 percent. Yes, 60 percent. And the unit was snapped up immediately. Needless to say, an across-the-board rate increase followed. Nobody moved out. Lesson learned: You won't get more if you don't ask for more.

Now we can talk about alienating the customer. In my personal experience, it just doesn't happen. This doesn't mean that you won't lose a single tenant. Expect to. However, those who leave will be those who now realize that their need for storage has actually been over for some time, and they just haven't gotten around to moving out, and this rent increase is just enough motivation to do so now. These people will not be alienated, and if they have received good service from you, they will be back the next time they have a need. Once, and only once, we had a customer who put up a fuss about a rent increase and moved out in a huff. But believe me, we were glad to see him go, as he had been a problem tenant all along. In fact, in doing research for this book, one source that I read stated that the industry average is a 5 percent loss of tenants due to a rate increase. Another source stated that it would be almost 10 percent. In my experience, I have not even approached the 5 percent level. The most recent increase I initiated was to a block of 75 units where the increase was $5 per unit, and not a single tenant moved (perhaps the increase should have been more). For the sake of argument, assume that you will experience the worst-case scenario and lose 10 percent of your tenants affected by the increase. But losing 10 percent of your tenants is a good thing, and losing any less than 10 percent is even better.

For example, ABC Storage has three sizes of units that are currently 100 percent occupied. It is receiving a monthly gross of $13,500 from these units, and we will assume a 10 percent move-out. Since 10 percent of our tenants in these three unit sizes moved out, the remaining 90 percent are still occupied and are producing a monthly gross of $13,320. This is a net loss of $180 per month, but ABC now has 20 units available to rent.

ABC Storage wins in two ways. One, when a potential customer calls, ABC has units available. And two, look at the difference in annual gross scheduled rents: a net increase of $15,600. Keep in mind that you have incurred no additional expenses to achieve this income. So aside from additional incentive pay for the manager, this new revenue goes directly to the bottom line.

Other Reasons to Increase Rents

There are some markets that fluctuate seasonally. For example, if you are located near a summer or a winter resort area, you likely experience substantial variations in occupancy rates across seasons. Simply stated, know your market, and don't hesitate to adjust your rates to fit the season. If your market is such that you have a steady clientele as well as seasonal trade, two-tiered rate schedules are perfectly acceptable. Remember that you are providing a valuable service, and your customers will pay for that value.

Then there is just plain old rent increase. As time goes by, the cost of everything goes up. Property taxes, insurance, utilities, you name it. You know this, and your customer knows this. In fact, over time, your customer will expect an increase. Your job is to keep a finger on the pulse of the self-storage industry, especially as it applies to you and your competitors' market area. Don't be bashful. When justified, your increase will be accepted by your customers. And remember that you don't have to wait for your competition to make the first move. Lead, don't follow.

Tips on Rate Increase Notification

Here are some tips on the mechanics of notifying your tenants of a rate increase.

• Don't call it a rate increase, call it a rate adjustment.
• Notify your tenants in writing, allowing plenty of time before the new rate takes effect. I use between 45 and 60 days notice.
• State the effective date plainly and clearly in the letter.
• Always give the reason for the adjustment. Property taxes went up, or insurance rates or whatever. Embellish a bit if need be, but don't lie.
• To keep confusion to a minimum, show only the new rate, not the old rate and the new rate. And show only the rate for the unit(s) that the tenant rents. Don't send your complete rate sheet.
• Give thorough consideration to the timing of your rate adjustment. Is there a particular time of the year, like during the winter, when the weather or other factors would help to discourage an impulse to rush right down to your facility and move out?
• A final word on rate increases: Listen to your customers. Ask departing tenants why they are leaving. If the reason is the rate hike, they won't hesitate to tell you. If they cite other reasons then your increase is reasonable and has been accepted.

Jim Killoran is the owner of LeManx Information Products. Based in Shelton, Wash., LeManx specializes in providing information to the self-storage industry. Mr. Killoran is also the author of Self Storage Success and Self Storage Startup. In addition, he has been in the self-storage business for 15 years and is co-owner of Freeway Mini Storage in Shelton, Wash. For more information, call (800) 764-1909, or write to LeManx Information Products, P.O. Box 542, Shelton, WA 98584-0542.

By Pamela Alton

"I want a manager that knows how to market my facility." How many times have we heard that statement? With ever-increasing competition in the self-storage industry, on-site managers are expected to do outside marketing, but what is marketing? Webster's Dictionary defines marketing as the act or process of selling or purchasing in a market. We know what our market is, but what actions must we take in order to sell our goods or services? A marketing plan should address:

• The location and curb appeal of your facility;
• The on-site manager's attitude, appearance, sales and customer-service abilities;
• Auxiliary retail items for sale;
• A referral program; and
• Advertising or promotional items used in conjunction with a follow-up program.

Location and Curb Appeal

You may not be able to control the location, road frontage, signage, etc., of your facility, but you can control its cleanliness, curb appeal, the lighting of your signage and the area in which you choose to market.

Banners should be clean and rotated on a regular basis. If you are restricted from using such items in your area, purchase a large American or state flag and fly it on the highest flag pole allowed per your city ordinance. Banners and flags draw attention to your facility. They should match the primary color used at your facility, such as the one used for your roll-up doors.

By keeping your golf cart, grounds, office and restroom neat and clean, your facility can be the best one in your area, and this will give you the confidence to sell your facility over the telephone.

Manager's Attitude, Appearance, Sales Ability and Customer-Service Skills

A manager must have a positive attitude in order to market or sell your goods or services. This is not always an easy task to achieve. Sometimes you have just had a tenant screaming at you because his gate code didn't work, or his bill was past due and he wanted you to waive a late fee and you stood your ground. You should not take these situations personally or allow them to effect you in a negative way. Always try to keep an up-beat attitude. For every tenant that gives you a hard time, there are four or five that appreciate your willingness to help them, and that is what makes your job exciting and rewarding. Always try to improve your telephone, customer-service or marketing skills. Be committed to servicing your tenants and finding new ones. If you do not provide friendly, prompt service to your tenants, they will not come back to your facility again, nor will they refer people to you.

Your first contact with a prospective customer will most likely be via telephone. That is why you must pay attention to your telephone sales techniques and continually evaluate and re-evaluate your own and your relief manager's sales performance. If your company uses an outside telephone shopping company, you should be supplied with a telephone script. Keep it near your telephone and use it. It will help keep you focused on your telephone technique to make each call count.

The way you dress at work will make a difference in the way people perceive you and the facility when they come to rent a unit. If you are wearing old, worn jeans, a holey T-shirt, curlers in your hair, house slippers, etc., potential customers will think that if you don't care about your appearance, then you certainly won't care much about the maintenance or security of your facility. You should show up at work freshly showered, dressed professionally in a clean uniform--such as a polo shirt that matches the color of your roll-up doors, a smock or cobbler's apron, and neutral-colored slacks, pants or skirt--and be ready to greet the public with a smile on your face.

Offer billing and credit-card processing at your facility for your tenants' convenience. Accept deliveries (with a written release of liability disclaimer), offer a free truck for move-in and ask for referrals from your existing tenants.

Auxiliary and Retail Items for Sale

Besides storage space, customers should be able to enjoy "one-stop shopping" at your facility, meaning they can purchase a lock, moving boxes and packing supplies. You should have these items neatly displayed in a retail center, such as a revolving or wall rack. Boxes should be put together (so people can judge their sizes) and stacked neatly on top of each other, with prices clearly marked. Typically, you should double your costs of these items to get the retail price.

Consider offering mailbox rentals, FedEx or UPS services. Some people will come to your facility just to use these services or purchase items and never rent a unit. Offering these services will bring in added revenue. Other related items could include rental trucks. By offering this service at your site, you will have access to people who would not otherwise come to your facility, but just come to rent a truck. However, if they ever have storage needs and you have offered them friendly customer service, they will come back and rent from you.

Yellow Pages Ad and Other Promotional Items

Your largest advertising or marketing dollar should be spent on your Yellow Pages ad, so make it count. A full-page ad could cost $1,800 or more per month, which is why your telephone closing techniques are so important. Statistics tell us that, typically, a perspective tenant will call four ads before they choose the site at which to rent. Hence, logic tells us that you do not have to be the first ad in the storage section. Of course, the larger the ad, the more visible it will be. Don't expect your new facility to be full in six months when you have an eighth-of-a-page ad. Use graphics or photos. Let a picture or graphic speak 1,000 words for you.

A large map showing people where you are located is a must. Personally, I don't think you should waste your money on colored ink such as red or blue print, or white background. Spend the extra money to enlarge the size of your ad. If you accept charge cards or have rental trucks, extended access hours, door alarms or video cameras, state that in your ad. Consider having a graphics professional design the ad for you if you don't have artistic talents. When placing your ad, you may want to contact a national Yellow Pages advertiser that groups several ads together to receive a discount.

Other promotional items could be free gifts in the form of magnets, pens, key chains, letter openers, etc. These items could be used for trade fairs, door-to-door sales, chamber of commerce mail-outs and welcome-wagon gifts. They can also be given out to apartment managers, mobile-home-park managers, retirement-home managers, contacts, colleges, military bases, real-estate agents or current clients. These items could cost as little as 25 cents, or as much as $5 an item.

Occasionally, you may need to market your facility in other advertising mediums, such as radio, the Pennysaver, Auto Ad, Coupon Clipper or a newspaper. You need to decide what your market target area is before designing a flier ad. A college town will market to a different clientele than an area populated by several apartment complexes. The cost of these ads will vary, depending upon circulation and ad size.

Attracting Commercial Business

Business or commercial storage could make up more than 50 percent of your tenant base. These are usually good paying tenants, and they seem to store longer than the average person storing household items. Besides your normal avenues of advertising, there are several things you can do to attract businesses to store with you. A flier or postcard can be designed for record or excess office items and mailed to accountants, dentists, retail stores, attorneys, hospitals, small offices, doctors, computer companies, restaurants (non-food items) and so on. These people are likely to take your smaller 5-by-5- to 10-by-10-foot units. Check in the local newspaper under the service directory for electricians, gardeners/landscapers, plumbers, handymen, contractors or construction companies. These people will normally take your larger 10-by-15-, 10-by-20- or 10-by-30-foot units.

Marketing Follow-Up and Referral Program

Marketing is a program of consistency. You can't do it once and expect a return, especially when it comes to flier or postcard distribution. This should be done again and again. In real estate this is called "farming"--you plant the seeds of interest and they will grow. By keeping your face and name in the public eye, when people need storage, it's you they will call. Design a marketing checklist to keep you focused. List the names, addresses and phone numbers of your contacts, when you last saw them, what marketing item you used and when you are to follow-up again. When someone does rent from you, find out how they heard about your facility. You need to know which marketing efforts are working and which are not.

Once you have contacted the local apartment, mobile-home, condo or retirement community, follow up in a week or so by dropping off a small vase of carnations with your business card. Tell them you received a rental from their complex last week--whether you did or not--and you just wanted to say "thank you." Those flowers will sit on their desk for a week, and every time they look at it, they will remember you and your facility. All of a sudden, your referral program becomes real. The same principal will apply if you take a pizza and some sodas, or give the manager a referral fee.

We have all heard of "tell-a-friend" programs, where your current or past tenants refer someone to you and receive some sort of discount on their rent. Be sure you keep track of this by using a coupon or flier and attach it to the new tenant lease. Always ask for referrals wherever you go.

Marketing Is an Attitude

Marketing is not just placing an ad in your Yellow Pages. It is an attitude, a way of thinking about business. Always try to create a clean and professional appearance for yourself and your facility. After all, you are your facility to the community. Try to keep a positive attitude and think marketing all the time. Be consistent in your efforts and follow up to see how your efforts are paying off. And be flexible. If something is just not working, try something else. Your marketing efforts should pay off through increased rentals and income at your facility, which in turn could mean an increase in your paycheck.

Pamela Alton is the owner of Mini-Management^®, one of the industry's largest nationwide manager-placement services. Mini-management also offers policy and procedures manuals, sales and marketing training manuals, inspections and audits, consulting, telephone shopping and training seminars. For more information on the services offered by Mini-Management, call (800) 646-4648.

By David Wilhite

Every self-storage facility owner needs 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 that you will also suffer an indirect loss of income. (Indirect losses refer to the lost profits and the fixed expenses that continue month-to-month whether your facility is operating or not). You're 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.¹ Also known as time-element coverage, business-interruption insurance provides several important benefits:

• It protects you against reduced sales income (and increased expenses) that result from damage to your buildings or business personal property.
• It allows you to retain key employees by maintaining their salaries and benefits.
• It encourages prompt settlement of building and business personal-property losses.
• It helps you to retain your tenants.
• 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 owners who sustain a covered loss in that it compensates you for lost profits based on your operation's 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, as with all insurance policies, 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 owners choose to operate without business-interruption insurance, perhaps because the coverage is not required by most lending institutions. However, when you consider value of the insurance and its very reasonable cost, it's difficult to understand why anyone would knowingly skip this essential coverage.

It is strongly recommended that you 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, it is advisable that you 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.

¹To define our terms, 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.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc. Universal offers a complete package of coverages specifically designed to meet the needs of the self-storage industry, including loss of income, employee dishonesty, comprehensive business liability, hazardous-contents removal and customer storage. For more information, contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (602) 970-6240; Web: www.vpico.com/universal.

By David Wilhite

Business liability provides essential protection for every self-storage operation. This important coverage protects you against lawsuits claiming that someone was hurt or property was damaged on your premises. (For example, a typical a bodily-injury lawsuit might claim that a customer slipped and fell on ice or on a wet floor, while a property-damage claim would be a gate closing on a car.) Business liability also provides protection against personal-injury lawsuits involving libel, slander, physical eviction or the false arrest of a third party. And advertising-injury lawsuits involve plagiarism of advertising copy or layout, infringement of copyright, title or slogan, or false advertising. (These may not seem like bodily or property damages, but that's how the courts have interpreted them).

The important thing to remember is, if you are found liable, business liability pays those sums that you become legally obligated to pay. In short, business liability protects your business, your assets and your peace of mind.

Since we can assume that, as a responsible self-storage facility owner, you accept the need for business-liability insurance as one of the basic costs of doing business and want to invest your insurance dollars where they will do the most good, this month's column will focus on a brief discussion of limits of liability and why you should consider higher limits of protection.

It should come as no surprise that today's juries are routinely awarding tremendous sums of money that seem to surpass all sense of proportion and common sense. Approximately 14 million civil cases were filed in 1996, which resulted in jury awards totaling hundreds of millions of dollars in product liability and personal injury awards. What is surprising is that a recent survey conducted by a major insurance company showed that the vast majority of its customers knowingly purchase liability limits that would not fully indemnify them against the awards being handed down by today's juries. This can be a very dangerous practice, especially in view of today's litigious climate.

If you believe your current limits of liability are adequate, consider the following examples: In one case, a jury awarded a $1.95 million judgment to a delivery man who tripped over an uncovered hole and injured his back. In a second case, there was a $3.5 million award to a man who was scalded by hot water in a hotel shower, and in a third case there was $22 million award for injuries sustained by a woman who was hit on the head by a wooden box that fell off a shelf in a hardware store.

These examples serve to illustrate three important points: First, juries are routinely awarding enormous sums in personal injury cases; second, the liability limits you choose can spell the difference between solvency and bankruptcy; and third, liability limits of $1 million or more must no longer be considered unusual or excessive.

Fortunately, the news is not all bad. Increased liability limits are readily available for self-storage facilities in $1million, $2 million and $3 million limits. Plus, most facility owners can purchase an additional $500,000 coverage for just a few hundred dollars extra per year.

Assuming you've decided to increase your business-liability limit, how do you go about estimating the amount of coverage you'll actually need? Some experts say you should base your limits on multiples of your annual revenues, but that can be costly. The best method I've found for determining coverage limits is to ask your agent what kinds of claims have been filed against similar businesses in the past and what the results were. You may also want to consult with a legal professional to find out what kinds of awards (in dollar amounts) have been made in your state in the past few years, and under what circumstances. Base your limits accordingly. If you are on an extremely tight budget, evaluate how much you can afford to lose, and make sure your coverage protects you to at least that point.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc. Universal offers a complete package of coverages specificially designed to meet the needs of the self-storage industry, including loss of income, employee dishonesty, comprehensive business liability, hazardous-contents removal and customer storage. For more information, contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (602) 970-6240; Web: www.vpico.com/universal.

By Cary F. McGovern

Medical-records management is quite different from records management for all other industries, and it offers several unique opportunities. For some, the business climate may be perfect for operating a records-storage business exclusively targeting the healthcare industry. If so, it's crucial to understand the nature of the beast.

The Nature of Medical Records

In the healthcare industry, there are several types that comprise the great volume of records that are maintained for extended periods of time. The three most predominant are as follows:

• Patient files
• Business office records
• X-ray or imaging records.

Patient files represent the medical record of a patient for one of four typical medical-service scenarios: in-patient stay, outpatient treatment, emergency-room visits and home-healthcare. After the service is complete, each of these records is maintained in the medical-records department under the control of its director. Business office files represent the billing records of each patient service. One of these files is generated for each patient service encounter. X-ray or imaging files represent files generated as a result of an X-ray, MRI or CAT Scan. These are related to both of the other files.

Hospitals are highly regulated organizations. They--along with clinics and other healthcare agencies and facilities--participate in the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). This is a self-governing body that sets process standards and benchmarks for hospitals to follow, including record-keeping requirements. Medicare and Medicaid, which are federally funded and regulated programs, also have stipulations regarding records.

Medical-records directors normally have a degree in medical-records management and typically have one of two certifications: registered records administrator (RRA) or accredited records technician (ART). The RRA certification has rigorous educational and testing requirements and is the higher-level certification of the two. An RRA is a manager, as well as information specialist, who interacts with medical, financial and administrative staff to interpret data for patient care, research, statistical reporting and planning. An ART certification is generally required for the coding functions related to medical records. An ART is skilled in analyzing health information and examines medical records for accuracy, reports patient data for reimbursement and creates disease registries for researchers.

Medical-record coding is a process that each medical file undergoes within 30 days of the conclusion of any service. The coding is to provide standardization to the diagnostic related groupings, an essential part of the hospital record-keeping requirement. Coding insures that the hospital recovers the maximum amount allowed by Medicare and Medicaid and other insurance carriers.

Hospitals maintain closed medical records for several years in the medical-records department, then they package them for off-site storage. Lately, there is a trend to store more current years of files off site because of space limitations on site in the file room. Commercial records centers have jumped at this opportunity and have adapted their storage and retrieval business to the requirements of the healthcare industry.

Special Requirements

Medical records are usually filed in terminal-digit order by year of service. Terminal-digit filing allows for filing in groups of 100 or 1,000, based upon the last two digits of the file number. Commercial-records centers mirror these filing systems in open-shelf filing. The files are kept on shelves rather than in boxes because there is a high volume of retrievals. Charges for this service are generally assessed by the linear foot rather than by the cubic foot. Additionally, it is common for the full service of pick-up and delivery charges to be bundled with the storage cost. Service requests are likely to be emergency delivery requirements called "STAT" in the healthcare industry. This requires 24-hour-a-day, seven-day-a-week availability.

Pediatric records have a retention period of 21 years or are held until the child becomes an adult. These and other more specialized files have long-term value and offer the commercial-records center the opportunity for long-term storage of files.

X-ray files are a type of film media and, therefore, require special protection. This protection is usually in the form of temperature and humidity control. X-ray files are heavy by comparison to standard record files because of the silver content of the film. Special racking is required to support the weight and size of these special files. Healthcare organizations recycle their old X-ray files through a third-party vendor that extracts the silver content from the film.

Release of Information

Every healthcare organization is required to release medical information to patients, insurance carriers with patient approval and attorneys who have court orders approved for the release. This practice is called release of information. It most commonly requires an RRA or an ART to oversee the release process. It is important that only approved records be copied and released. Most states regulate the cost of copies for this practice. In many states the cost is $1 per page up to 25 pages, then 25 cents per copy above that. Needless to say, it is a very profitable business. Several companies have been in the release-of-information business. You may encounter Healthcare Correspondence Corporation or SMART. Both of these companies operate in hundreds of hospitals around the United States. These companies normally service the customer within the medical-records file room, collect the fee or bill for the service, and share some of the profit with the hospital.

File-Room Management

If you manage the off-site files for a hospital, you may want to provide the system and manpower for on-site file-room management. It is essentially the same service, but with more activity. File-room management will be discussed more completely in next month's column. If you need a more comprehensive discussion of this service, you can find a reference on the File Managers Inc. Web site at www.fileman.com.  

DRG Coding

Diagnostic-related grouping coding is a function that can be outsourced to the commercial records center. This service requires specific expertise and great care. Service providers have consolidated this function into their services and have thereby added value to their healthcare records management services.

A Warning of Sorts

You should always keep in mind that records management has many related services that can be provided as individual services or as packaged sets of services. It is essential that the commercial-records center owner/manager understands the service requirements of the organization and hires the appropriate experts needed to provide these services.

Regular columnist Cary F. McGovern is a certified records manager and owner of File Managers Inc., a records-management consulting firm that also provides outsourcing services, file-room management and litigation support services for the legal industry. For more information about records management, contact Mr. McGovern at File Managers Inc., P.O. Box 1178, Abita Springs, LA 70420; phone (504) 871-0092; fax (504) 893-1751; e-mail: [email protected] or Web: www.fileman.com.

DEAR WALDMANS: My wife and I own and manage a successful self-storage facility. We hear a lot of people talking about the Internet, and it seems to be a very popular item on television and in the newspapers. We can't seem to get away from it. Are we missing out on something important? We hate feeling ignorant, so we wondered if you could explain what "http," "home page" and "e-mail" mean? Please help us understand what all this commotion is about. Should we be investing in a computer, even though we are doing an excellent business without it? Also, like a lot of people from our generation, we are not computer literate. Are we too old to learn? Maybe you can shed some light on what all this is about.

--Reader In Maryland

Dear Reader: You are certainly not alone. There is so much information concerning the Internet, e-mail and home-page addresses all over the media; it seems that everyone wants a piece of the action. Don't worry, though, there are many people that are just like you. There is so much to learn and the technology changes constantly. If you were to purchase a computer today, it could be out of date before you took it home and set it up. Not that it wouldn't be a good computer, but changes are being made so rapidly. So, make sure you get the latest technology at the time you purchase the computer.

The next step is to hook up to and explore the Internet, defined as an international network of computers linked by certain rules and guidelines. To do so, you must first find an Internet service provider (ISP), which will likely charge a monthly fee--not unlike that of a phone company--allowing you access to the Internet. Once you go online, you'll probably want to explore the most popular aspects of the Internet, such as the World Wide Web, also known as "WWW" and "the Web." A lot of businesses are investing in Web sites, where potential clients my go to read about the company's products and/or services. Try to find some of the Internet "home pages" for self-storage facilities. You'll probably be surprised by what you see.

Some novices call every page on the Web a "home page," which is really not correct. The term "home" refers to the first page, or screen, of the site. Pages other than a home page should probably be referred to simply as "pages," while the grouping of pages is typically referred to as a Web site.

Then there's the thing called e-mail, more formally known as "electronic mail." E-mail is a great way to communicate with people all over the world without incurring long-distance charges. Your ISP will provide you with your own e-mail address, which is your ticket to this new form of correspondence. Several businesses post an e-mail address on their home page in order to receive requests concerning their products or services. It's an inexpensive way to advertise. HTTP (hypertext transfer protocol) is the system that allows people to view Web pages on the Internet. Without it, documents would be illegible.

Sounds pretty complicated, doesn't it? After a few lessons, and mainly hands-on experience, you will find the Internet to be fun and challenging. Whether you use it for pleasure or business, it will be an entertainment like nothing you have seen before. Try it. You just might like what you see. If you don't, you will never know what all that commotion is really about.

The Waldmans, a father-daughter team, are self-storage owners/operators and attorneys. In addition, Ms. Waldman holds a Master's degree in Labor and Employment Law from Georgetown University. The Waldmans are co-authors of the industry's leading series of books on self-storage operations: Getting Started, Forms, Policies & Procedures and South Carolina Tools. Another creation of Ask the Waldmans are their colorful posters designed exclusively for the self-storage industry.Comments and questions for ASK THE WALDMANS may be sent to: The Waldmans P.O. Box 21416, Charleston, SC 29413; E-mail: [email protected]; Web: www.askthewaldmans.com Views and opinions on legal matters are those of the authors. Professional counsel should be obtained before any determination or positive action is taken.

By David Wilhite

Business-liability insurance provides essential protection for every self-storage-facility owner. Business liability protects you against bodily-injury lawsuits, such as a lawsuit claiming that someone slipped and fell due to wet or icy conditions on your premises, and property-damage lawsuits, i.e., a lawsuit claiming that a gate crashed down on a car while on your premises. Business liability also provides important protection against lawsuits involving libel, slander, physical eviction or the false arrest of a third party, as well as advertising-injury lawsuits involving plagiarism, copyright infringement and false advertising. (Note that while libel, plagiarism, etc., may not seem like bodily or property damages, that's how the courts have interpreted them).

The important point for you to remember about business liability is that if you are found liable in a lawsuit, business-liability insurance will cover those sums that you become legally obligated to pay up to the limits of your policy. In short, it protects your business, your assets and your peace of mind. Therefore, since business-liability insurance is one of the basic costs of doing business--and since you, as a smart consumer, want to invest your insurance dollars where they will do the most good--this month's column will provide a brief overview of liability-limit options, and why you should consider higher limits of protection.

It should come as no surprise that today's juries are routinely awarding tremendous sums of money in bodily-injury and property-damage lawsuits. More than 10 million civil cases are filed each year, resulting in hundreds of millions of dollars in jury awards. What is surprising is that a recent survey conducted by a major insurance company revealed that many, if not most, business owners purchase liability limits that will not fully indemnify them against the awards typically being handed down by today's juries. Obviously, this can be a very dangerous practice, especially in today's litigious climate.

If you think your current limits of liability are adequate, consider these three cases: Four years ago, a jury awarded a $1.95 million judgement to a delivery man who slipped and fell on cracked pavement while making his rounds to a business. Three years ago, a jury awarded $3.5 million to a man who sustained serious personal injury after falling in a hotel shower. And just two years ago, a jury awarded $22 million to a woman who went into a coma after being struck on the head by a heavy toolbox that she pulled off a shelf in a hardware store.

These cases illustrate three important points: first, juries routinely award enormous sums of money in personal-injury cases; second, the liability limits you choose can spell the difference between solvency and bankruptcy; and third, liability limits of $1 million or more, which were considered adequate for many business owners just a few years, must no longer be considered unusual or excessive.

Fortunately, business-liability insurance coverage is readily available for self-storage facility owners at reasonable rates. Increased liability limits can be purchased in $1, $2 and $3 million limits for just hundreds of dollars extra per million per year.

Assuming you've reviewed your business coverage and decided to increase your liability limit, how do you go about estimating the amount of coverage you'll actually need? Some experts recommend that you base your limits on multiples of your annual revenues. Another method for determining adequate coverage limits is to ask your agent what kinds of claims have been filed against storage facilities in the past and what the results were. You may also want to consult with a legal professional to find out the circumstances and kinds of awards (in dollar amounts) that have been made in your state in the past few years for similar businesses. Base your limits accordingly. If you are on an extremely tight budget, evaluate how much you can afford to lose if a judgment is made against you, and make sure your coverage protects you to at least that point.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc. Universal offers a complete package of coverages specifically designed to meet the needs of the self-storage industry, including loss of income, employee dishonesty, comprehensive business liability, hazardous-contents removal and customer storage. For more information, contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480) 970-6240; www.vpico.com/universal.

ONE ON ONE

Joe Niemczyk

Joe Niemczyk is president of Executive Self Storage Associates Inc., a Tucson, Ariz.-based consulting and management firm specializing in self-storage management, development and consulting. A graduate of the University of Northern Colorado with a Bachelor of Science degree in accounting, Mr. Niemczyk served as a pubic accountant before entering the private sector in 1981 as an assistant controller for National Self Storage Inc., a Tucson-based management company. There he became president during his tenure and oversaw the operations of almost two million square feet of storage properties throughout the United States. Mr. Niemczyk also established the first formal training facility for self-storage managers and spearheaded the opening of the largest and most successful document-storage company in Tucson. He left National Self Storage after five and a half years and, together with his partner, Mel Holsinger, established Executive Self Storage Associates.

Mr. Niemczyk currently resides in Denver with his wife, Lori, and their three children, Amanda, Tyler and Travis. He has been a frequent presenter at Inside Self-Storage expos.

Mel Holsinger

Mel Holsinger is the executive vice president of Executive Self Storage Associates. A graduate of Black Hills State University with a degree in business administration, Mr. Holsinger began his career with International Minerals & Chemicals Corp. as an office manager for a mining location in South Dakota. He then went on to other management positions with Anamax Mining Company, ASARCO and General Instruments.

Mr. Holsinger entered the self-storage industry as the controller for National Self Storage Management, where he was involved in the company's accounting and financial functions. After three years with the company, in 1987, he joined with Mr. Niemczyk to form Executive Self Storage Associates, now one of the top 25 operators in the industry. As a frequent speaker at self-storage conventions, Mr. Holsinger has advised participants in areas such as auditing, management issues and the development of successful self-storage business plans.

Mr. Holsinger is currently a director in the Arizona Mini Storage Association and a member of the Executives Association in Tucson. He has also been involved in local Rotary Clubs, the Elks, the National Association of Accountants, and several Chambers of Commerce. He lives with his wife, Tracy, and two sons, Kyle and Joshua. The family are avid roller hockey players, black belts in tae kwon do karate and enjoy activities such as camping, fishing and golfing.

We are honored to present an interview with Joe Niemczyk and Mel Holsinger...

Explain the evolution of Executive Self Storage and how you see the company in today's marketplace.

Executive Self Storage Associates Inc. was incorporated in the state of Arizona on June 11, 1987, and is headquartered in Tucson, Ariz. The company also maintains regional management offices located in Colorado, Utah, Tennessee and Southern California. Since its inception, the company has managed, developed and consulted on projects in 15 states and the U.S. Virgin Islands, consisting of more than 6,800,000 square feet of storage.

Executive Self Storage Associates Inc. has been retained by several national and international organizations such as Citibank, Crown Life Insurance Company, Professional Savings Bank and First Security Mortgage to consult and manage various self-storage properties located throughout the United States. In addition, the company functioned as an approved service provider for the Resolution Trust Corporation.

Executive Self Storage Associates Inc. currently oversees the operations of 42 self-storage facilities in Arizona, California, Colorado, Florida, Nevada, Tennessee, Texas and Utah. The Company's current portfolio consists of more than 2,000,000 square feet and 21,000 individual spaces.

The company was established by principals Joseph P. Niemczyk and Melvin L. Holsinger. Mr. Niemczyk and Mr. Holsinger were the past president and treasurer of National Self Storage Management Inc., operating more than 2,00,000 square feet of storage. With degrees in business administration and accounting, combined with their frequent appearances as featured speakers at the industry's national trade conventions, they have established themselves as leaders in the self-storage industry. In addition to their other accomplishments, the first formal resident manager training university in the country was established under their direct supervision, and today still serves as the model for similar programs.

What are each of your roles in the company?

Joe Niemczyk is the president of the company and deals primarily with management operations, marketing, new-client development, and has been involved in developing several facilities for various clients. Mel Holsinger is the executive vice-president and deals primarily with the financial operations, administration acquisitions, development and client relationships.

What is the company's objective for the upcoming year, five years, 10 years?

The current focus of ESSA is the enhancement of our existing stores in the areas of standardization of operations, more extensive manager training and depth in the mid-level management ranks. In the next five years, it is our intention to take our operating methodology into the 21st Century. We will be improving our use of computers, e-mail, the Internet and several other technologies that other industries have been using for years. In addition to our technological advances, we will obviously be expanding our operations over the next five to 10 years. However, our methods will take a less-traditional approach, given the continual growth in the industry. Our strategy will be to provide a vehicle for the smaller operators to receive professional management at competitive rates and eventually help them with a possible exit strategy for their store.

What is your view on management training and what makes yours successful?

Management training is quite possibly the single most vital piece to the success puzzle. Well-trained management cannot only produce more sales, but can also reduce expenses, save the store from enormous legal liability, and maintain a stable customer base, even in hard times. It is unfortunate, however, that in our industry a large portion of these vital positions are paid a wage that can only be described as disgraceful.

What are some of your marketing strategies?

It is our belief that marketing strategies are store and market specific. Although there are some traditional methods of advertising and marketing, such as Yellow Pages, there are many more that should not be applied unilaterally. Therefore, the easiest way to find out is to experiment. Just because display advertising didn't work five years ago doesn't mean that it can't be effective today. For the smaller operators, it's important to keep the focus on the basics and remember not to be enthralled with that catchy name you thought up. Self-storage has great product recognition but poor name recognition. Focus on promoting your location and services because this is what the customer is concerned with.

What are three keys to great customer service?

We do not believe that being good at customer service means that you always give in. We believe that great customer service begins by applying your policies equally and consistently to all customers. Making exceptions for some customers may solve the immediate problem, but are you prepared to make the same compromise to all your customers? If you're not, have you provided the majority of your customers with good customer service? The solution to great service is to make sure that each customer thoroughly knows the policies of the store--both positive and negative--before they move in. This way there will be no surprises, and a possible negative situation can be avoided before it starts. The vast majority of self-storage users are not looking for a free ride, only fair and consistent treatment. The ability of the on-site personnel to be able to solve problems with a smile and a tone of concern for the customer, whether or not you compromise, will be the most important ingredient in your customer-service arsenal.

How do you see the self-storage environment changing in the next five years, especially in regards to mom-and-pop owners vs. multiple operators? What about consolidation and acquisitions?

The mom-and-pop operations are being phased-out in unprecedented numbers. However, with the industry still dominated by these entrepreneurs, we feel they are still going to be the majority of owners of facilities for at least the next decade. The industry will see increasing numbers of consolidations and acquisitions by the REITs and public companies, and we expect to possibly see some of these companies merging as well.

Most of the mom-and-pop locations are still centered in smaller markets. We see the major metropolitan areas as being dominated by the public and REIT companies. We see this trend in every market we are involved in.

What are your views on the future of available financing?

Financing availability will become more difficult at some point in the near future because we feel that in many markets the community is overbuilt and various facilities will begin to suffer extremely. While not trying to be pessimistic, we feel that the next cycle of foreclosures will be greater than previous cycles experienced in the '80s and early '90s.

With interest rates at an all-time low, financing is easier to obtain for both new and existing properties. Several lenders established solely for self-storage products are now diversifying into other commercial areas as a result of available conduit dollars. Every owner should at least look at the availability of funds today and, if it makes economical sense, immediately seek out a new lender for the better rates and service now available. First Security Commercial Mortgage, for example, is an excellent lender that is very knowledgeable about the self-storage business, and working with them over the years has been very rewarding for us and some of our clients.

Since you are mainly concentrated in Arizona and Colorado, do you plan to expand into other markets as well?

Actually we are located in numerous states. Besides Arizona and Colorado, we manage properties in California, Nevada, Utah, Texas, Tennessee and Florida. We have been in these markets since 1988. Additionally, we have managed properties in Connecticut, Ohio, Mississippi and Washington. We do plan to expand into other markets and are, in fact, working on several deals not in our current market areas.

How does ESSA position itself in order to stay competitive in today's marketplace?

We pride ourselves in first taking care of our existing clients. Most of our business has been from referrals, and we are very proud of that. We continue to attend the Inside Self-Storage Expos, we advertise in the Inside Self-Storage magazine and we are involved in various state self-storage associations. We take pride in the fact that both of us are actively involved in each of our stores and that our management and office staff are professionals doing a great job for us in support roles.

What advice would you give to people just getting started into the self-storage business? What about people who have been in it a couple of years?

For people just getting started, we highly recommend that you first seek professional help. From the outside, this business looks easy but, after you have considered all the management, legal, financial, marketing, maintenance and other issues, you will quickly find out that the business is more complex than it initially appears. Professional management services will save you money in the long run, but many new owners are reluctant to invest in our services because they perceive that business as being easier to succeed in than it actually is. We know of many owners who attended several conventions and training seminars and feel that that's all they need. We have taken over numerous self-storage facilities that were near failure due to the lack of knowledge and skill of the owners. Fortunately for most, we have been able to help them turn the business around.

With respect to owners who have been in the business a few years, we advise them to look at alternatives to their existing management structure if they are having problems in their operations. Additionally, the question they should also ask is: Can I better utilize my time and assets if I allow a management company to run my stores for me? We effectively run your business so that you can go out and create more business without being saddled by the day-to-day situations of management.

In general, what do you see in the future of the self-storage industry?

We see the business continuing to grow, both in terms of number of facilities as well as the number of people using the product. We view competition being good for the consumer and good for us because it forces us to all become better managers as well as ambassadors for the industry. We truly enjoy what we do and have especially enjoyed the friendships we have made over the years with the people in the industry.

By Michael Donohue

Each year storage owners conduct a budgeting process that includes forecasting the next year's real-estate taxes. This article will examine the factors that influence real-estate taxes, offering the reader a checklist approach to perfecting the forecast.

Why Real-Estate Taxes?

An inaccurate real-estate tax forecast can significantly affect investor returns. For example, take a REIT that recently acquired several storage properties for $20 million on a 10 percent cap rate. The properties were last assessed at $10 million. Utilizing the existing real-estate taxes of $200,000, the REIT expected a first-year equity dividend (which equals cap rate in this example) of 10 percent. However, the property was reassessed upon sale to the sale price, triggering a real-estate tax increase of $200,000 and thereby lowering the equity dividend by one basis point to 9 percent.

About Real-Estate Taxes

Real-estate tax is the most difficult line-item expense to predict due to the complexity of its derivation. It is generally derived by multiplying a real-property assessment by a real-estate tax rate. The real-property assessment is typically the product of the real property value¹ multiplied by an assessment ratio². The real-property value is determined by an assessor who works for an assessing authority. "Value" is a matter of opinion; two qualified individuals working with the exact data can form different value conclusions. Usually, two or more individuals interested in deriving value on the same property do not have the same data available (imperfect market). For these reasons, property owners and their representatives do not always agree with the value derived by assessors. So, to forecast real-estate taxes, one must focus on two broad components: property value and real-estate tax rate. Each component requires separate consideration.

To predict the value the assessor will place on subject property we will consider: 1) all information available to an assessor, 2) the assessor's track record of valuation and analysis and 3) any jurisdictional nuances regarding the use of data. First, we identify the valuation method or methods utilized by the assessor.

Generally, three valuation methods exist: income, sales and cost. Do not assume that all methods are available. For instance, in some jurisdictions, owners are usually bound to employ only the cost approach to value, whereas in other jurisdictions, the income approach to value will be considered the controlling method.

We must ask ourselves: Is the concept of "equalization"³ relevant in the jurisdiction? If so, we must consider the history of assessments of similarly situated properties and how they might influence the assessment of the subject property. Does the jurisdiction survey actual income and expense information from property owners? If so, how is it used to determine value? By answering these questions, we know whether we must incorporate the subject property's actual income and expense into the prediction of the assessed value.

What information is available to the assessor? We review market information such as sales comparables and third-party published information (e.g., expense comparables, investor capitalization rate-requirement surveys, etc.). We interview the assessor to determine what market information might dominate the process.

For the subject property, what have been the historical annual net operating incomes and capitalization rates employed by the assessor in his previous valuation determinations? We must understand what opinions the assessor has previously expressed and documented regarding the subject property. For example, if the assessor has previously employed net operating incomes (NOI) significantly above previously reported actual NOIs, then our forecast of the assessed value (absent consideration of an assessment appeal) should be consistent with this approach.

Taking all of this information into consideration, we essentially undertake the same task as the assessor. Having reviewed the assessor's history of assumptions and data interpretation, we employ the assessor's same methodology (whether or not we consider it to be flawed) to predict the assessed value for the upcoming year (assuming the annual reassessment process). Concurrent to this process, we would forecast the real-estate tax rate.

The real-estate taxes can consist of a variable tax rate and fixed-dollar components such as a trash tax. The fixed-dollar components are generally obtained directly from the taxing authority. The variable-tax rate is determined each tax period by the taxing authority and local electorate. We review the rate history and interview the taxing authority to determine the direction and quantification of any tax-rate change. For instance, upon review of a fire district, we discovered that it was in need of a new fire truck; this information enabled us to accurately predict an increase in the tax rate. Many tax bills represent a cumulative tax from multiple taxing jurisdictions. Thus, all taxing jurisdictions must be investigated to properly forecast the next period's tax rate.

Once the assessed value and real-estate tax-rate forecast figures are determined, one must understand how a jurisdiction applies (or phases-in) changes before making the final forecast. Also, the jurisdiction's fiscal payment period may not be the same as the property owner's fiscal year, so adjustments must be made for the timing of payments within the owner's accounting process. Payments made in advance or arrears must also be addressed to accurately forecast the timing of real-estate tax payments.

This article best serves property owners with geographically dispersed portfolios. If a jurisdiction does not reassess annually, for instance, then the forecasting of real-estate taxes becomes much easier. Our experience in reviewing real-estate portfolios for assessment appeal and real-estate tax-forecasting considerations indicates that each portfolio owner has a subset of properties that are under-assessed. We recommend that each owner perform a tax-spike analysis to better quantify the degree of under-assessment. It is possible that a portfolio could significantly under-perform if many under-assessed properties were suddenly fairly assessed by assessing authorities.

Here is a recommended checklist approach:

• Identify jurisdiction rules
• Identify valuation method of choice
• Determine if survey of income is used
• Determine if actual income and expenses are relevant evidence of value
• Identify assessor's historical NOIs (for previous assessment years)
• Identify assessor's historical cap rates (for previous assessment years)
• Identify source(s) used to derive assessor's historical cap rate
• Identify available market information
• Determine NOI and cap rate, and then convert into predicted assessor value
• Identify real-estate tax-rate history
• Identify real-estate tax-fixed charges
• Identify timing of real-estate payments
• Interview taxing authority
• Determine real-estate tax rate

Footnotes

(1) There exist different kinds of value (e.g., fair market value, investor value, value in use, etc.). Also, jurisdictions tax a defined element as defined by law, such as free simple interests, leased fee interests, etc. The value derived by jurisdictions is a function of a legal mandate.

(2) Assessment ratios can easily confuse the taxpayer. Some jurisdictions simply have a 100 percent tax ratio; thus, the assessed market value multiplied by the assessment ratio of 100 percent is a figure easily understood. These ratios are simply part of a mathematical formula leading to the real-estate tax derivation.

(3) Some jurisdictions utilize an "equalization" concept whereby properties must be equalized. This concept has different meanings to different jurisdictions. For instance, to some jurisdictions, equalization is measured by value per unit, whereas to other jurisdictions, equalization is tested by the consistency of the methodology employed by the assessing authority. Typically, we consult our local attorney for the equalization application in each area.

Michael Donohue is the founder of Storage Tech Specialists, Inc., which has recently merged with Coopers & Lybrand L.L.P. of Virginia. Coopers & Lybrand specializes in property tax appeals for self-storage owners. Mr. Donohue may be reached at 1751 Pinnacle Drive, McLean, VA 22102-3611; phone (800) 388-8270.