Many owners of self-storage facilities tend to overlook the value and necessity of regular maintenance on their buildings. In fact, when they first open their doors for business, the furthest thing from their minds is maintenance—particularly preventive maintenance. Initially, they are concerned with more immediate issues, such as increasing leases and occupancy rates, staffing, marketing, or whether the competition has come up with a service or two they don’t have. It’s only natural to take care of first things first.

Of course, most owners realize a part of their monthly expenses will necessarily be devoted to maintenance, but that often obscures the “bigger picture,” which has to do with a regular, preventive-maintenance program. This kind of program may not be reflected in terms of actual savings, but it will definitely be reflected in fewer dollars spent on repairs in the future. At any rate, there is no doubt having a regularly scheduled maintenance program in place is money well spent.

Setting Priorities

Even if an owner chooses high-quality buildings, it takes only a few short months before regular maintenance becomes a priority, particularly if the owner is paying attention. That’s because maintenance must be considered a regular priority, like making bank deposits, surveying the grounds, or having the manager make new business calls in the neighborhood. It should become a way of life, as regular as clockwork. The point is, any good maintenance is preventive maintenance forestalling a lot of headaches down the road.

Invariably, there will also be times when the unusual will occur—inclement or severe weather may be the culprit, scattering limbs and debris on the roofs and grounds, or a sloppy tenant vacates and leaves an unsightly mess. Even normal wear and tear on perfectly good moving parts may require a closer look.

A Proper Attitude Can Lead to Savings

Some owners may not want to hear it, but their attitudes toward the issue of maintenance is important. The truth is performing regular preventive maintenance on your facility is not only a smart habit to develop, but will save money as well. How? Because systematic upkeep of your buildings lengthens their life, and that means less maintenance costs in the future. A good analogy is the way we treat our automobiles. It’s a fact that regular maintenance can add miles to the life of a car.

With customer expectations increasing every day, and more aggressive competitors entering every market, the smart owner must now maintain a more diverse facility. Certainly there is normal maintenance on traditional single-story structures, but owners and managers must be prepared to look at multi-story buildings, climate-controlled units and converted buildings, which sometimes require special attention. Here are a few tips on how to stay on top of building maintenance on a regular basis.

Roofs

Walk your roofs regularly. Reliable roofs are plenty strong and can easily handle the extra weight. You can expect the residue from natural causes, such as wind or rainstorms, but you may be surprised at some of the debris you’ll find—such as cans, bottles, scrap metal, even shoes—discarded by careless tenants or workers. Be aware that if some materials are not removed, your warranty may be in jeopardy.

It’s also necessary to clean out gutters and downspouts, particularly in the spring and fall. Debris can clog the downspouts and rainwater will have nowhere to go, pooling on the roof. And if there is a place that water can get through it will causing roof leaks.

Exterior Walls

At least once a year (or more), exterior walls should be washed to remove dust, dirt and grime. Regular carwash cleaner will work just fine. It will keep paint surfaces clean and help prevent the paint from dulling.

Doors

When doors are originally installed, door axles, springs and door tracks are lubricated to ensure smooth movement. Even with high-quality doors, oils dry out over time, and problems arise where rubber and plastic surfaces come in contact with metal doors and tracks. When a unit becomes empty and you do a “clean-out,” doors should be rolled down, and springs and axles lubricated with spray-on lithium grease. At the same time, spray door tracks with clear silicone. Cans of lithium grease and silicone are available at any auto-supply or home-improvement store. These simple, preventive measures will help your doors work better with very little time and effort.

General Inspection

An opportune time for managers to inspect the units for structural integrity and general cleanup is when tenants move out and units are empty. It’s a good idea to use this time to wipe down the walls and clean the concrete floors of grease, paint or other foreign matter that will look unsightly to a new tenant. Consider purchasing a good pressure washer. Other suggestions include spraying the units for bugs and possibly setting traps for mice if this becomes a problem.

Building Interiors

With the increase in multi-story, climate controlled and converted buildings, owners must be aware of special maintenance considerations for these types of interiors. For example, elevators or lifts in multi-story or converted buildings need to be regularly checked, particularly in converted buildings, where they may be older and more susceptible to malfunction.

Converted buildings require periodic inspection of entrance doors, stair rails, hallway corridors and security bars. Make sure wire-mesh ceilings are tight and intact, and check that partition walls are securely fastened to the existing building.

Hallways and roll-up doors in multi-story and climate-controlled buildings should be inspected on a regular basis to make sure doors are functioning properly, corridors are clean, and partitions and filler panels have not been damaged or marred by hand trucks or other moving equipment.

Customer Perception

One of the important intangibles of regular maintenance is the impact it has on your customers. It’s hard to measure, but an attractive, well-cared-for facility will affect a customer’s perception of your operation. That perception will always come back to your bottom line, long after you remove your grand opening flags.

Maintaining your facility buildings on a regular basis is smart business. In fact, it is neither expensive nor time-consuming; but if you neglect it, it can be costly.

Terry Campbell is vice president of sales and marketing at BETCO Inc., a single-source manufacturer of self-storage buildings that has been in business since 1984. For more information, call 704.872.2999; visit www.betcoinc.com.

Outside Wayne-Dalton’s world headquarters in Mt. Hope, Ohio, Amish farmers driving three-horse teams serve as a constant reminder of the practical values, craftsmanship and work ethic that serve as the basic philosophy of the company. Largely due to its Amish heritage, the area is home to many proud craftspeople who make cabinets, desks, chairs, quilts and a myriad of handcrafted items. This foundation has contributed significantly to the philosophy that drives Wayne-Dalton’s success as one of the world’s largest manufacturers of upward-acting doors.

Wayne-Dalton was founded in 1954 when Emanuel Mullet purchased a small garage-door business from Ervin Hostetler in Mt. Eaton, Ohio. Hostetler invented a wooden garage door that folded horizontally to store itself overhead. The company acquired its full name in 1982 when Wayne Door in Mt. Hope and Dalton International merged to create the Wayne-Dalton Corp.

Three years later, Wayne-Dalton entered the self-storage industry when it acquired Door Systems Inc., a large producer of self-storage doors and interior systems located in Marietta, Ga. In 1988, the self-storage division was moved to its current location in Trail, Ohio.

The company’s world headquarters and 900,000-square-foot manufacturing facility sit just across the street from its original site. Consisting of 50,000 square feet of tinted glass and steel, the facility won statewide architectural recognition for its design and how well it integrates into its rural community. The company owns more than 2 million square feet of manufacturing facilities in Canada, France and the United States.

Innovation Creates Value-Added Products

Since its inception, Wayne-Dalton has become known as a company with innovative ideas engineered to far exceed industry standards, says Sales Manager Paul Troyer. This culture was driven by Mullet, who is still involved in the daily activities of Wayne-Dalton’s research and development.

“Because the company has always maintained a staunch commitment to developing innovative new products, it is now a world leader in the garage-door and garage- door opener industry,” Troyer says. That commitment to development has significantly changed the storage roll-up door from its original form.

Wayne-Dalton engineers developed a patented tension bracket called the Tension-Pro that allows the spring tension on the door to be adjusted in seconds, saving valuable installation time. The company’s engineers didn’t stop there; they introduced the shot-peened spring to the self-storage roll-up door in 2003. Shot-peening is a secondary process that removes imperfections from the surface of the spring caused from the manufacturing process. It increases the spring strength and adds longer life, virtually eliminating spring maintenance.

“Our focus is to add value to our product that customers will recognize.” Troyer says. “Wayne-Dalton is a leader when it comes to innovation in the self-storage industry.”

From the very beginning, the founders of Wayne-Dalton looked for ways to provide the market with a product and service that customers will value. “We still have that mentality today,” Troyer says. “We are a customer-oriented company, from the beginning to the end of each order we receive.”

Wayne-Dalton’s sales team has the experience and knowledge to guide customers from the design stage of new construction or a retrofit project. A project is handled with the same exacting attention to detail as the purchase. “Simply put, it’s what our customers deserve and expect.”

At Wayne-Dalton practical values are constant, Troyer says. These values have developed a culture of customer first, craftsmanship and work ethic that serve as the basic philosophy instilled by the founders of Wayne-Dalton Corp. 54 years ago.

For more information, visit www.wayne-dalton.com.

The Legal Learning Webinar Series, hosted by Inside Self-Storage (ISS) and industry legal expert Jeffrey Greenberger, has divulged the topics for the last three events of 2008. These free online seminars take place live on the first Tuesday of the month from 11:30 a.m.-12:30 p.m. EST and address a wide range of self-storage legal issues. The new themes are: 

• September 9―Self-Storage Evictions Revisited: A Good Alternative to a Lien Sale
• October 14―Six Things Self-Storage Operators MUST Disclose to Their Tenants
• November 11―Self-Storage Legal Roundup: Your Questions Answered 

Time will be allotted at the end of each session for questions and answers with the speaker. For details and to register, visit www.insideselfstorage.com/webinars. Recordings of past webinars can be purchased at www.selfstorageeducation.com.
 
Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which represents owners and operators of commercial real estate, including self-storage. He counsels several state storage associations, including those for Kentucky and Ohio. He is also the owner of an online resource for facility owners, www.selfstoragelegal.com.
 
ISS has provided the self-storage industry with publications, tradeshows and education for more than 17 years. In addition to its webinar series, it operates the Self-Storage Talk online forum, the Inside Self-Storage Expo and the Self-Storage Training Institute. For more information, visit www.insideselfstorage.com.

“Your roof is leaking! My stuff is soaked!” Unfortunately, this is not an uncommon complaint in self-storage facilities. Many times, the roof is not leaking, but condensation is dripping down on the contents below. Metal has become the industry standard in self-storage due to its durability, attractiveness, low maintenance and ease of use. However, without taking the proper precautions, metal roofs can have problems with condensation.

What Is Condensation?

Condensation is a natural phenomenon in which water vapor in the air is returned to its liquid state. All air contains water vapor in differing amounts. When air is cooled, the amount of water vapor it can hold is reduced. The point when it becomes too cold for the air to hold its moisture level is called the dew point. If the air is saturated, it will release this moisture in the form of droplets until such point as it is back below the dew point or the temperature goes back up. (See “Condensing the Facts.”)

For our purposes, condensation depends on three factors:

• Temperature inside the building
• Temperature outside the building
• Relative humidity (amount of moisture in the air)

Metal-roofing panels are not good thermal insulators, so as the cold outside air hits the roof panel, it cools. When the relatively warm moist air inside the building meets the cold metal-roof panel, the dew point is reached and water condenses on the underside of the roof panel, causing water to drip on the contents below.

Why Worry?

You have a well-written rental agreement that excludes water damage, so why worry about condensation at all? Maintenance issues cost time and money. They also can lead to unhappy customers, which ends up costing more money. Worse, rumors of dissatisfaction can spread fast.

In a perfect world, there would be no complaints and no maintenance worries. All we would have to do is worry about getting to the bank in time to cash all the checks from our full facility. But it only takes once for conditions to be just right for condensation to wreak havoc.

The good news? If you take this into consideration in your building plans, you can minimize headaches with a little preventive medicine.

Combating Condensation

The traditional way to deal with condensation is to keep the temperature on the underside of the roof panel from reaching the dew point. This is accomplished through the use of insulation. A vapor barrier is added to keep the moisture in the air from reaching the roof panel. In the building process, a vapor barrier is spread over the purlins, and insulation is rolled on top of that. Then, the roofing is attached on top.

There is another system that has been used for years in Europe and has been winning favor in the United States, particularly for the non-climate-controlled self-storage industry. This system uses a fleece coating that is adhered directly to the roof panel. The roof panel with coating provides a medium for trapping this moisture in specially designed pockets. The fleece holds the moisture until conditions go back below the dew point and releases the moisture back into the air in the form of normal humidity. Thus, the fleece acts much like a sponge that soaks up the moisture when it appears and releases it as it returns to its humid air state.

This material is self-adhesive and is applied to the panel in the roll-forming process. As a result, it arrives at the building site already in place and set to be installed with the roofing panels immediately.

The membrane is designed to be resistant to aging, and has an adhesive that keeps moisture from coming into contact with the metal panel, actually providing an additional layer of protection for your metal roof. It’s a simple idea that cuts cost, time and condensation. Perhaps it will work for your facility, too.

Chris Davis is a designer and creator of roofing components. For the past three years, he has been working with roll-formers, contractors, coil-coaters and self-storage users across the United States to manufacture and distribute Dripstop, an age-resistant condensation blocker than can be applied via self-adhesives to metal-panel roofing.

Caesar Wright is president of Mako Steel Inc., which designs, supplies and installs steel buildings for the self-storage industry including single-story, multi-story, boat/RV storage, climate controlled and custom buildings. Mr. Wright has been a member of Mako Steel since it’s inception in 1993. For more information, call 760.634.5495; visit www.makosteel.com.

Condensing the Facts

• Condensation occurs when the humidity conditions inside the building and temperature of the metal-roof panel reach the dew point.

• Condensation will continue to drip until either the temperature goes back above the dew point, or enough moisture is released in the form of water droplets to alter the dew point.

• The traditional method for dealing with condensation is to insulate the roof so the temperature on the panel never reaches the dew point.

• In self-storage it only takes once for the vapor barrier to be ripped and contents damaged.

BiG Storage U.K. added 24 office suites, ranging from 200 square feet up to 1,000 square feet, to its facility in Cheshire, England. The offices are designed to service businesses looking for a professional environment without having to pay city-center premium rents. The offices were built in response to customer demand, according to Andrew Donaldson, the company's director. The offices can be rented as stand-alone units with the option of ancillary self-storage. For more information, visit www.bigstorage.info.

Once just a way to warm your home or pool, solar power is gaining ground in the self-storage industry. Read about two facilities that grabbed the opportunity to save some kilowatts and rally around Mother Earth.

As the chief operating officer for Storage Investment Management, Charlie Fritts always has his eye on ways to save energy and cut costs. So when the opportunity to slash one of his facility’s energy expenses came along, he jumped at the chance. A year ago, he came across a program from the Connecticut Clear Energy Fund, part of the Department of Public Utilities Control, which offers grants to offset half the cost of products that use renewable resources such as wind, small hydro and landfill gas.

After some research, Fritts applied for the grant to install solar panels at Planet Self Storage in Newington, Conn., one of 31 properties Storage Investment Management either owns or operates. “The technology has finally become feasible for a company our size to handle,” Fritts says. “Previously, it was relatively not too expensive to do to the home but, in our case, it finally came down to a reasonable design and engineering cost.”

With the grant footing half the bill—about $256,000—the panels were installed on the single-story, 770-unit facility in February. Fritts is already seeing the benefits. The solar power provides 30 percent of the facility’s overall usage, including all electrical components such as lights, cooling and gate operators.

Becoming Energy-Efficient

Conrad Watson, owner of Storage Plus in Waltham, Mass., also took advantage of a government program to outfit one of his storage facilities with solar panels. Massachusetts’ citizens interested in renewable energy resources once had to wrestle through an enormous amount of red tape. But Gov. Deval Patrick changed all that, streamlining the state’s solar energy program, making it easier for businesses like Storage Plus to get rebates for energy-efficient upgrades.

Installation for the system cost $45,000, offset by the $19,240 state rebate. “This made it very affordable,” says Watson, who will recoup his investment in about three years. Storage Plus will also gain tax credits. “With the price of utilities skyrocketing, not to mention the greenhouse gasses in the environment, those are the main reasons I wanted to do this,” Watson says. “It really wasn’t feasible before now.” The panels will generate 6,900 watts of power an hour. In addition, Watson is looking into generating heat using vertical-mounted solar panels on the side of the building.

Storage Plus took another leap toward becoming a more energy-efficient facility when Watson purchased three Toyota Prius Hybrids. A large portion of the facility’s business is records storage, and because the company offers pickup and delivery, fuel and oil has always been a big concern.

“We were using a van, which only got about 7 or 8 miles per gallon,” Watson says. The company re-evaluated the deliveries, discovering most were small and capable of being completed in a smaller car. Watson then made the decision to purchase the Priuses, which get up to 50 miles per gallon. “We’re saving an enormous amount of money plus helping the environment,” he says.

Cost Savings

While Fritts agrees paying for a solar power system is often a hefty price upfront, the long-term benefits make it worthwhile. “We’ll have a return on our investment that makes this financially feasible to do,” he says. “We see it monthly in our power bill. Some months, we have a credit on our bill. But other months, when it’s cloudy and we’re using more energy, or in the winter months when it’s dark, we’ll use more energy.”

The power Planet Self Storage generates goes beyond helping just that facility. Solar power doesn’t act as a battery, storing energy for later use. Instead, the power is transmitted back into the power company’s power grid, which benefits the community as a whole. “The power plants then don’t have to burn coal or run turbines,” Fritts says. “They can produce less power because it’s being supplied by other sources.”

Because more cities and states are becoming environmentally minded, Fritts advises self-storage owners interested in solar power first check for government or utility company programs with rebates or grants to offset the cost of the system. And you don’t have to purchase a solar system to create a more energy-efficient facility. There could also be programs, rebates or incentives for other changes, including something as simple as changing the type of lighting you use in your building. “There are a lot of programs out there. You should check with your community and your power company to see what’s available,” Fritts says. “It doesn’t all have to come out of pocket.”

One obstacle you may come across is finding a contractor who can properly install solar panels. “This is not your everyday thing,” Fritts advises. “You have to find a contractor who has done solar. It isn’t something your local electrician can handle.”

Overall, going solar is exactly what Fritts had hoped for. “It’s a good thing to do and it’s a financial investment.”

Capital-market volatility during the past 12 months has significantly changed the landscape for self-storage real estate investing and financing. If you have applied for a loan in the past eight to 10 months, you’ve likely noticed these changes firsthand.

Gone are the days of 85 percent to 90 percent loan-to-value ratios (LTV), 10-year interest-only periods, and 1.05 to 1.10 debt service coverage ratios (DSCR). As a result, more attention than ever is being focused on the intricacies of valuation underwriting.

As real estate investment and financing advisors, one of the issues we’re viewing on the street these days is that many property owners and investors are unaware—or more appropriately stated, in a state of denial—of how these new capital market realities will affect their financing and refinancing loan requests. Unfortunately, they became so accustomed to generous loan-program provisions and aggressive valuations from past years they’re having a difficult time adjusting to the current landscape.

If you understand why lending programs and valuations are in the state they are today, then you’ll be better prepared to capitalize on current market conditions to help meet your investment goals.

Behind the Scenes: Market Shifts

The amount of deal volume in today’s self-storage market compared to a year ago is very different. From 2005 to mid-2007, it seemed each passing week brought a new buyer, another portfolio transaction, or a new fund looking to invest in self-storage properties. Meanwhile, deals in all commercial property types were trading at a record pace.

Owners, developers and long-term property holders became sellers, given the valuations that self-storage assets were achieving nationwide. In most cases, these owners and investors met or exceeded their initial projected investment returns within one or two years, as opposed to a more traditional five-year hold time. Things were great and everyone was content ... and then came the correction in the securitized debt market.

Prior to mid-2007, the commercial mortgage backed security (CMBS) market was a well-oiled, fast-moving and efficient machine. Loans were issued by capital sources, pooled together, and then sold to a foreign buyer, pension fund or institutional investor at record pace.

As investors stopped buying the pools in July 2007, the machine ground to a halt. Banks were forced to keep these loans on their books despite having no original intention of holding them on their balance sheets. Next came the “let’s figure out what we have here” process, and then the now-too-familiar multibillion-dollar write-downs as lenders question the net value of the paper.

Problematic Implications

So with that history, we can now examine how these market shifts have affected self-storage property valuations. The typical owner today may learn his facility has lost 8 percent to 10 percent of its market value. But what may be confounding is that simultaneously he has experienced increases in revenue and occupancy from the past year.

The reason for this seeming paradox has to do with the LTV ratio and the new DSCR. Prior to the credit crunch, a buyer could leverage a facility to 85 percent or, in some cases, 90 percent with a loan constant that either equaled the interest rate (based on a 10-year interest-only loan), or was only a fractional amount higher than the buyer’s quoted interest rate given the initial interest-only periods. If you adjust the required equity from 10/15 percent to 30/40 percent, and eliminate long interest-only periods, then the returns and available buyers will decrease.

Another problematic implication of the credit crunch is the immense perceptual disconnect we have today between buyers and sellers. Many owners still cling to a mindset of a 5 percent in-place cap rate. When they find that rate level is unachievable, they instead hold on to their fundamentally strong storage property because it is providing healthy cash flow. Combined with the fact that the self-storage asset class has such a low default rate (lowest of all types of commercial real estate assets), many owners realize they simply don’t need to sell right now, thus creating reduced deal flow in the broader transaction market.

As a result, we are now experiencing a property transaction market that is dramatically out of equilibrium and, in our opinion, will not return to normal levels until later this year.

The slippery slope with this phenomenon is that it creates a false perception that values have dropped dramatically. Our observations are that one-off asset sales have seen an 8 percent to 10 percent correction in market value at most, and that this decrease is due largely to the lack of available leverage, not the fundamentals of the operations.

However, for larger transactions that typically attract institutional capital with well-funded equity and in-place credit facilities, we have seen less than an 8 percent correction in market values. In these cases, the amount of capital trying to find its way into deals has not diminished. Rather, it is simply a timing issue as owners realize there will not be a snap-back to January 2007; thus, they are beginning to ground their expectations in the reality of 2008.

Development Volatility

In recent years, our industry became extraordinarily attractive to developers who would have traditionally focused on other commercial real estate types. They were intrigued by the notion that self-storage is an easy asset to manage—or so they thought. Correspondingly, we experienced a development cycle of huge facilities ranging from 120,000 to, in some cases, more than 150,000 net rentable square feet.

A statistic from the Self Storage Association bears witness to this development boom: “It took the self-storage industry more than 25 years to build its first billion square feet of space; it added the second billion square feet in just eight years (1998-2005).”

Many newly developed facilities are still on their constructions loans, so permanent debt will need to be placed on these properties. Given today’s new market realities, these developers will need to contribute a significant amount of equity in order to receive a permanent loan, but with the industry’s generally strong performance, these loans will be attainable. However, the cash-outs certainly will be fewer and far between.

Where We Are

We believe overall values for self-storage assets have corrected by as much as 10 percent from its 2007 first quarter peak. With maturing construction loans, maturing floating rate debt (originated in 2006) and maturing CMBS debt (originated in 1999 and in 2003), this correction is likely to remain static through 2008 as the market absorbs these deals.

With all of the media hype over write-downs and commercial real estate woes, we expect to see “distress sales” within the self-storage industry appear on a very limited basis. Maturing construction loans are likely the most vulnerable, but there simply is not enough volume from that market segment to create a systemic effect across the industry.

Any deal priced after August 2007 likely has a majority of the credit market correction priced into it. Therefore, late-2007 closings, along with those closing this year, are establishing new benchmarks and comparables that will help narrow the current seller-buyer delta by fueling volume.

The overriding sentiment today is that cash flow is king. Sure, buyers are willing to allocate some value to upside in rents and/or occupancy, but only when a facility is measurably below market in rents or is newer and has space left to lease. The main focus in today’s valuation matrix is on in-place cash flow. Buyers will be extremely aggressive on what is there today because it is a known quantity with history to back it up.

Doug McCarron is a managing director at HFF Self Storage, formerly Storage Investment Advisors, and can be reached at 310.908.4728 or [email protected]. Devin Huber serves as senior vice president with Beacon Realty Capital and can be reached at 312.207.8232 or [email protected].