Bonus Programs...What Should They Consist Of?

By Pamela Alton

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When an owner contacts me looking for a manager, one of the very first questions they ask is, "How much should I pay the manager, and what sort of bonus program should I have to motivate him?" I am not going to discuss wages in this article; however, I will try to give you some insight into the type of bonus programs I see being offered in the industry. Please keep in mind when designing a bonus program that there is no right or wrong.

A bonus program should consist of two things: One, it should motivate the manager to reach for a clearly defined goal; and two, the bonus should be attainable. There is nothing more deflating to a manager than working his tail off for bonus he can never reach.

One thing for sure is all managers will receive a base wage, and 95 percent of the time, they will also get some sort of bonus for doing a good job. In addition, about 70 percent of the managers today are receiving medical benefits.

Per Rental

To keep a manager sharp and motivated to answer the telephone effectively, some owners like to pay a commission per unit that the manager rents. It could be $3 to $5 for each rental of a 10-by-10 or smaller, and $5 to $10 for each rental larger than 10-by-10. Or, it might be a flat fee of $3 to $10 no matter what the unit size. This type of bonus could be paid to the manager and relief manager, based on how many units they each rent. A lot of owners like this type of bonus because it is probably the easiest for the accounting department to handle. However, there is not much motivation for the managers to keep sharp and on their toes. Sure, they will receive a per-lease bonus for each unit rented, but where is the motivation to keep their existing tenants happy or to collect as much income as possible each month?

Percentage of Monthly Income

The manager could get a percentage of the monthly income. For example, if your facility has been bringing in $40,000 per month and you think a good manager could bring in more, you might say to your manager, "I will give you 20 percent of anything over the $40,000 base." So, if the manager brings in $43,000, which is $3,000 more than the expected income, he will receive $600 for the month, and it could be split with the relief manager, 70/30. This type of bonus really motivates the managers to make timely collection calls and collect as much money as they can each month, not rent units at a discounted price or waive late fees.

Income and Delinquency

The bonus could be based on a predetermined monthly goal of the income and delinquencies that will be expected at the facility each month. When you sit down with your manager at the end of each year to prepare the annual budget, you might say, "OK, for January we will set goals of 92 percent occupancy and 5 percent delinquency, and for February we will have 93 percent occupancy and 5 percent delinquency. For March, it will be 95 percent occupancy with 4 percent delinquency," and so on. If the manager achieves the occupancy goal, he gets $200 or $300; likewise if he achieves the delinquency goal.

With a "split" bonus, the manager could achieve half the bonus if he reaches one goal but not both. This type of bonus also motivates the manager to get the highest occupancy and lowest delinquencies. Most managers think in terms of occupancy and delinquency percentages, not monthly income. If they achieve higher occupancy and lower delinquency, then this translates into higher profits for you.

Shopping or Sales Skills

Some owners are now using a shopping or sales-skill bonus in conjunction with other bonus programs. In this case, the manager is shopped on a monthly basis, and given a bonus based on his telephone or face-to-face performance. With this type of bonus, the manager usually is given a telephone sales script to follow. If he uses the script and asks all the questions--providing the facility name and directions, providing his name, asking for the caller's name, etc.--he is given a specified bonus, perhaps $100. If the manager misses just one item on the script, the bonus is reduced to $5 or $10--a big difference. There is a real incentive for the manager to make each telephone call count and should translate into more rentals. Used in conjunction with other bonuses, this method keeps the manager sharp in his telephone sales.

There are several "shopping" services in the industry today. Some shop your manager and just send him a written notice a month later, which has some good points. However, if you just give the notice to your manager and don't discuss the findings with him, it is a worthless piece of paper. Some services will immediately follow up with your manager after the "shopping" call and evaluate his telephone presentation, as well as send a written evaluation. This way the manager can immediately get feedback from his telephone presentation.

Late Fees and Commissions

Some owners figure X amount per month in late fees will be collected at their facility. Managers, on the other hand, often prefer to drop the fee when a tenant complains about it. To reduce late-fee credits, an owner could work them into a bonus system. For example, all late fees over a specified amount go straight to the manager. This will make the manager think twice before he is so willing to drop late fees, because he is giving away some of his own money.

Another avenue for bonuses is in sales of ancillary products. Some owners pay commissions on sales of locks, boxes, packing supplies and insurance policies, and give this to the manager as a monthly bonus, which motivates them to sell these items.

Rental trucks are another form of income. If you have trucks, it's advisable to pay your managers a commission on them, otherwise there is not a lot of motivation to actually rent the trucks. Renting trucks is not easy for the manager, especially at an active facility. Truck-rental companies may want to convince your manager that he is there only to rent the trucks. However, your business is owning a storage facility and renting space. Your manager should devote his time to renting space and collecting rent. With truck rentals, your manager has two bosses: you and the truck-rental company. By compensating your managers for truck rental, they will have the incentive and motivation to rent the trucks and bring in the added revenue. The average truck commission paid to the manager is 30 percent of the owner's profit. Some owners pay 50 percent, some only pay 5 percent and some pay nothing.

Contests

If you have more than one site, you might want to consider organizing contests between your various locations as another incentive to keep your managers sharp. If your sites vary in size or locations, it is a little more difficult to determine which site does better than the rest. Therefore, these contests should probably be based on percentages. For example, you could reward managers at the facility with the highest percentage increase in rentals or the facility with the highest percentage reduction of delinquencies or the highest percentage increase in income over the previous month, and so on. Obviously, this sort of bonus program takes more time to calculate than a per-rental bonus. However, you might find it drives your managers to compete with one another, resulting in more profits. You could use weekend trips, cash, small TVs or appliances, or whatever you like as contest prizes.

Whatever bonus program you chose to motivate your managers, it should be designed to keep your managers sharp and on their toes and to make them stretch to reach goals. At the same time, it should be attainable by the manager. It is de-motivating for a manager to work hard for a bonus that is so far out of reach that he can never achieve it. It will only deflate your manager and, in the long run, hurt your facility as well as your chances of retaining a good manager.

You and your manager might elect to design a program using a combination of bonuses to help keep them sharp, motivated and focused. These bonuses could be paid on a monthly, quarterly, biannual or annual basis, or a combination of these. By working with your managers and getting their input and feedback, you will come up with a good program that they will be pleased with and that will make you, your manager and your facility a winner.

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

Establishing a value for your facility, for either finance or sale, can tell you a lot about your investment expertise

By RK Kliebenstein

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If you are considering either a refinance or a sale, your first question will probably be, "How much can I get?" That question is most easily answered by asking the more important question, "How much is it worth?" This exercise is offered to help you determine a value for your facility before you spend a lot money for an independent MAI (or similar designation) appraisal. While this informal valuation method may not carry the weight of a traditional appraisal, you may be able to reduce the costs of a professional appraisal and even more important, know what the value is likely to be ahead of time.

Go for Fact, Not Fiction

The self-appraisal method requires some strong discipline...taming the ego. We all want to believe that our facility is worth more than the other guy's...or at least, the same. There are a number of factors that indicate value and are based solely on data, not emotion or subjective criteria. The most important contribution to the self-appraisal process is your ability to be objective. When making comparisons with other properties, seek the truth and work to compare apples to apples. Do not settle for oranges or bananas; keep your analysis based on facts.

Keep extensive notes and audit trails for your findings. Make certain you record dates, times, names and phone numbers or addresses. They will build credibility into what you are doing.

• Why Am I Doing This?
  Establish the reason for this exercise.
• Are you looking for a check and balance to a professional appraisal?
  Appraisers seldom make mistakes, but it is possible.
• Are you preparing for a professional appraisal and want to provide comparable sale data?
  Appraisers, particularly out-of-towners or those who are not local, may not have access to public channels of information that could benefit you. This self valuation may enable you to provide additional information to the appraiser.
• Are you selling your facility?
  Acquisition professionals may not have all the data necessary to make an informed offer. When the offer is low, perhaps you can provide deal-changing information.
• Are you seeking financing?
  Financial institutions may not have self-storage expertise, particularly local institutions that rarely make self-storage loans. Conduits and national lenders may use out-of-town professionals who aren't as familiar with the local market as you are.

If you are using the appraisal to make a life-changing decision--to buy or sell, for example--do not hesitate to get a second opinion...a professional opinion. Some industry leaders are Steve Hopper of Storage Valuation Specialists in Charlotte, N.C., or Ray Wilson of Charles R. Wilson & Associates in Pasadena, Calif.

The First Step: Research, Research, Research

Research is to the appraisal process as location is to real estate; it gives it credibility. Do not be satisfied with assumptions. Attempt to get verification in everything you do. All verifications should be in the form of written documentation with names, dates and times (who, what, where, when). Do not settle for hearsay. The grapevine may not be as reliable as you think. There are three approaches to value: income, market and cost. The latter two are of equal importance, but both together do not carry as much weight as the income approach.

Cha-chiiing!

Making the cash register ring is what creates value for you. Remember, as a rule of thumb, every dollar of income equals $10 of value. While that in itself does not seem like much, when you apply the dynamics of multiplication, every $1,000 of income equaling $10,000 of value, by the time you get to tens of thousands of dollars in income, the whole approach makes much more sense.

Let's start with income. Calculate the gross potential income of your property by writing down your unit mix and the prices, along with availability (see Figure 1). The bottom right corner indicates how much gross rental revenue you could expect if you were 100 percent occupied (every day of the year) and you collected every dollar owed. So, when you brag about 99 percent occupancy, that means in Figure 1 you would have had to deposit $438,000 in the bank in rental revenues. Have we hit the ego yet? Keep on reading.

Vacancy and credit loss: The bottom line when it comes to vacancy is how much money you deposited during the year vs. how much you could have deposited. That is actual deposits compared to gross potential income. Simply divide the difference between rents deposited and gross potential rents for your true vacancy. This is known as economic occupancy.

Move on to other income: You can cross the fine line between valuing self-storage as an on-going business or a real-estate asset. Other income associated with the operation of the real estate is generally allowable. The gray area is whether the sale of merchandise is allowable, and at the far end of the spectrum (and for many, off the charts) are the revenues from truck rentals. Income associated with the operations would include late fees and charges, auction proceeds, and administrative or set-up fees. Merchandise sales usually include storage-related sales, such as locks, tape and boxes. Figure 2 demonstrates typical revenues formatted for valuation. For a subjective value, exclude any income other than rents, late and collection fees, administration or set-up fees, and lock and box sales. Subtract the cost of goods as illustrated.

Newton's Theory of Relativity: What Goes in Usually Goes Out

For the purposes of simplifying and making your valuation report most useful, combine your expenses into the categories as depicted in Figure 3. Remember the K.I.S.S. theory: Keep income and spending succinct. Follow logical patterns, such as alphabetical order and group expenses in a uniform manner. If you are paying the Yellow Pages ad with the phone bill, then subtract the cost of Yellow Pages and add that amount to advertising. Insurance costs should only be physical damage (property) and liability insurance costs.

All personnel-related insurance should be included in on-site personnel costs. As with any expense, make certain that if your accounting is on a cash basis, that the insurance expense reflects an annual amount and does not over- or understate the expense because of the timing of payments. Adjust management fees to 6 percent of total revenues. Include in the on-site personnel costs all expenses associated with employees: wages, taxes, bonuses, training, health and life insurance and perks. If you are paying below minimum wage, adjust wages to meet minimum wage tests for the purpose of analysis. If you have a "bargain" manager who earns less than the prevailing wage for the area, make an adjustment upward. And, if your manager has a sweetheart deal, you can reduce the salary level to prevailing wages, unless there is a specific reason for the higher salary requirement.

Property taxes should include personal property as well as real-estate taxes. When placing a value on your facility, here is a chance for you to let your objective skills shine. If your property taxes are well below what they should be, adjust them to the market. Oh, how that is going to hurt. If, at the end of the valuation, you have determined the market value to be $2 million and the tax bill shows market value at $1 million, then double your property-tax expense.

Other expenses should include all expenses as not categorized above. This will include office expenses, bank charges and collection costs, postage, repairs and maintenance. Include pest control, snow removal, janitorial costs and incidental wage costs...remember when your neighbor's son swept the parking lot last summer (did you include it)?

All in all, the total expenses should range between 30 percent and 40 percent of total revenues. At the low end of the spectrum would be a large, multilevel facility and, at the high end, a small facility with large land area. Expenses should not include amortization, depreciation or interest expenses. Partnership-specific expenses, such as legal and partnership accounting, should be excluded. Extraordinary expenses, such as owner expensed automobiles, key-man life policies or other partnership expenses not incidental to the operation of the facility, should not be included.

The Bottom Line: Just What Is It Worth?

Once you have calculated a "good" net operating income, the challenge of applying a capitalization rate (Figure 4) is ahead of you. Supporting data is not easy to find. Most warranty deeds do not state a purchase price, so you must rely on other data sources, usually the seller or buyer. Corroborate the information if possible. If the seller states a cap rate, attempt to verify the number with the buyer.

Be objective about the comparison of your facility to the comparable sale you are analyzing. If the documented cap rate is 10 percent and you are comparing a 15-year-old facility with unpaved drives, no access-control gate, and you manage the facility yourself, adjust for the comparison to a new, fully leased, low-maintenance property. If you can discipline yourself to adjust for curb appeal and a fair evaluation of management, you can fairly establish a value for the facility. Attempt to obtain at least three comparable sales and adjust each cap rate to calculate a realistic value. If there is not something tremendously unique about your facility, the cap rate should fall between 10 percent and 11 percent.

Be aware that determining a cap rate is the most crucial area in which to be equitable in analysis; the results carry the most dynamics. All cap rate verifications should be well documented, particularly if you later have a professional appraisal completed and the cap rate established by the appraiser differs from your findings. Providing the appraiser with the ability to verify a cap rate may be an acceptable basis for having the value adjusted if you are in disagreement with the professional valuation.

By Cary F. McGovern

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If you own or operate a self-storage facility, you are already in the records business. There are undoubtedly records in many of the storage units that you already manage. So, you have by default become the literal burial ground of the records industry.

Records take the lowest priority in business until something goes wrong. Then it is catapulted from the lowest position to the highest overnight. So, what causes this to happen? Usually either litigation or an audit. A key record can't be found, and the boss is furious. That is when we hear the bellow from the executive suite, "Can't you keep things straight down there?" Of course, prior to that, the records department was given little funding and no resources. Records management is indeed the missing link in administrative management.

Why Records Management?

Every individual and organization must keep records--whether they like it or not. Usually they don't like it and want someone to do it for them. Organizations must keep records to fulfill legal, regulatory and fiduciary responsibility. They have no choice.

What's the Difference Between Records Storage and Records Management?

There are several levels of service in the records business:

1. Passive Storage: This is where most self-storage managers find themselves. The customer comes in and places boxes and file drawers of records in your facility. He keeps the key and you collect a space rental fee.
2. Active Storage and Retrieval: The first step toward records management is to store records on racks at a monthly cubic foot rate. Usually boxes are numbered and maintained by bin location. You provide pickup and delivery service for new cartons and retrieval of cartons for review. Charges are levied for retrievals, re-files and deliveries.
3. Inventory Control Services: Sooner or later the customer realizes that he can no longer manage to find records when he needs them. The solution is simple. Inventories are gathered on one or more of three levels: the carton, the file within the carton, and the document within the file. Most companies that offer inventory services use an automated bar-code system. The customer is charged for the creation of the initial database and for updates of boxes coming and going.
4. Extended Records Management Services: This encompasses professional records-management consulting services. It usually includes retention scheduling, active file management and expertise on developing records-management policy and procedure for the customer. Normally this is performed by a records-management consultant with the certified records manager (CRM) certification. These individuals are available as subcontractors in every area of the United States and Canada as well as, other countries throughout the world.
5. Electronic Data Management: Records are in the process of becoming digital. We are in the midst of a paradigm shift from paper to electronic records. The shift may well take many years to complete. Managing electronic records has both high cost and high rewards. Services in this area range from computer back-up tape rotation to on-line data warehousing.

Storage Racking and Rates in Records Management

In records-management centers around the world, there are typically two methods of storing records. The most prevalent is in storage cartons. The less common is in file folders on open shelf racks. Let's look at each to determine which is most appropriate for your business:

Box Storage: The industry standard is the letter/legal size box. It allows for filing letter-size documents or files in one direction or legal-size files or documents in the other direction. It measures approximately 1.1 cubic feet and is called the one cube box. Although most commercial records centers will accept any size carton, it is advantageous to recommend that consumers move to the one cube box. This standardization will allow for maximum shelf utilization and ease of handling. Boxes larger and smaller are assessed a rate based on the number of cubic feet they measure, usually rounded to the next highest cube. Although rates vary greatly from location to location, it is usually assessed based on volume in storage, and may be the result of negotiation with the client. It is not uncommon for a commercial records center to charge rates that vary from 15 cents to 50 cents per cube. The rate structure is highly competitive in most markets.

File Storage: The most common open-shelf filing is performed for the healthcare industry. Medical records are more active and require quick delivery, so the standard is to maintain them on open shelves. It is appropriate to have a monthly rate per linear foot of files that includes retrieval and delivery. A linear foot is approximately the same size as a cubic foot. Charges range greatly per linear foot depending on the packaging of services included.

Rack Alternatives: Unlike self-storage, records-storage revenues are tied directly to the density of filing. The most important question always is, "How high is your ceiling?" In box storage, the most recommended shelving configuration is pallet racks nine levels high with two mezzanines. Mezzanines are walkways at the fourth and seventh levels. Although they are not absolute requirements, they certainly are recommended. As your records storage volume grows, the volume of retrievals grows proportionately. Pulling files and cartons from ladders is difficult and ineffective for personnel time optimization. Open-shelf filing systems usually have seven shelves that are approximately 72 inches high. Typically these are stacked on mezzanines where possible.

Pickup and Delivery Methods and Rates

There are two schools in this area of the business. The first is to provide services using your vehicles; the second is to outsource the service. I have concluded based on personal experience that it is best to provide both. As you grow, your delivery schedule will become more hectic. I have witnessed many debates about this subject, but I believe that the best scenario is to have one vehicle--usually a step van--and outsource the rest.

This will give you several benefits. Your van driver can build a rapport with the customers who are on his regular route, you will have a mobile advertisement that drives throughout the community and you have the flexibility of using regular and on-call couriers for other deliveries. Most communities have a number of independent contractors that are available on call or on certain high-volume days for deliveries. Additionally, it is very difficult to plan for "STAT" or emergency deliveries. Bonded courier services can provide this for you on demand. You may have several couriers on call who have been trained with your procedures and wear your T-shirt for delivery.

Charges vary for delivery services and are based on competition, distance and volume or number of pieces. Typically there is both a pull charge and delivery charge. The pull charge may be $1 to $5 and the delivery may be $3 to $50 depending on regular, emergency or evening delivery requirements.

Pickup Requirements and Charges

Since it is rare to have an emergency pickup, these can be scheduled over a weekly or monthly basis depending on the activity of the customer requirement. On regular, scheduled pickups, it is normal to have many boxes--25, 50 or more. Charges for this service are calculated using an hourly rate. Perhaps $25 per hour for one man, one truck. New cartons coming into storage from an existing customer may require a set-up charge for each box to be indexed into the computer system. New customer pickups are best done on a schedule basis at the least busy time at your operation--perhaps Thursday afternoons. Charges for this service range from free to an hourly rate. This will greatly depend on your marketing strategy. Most commercial records centers want as much volume as possible and will pay for the cartons to come in initially.

The cost of bringing a carton into storage is related to three components. The first is the assembly of rack for storage, the second is rack cost, and the third is the manpower and vehicle expense for the movement. The rule of thumb for this cost is that it usually equals approximately 75 percent of the first year's storage revenue. After the first nine months, the rack and move-in cost are paid for. After that the only direct cost to you is the cubic foot space in storage and your overhead. Since you effectively get 18 cubes per square in a nine-level racking system, your rental for one square equals the revenue of 18 cubes. If you want to compute the number of cubes that can be stored in your facility, simply multiply square footage by ceiling height and multiply that by 60 percent. Typically 40 percent of the storage space will be used for receiving, aisles, space between the ceiling and the top of the rack, and administrative space.

Offering Other Services

You may want to consider offering services along with the standard storage, pickup and delivery. The most common additional service is indexing. Indexing can be provided at three levels: the carton, the file and the document. It is rare to index at the document level unless there is some urgent need, such as litigation.

Carton indexing usually includes the following attributes:

Indexing

File level indexing is considered normal and can be quite profitable. Charges are based on keystrokes, hourly rates or sometimes an algorithm. My personal experience is that when managed well, this can offer a 50 percent profit margin. It is usually an easy sell to customers. File level allows ease of access for customers to find what they really need, avoiding the delivery of several cartons to find one item. Delivery can then be at the file level at a reduced rate. The best way to index at the file level is to set up a production shop. I have used 10-by-16-foot work huts with simple conveyers running through them. Typically, you can set up three work stations in this space. Staffing depends on your volume. For example, sometimes it's ideal to have one full-time person plus a relationship with a temporary agency to provide trained personnel on demand.

Other services range from professional records services, such as retention schedule, to managing on-site customer file rooms. Each of these opportunities deserves separate articles. You can offer these services by forming resource partnerships with professionals in your area. Electronic or digital records management services can also be provided through partners.

So what are you waiting for? Get going on developing your records-management business. Existing customers offer an excellent opportunity for a fast start. Additionally, a kick-off records management symposium can spark interest immediately. Whether your business plan calls for slow growth or a fast pace, you can have a successful addendum to your existing self-storage business.

Cary F. McGovern is president of Mandeville, La.-based File Managers Inc., which provides outsourcing services, file-room management and litigation support services for the legal industry, as well as records-management consulting services. Mr. McGorvern is a certified records manager and a frequent speaker for organizations such as the Association of Records Managers and Administrators, the Association of Legal Administrators, the National Business Forms Association, the Bank Administration Institute and the Association of Commercial Records Centers. He also is a contractor to Xerox Business Services as records-management consultant and has developed the XBS records/file-management product offering.
Mr. McGovern may be reached at (504) 845-1720 or via e-mail at [email protected].

Construction Issues for Records Management

Constructing a building ideally suited for use as a commercial records center is very important to your financial success. There are several issues that should be considered.

1. Location and access to downtown or business centers.
   The attractiveness of the commercial record center usually centers around ease of access to the primary customer locations in your community. Records centers that are strategically centered around the entrances to freeways have more appeal to customers who might need quick service. Hospitals are particularly interested in "STAT" service.
2. Optimum ceiling height.
   Ceiling height is always the most important issue in any commercial records storage operation. The storage density is directly proportional to ceiling height, as is gross profits. One of the key formulas for success is usually the question, "How many cubic feet do you have per square foot?"
3. Physical security.
   Records represent the corporate memory of any organization. They usually are of no concern until either litigation or an audit takes place. It is important to build into your facility access-control systems on all doors and premises protection including motion detectors. Additionally, bonding of employees coupled with a security of information training program will ensure customer confidence.
4. Disaster avoidance and management.
   Disaster management includes things like fire-detection systems. These are important in addition to sprinkler systems. Although most communities require sprinkler systems, they can cause more damage than the fire itself. Cross bracing of racks is imperative for earthquake-prone areas of the country. There have been horror stories about racks that dropped like dominoes, even in small quakes. Disaster management should be an integral part of your daily operation. It must include data protection and back-up for your computer system.
5. Electronic media facility.
   If you choose to provide electronic media storage, it is important to provide higher levels of physical security within your facility. Typically, the additional components are temperature- and humidity-control systems monitored 24 hours a day, fire-suppressant systems and moisture detection.
6. Optimization of floor space.
   Floor-space optimization is important. The areas that you will define are administrative space, receiving area for pallets, aisles and project-support areas. Receiving areas are important since it is common not to shelve record boxes for several days after they are received. The most commonly referred to carton is the carton that was received yesterday. Placing cartons into temporary receiving areas saves labor cost.
7. Mobile project work space.
   Project work is a major revenue producer for commercial record centers. This is discussed in the article. Building a small, moveable project room that can be relocated from facility to facility is important. Simple construction-type huts built with computer work stations and manual conveyers work well.
8. Room to grow.
   You should always consider a location that offers growth potential. The average increase in storage just from existing accounts can be 15 percent to 20 percent compounded annually. No matter how well you plan, you will eventually run out of space. Of course, aggressive sales will make this happen sooner.

By Buster Owens

The self-storage industry is experiencing the fastest growth rate to date. With the introduction to the storage market of REITs, successful franchising, low cost and availability of money, the expansion is tremendous. A successful self-storage developer follows the same basic rules of real estate: make site selections based on location, location, location. With the larger companies aggressively pursuing the best locations and willing to pay top dollar for them, an in-depth knowledge of the zoning process may be the key to an individual's success in the marketplace.

Zoning can do one of two things: It can work against you, or it can be used to your advantage if you assemble a piece of prime property and rezone it. The larger companies are, generally, looking for property that is properly zoned and ready for development. They prefer not to spend an extended period of time on the rezoning process.

According to the Orange County, Fla., Code Book, the functions, powers and duties of the zoning commission shall be:

• To acquire and maintain in current form such basic information and materials as are necessary to an understanding of past trends, present conditions and forces at work, or cause changes in these conditions. Such basic information and materials may include: maps and photographs of man-made and natural physical features of the area concerned; statistics on past trends and present conditions with respect to population, property values, economic base and land use; and such other information as is important or likely to be important in determining the amount, direction and kind of development to be expected in the area and its various parts.
• To prepare and, from time to time, amend and revise comprehensive and coordinated general plans for meeting present requirements and such future requirements as may be foreseen; to prepare and, from time to time, amend and revise an official zoning map showing the zones and districts as established by the comprehensive plan.
• To establish principles and policies for guiding action in the development area.
• To prepare and recommend to the board of county commissioners resolutions promoting orderly development along the lines indicated in the comprehensive plan.
• To determine whether specific proposed developments conform to the principles and requirements of the comprehensive plan for the growth and development of the area, and to approve all proposed plats in accordance with the standards and requirements of the comprehensive plan and the regulations adopted hereunder; to provide for an orderly street development and alignment in all plats and subdivisions developed in the county.
• To keep the board of county commissioners and the general public informed and advised as to these matters.
• To conduct such public hearings as may be required to gather information necessary for the drafting, establishment and maintenance of the comprehensive plan, and such additional public hearings as are specified under the provisions of this act.
• To cooperate with municipalities, regional planning councils and other governmental agencies for the purpose of achieving a harmonious and coordinated plan for the development of the land resources under their respective jurisdiction(s).
• To perform any other duties which may be lawfully assigned to it.

The powers and duties of the zoning commission refer to the maintenance of a comprehensive plan. Some states require all cities, counties and municipalities to submit a land-use plan (zoning map) to the state for adoption. The land-use plan indicates to the state where and what type of zoning is in place for the area. Rezoning a property from one major classification to another could possibly require an amendment to the state's comprehensive land map prior to beginning the rezoning process. It is extremely important to know the procedure in your jurisdiction.

Zoning Classifications

Zoning classifications can be broken down into five major categories: agricultural, residential, multi-family, commercial and industrial. In years past, self-storage was typically grouped into industrial zonings. The industrial zoning was, in part, due to the term "mini-warehouses." When discussing a proposed facility with the zoning official, the proper term to use is "self-storage facility." Mini-warehouses conjure the image of unattractive, metal-ribbed buildings with no architectural flair. It also brings to mind small businesses operating out of these units, which can be unsightly.

As the industry has matured and zoning boards have become more familiar with the latest designs in self-storage, they have come to accept the fact that self-storage is a retail business, and that a commercial zoning is more appropriate.

Making Zoning Work for You

Having reviewed the functions of the zoning board, how can I use this information to my advantage? Following is a case study of the rezoning of a piece of property in Orange County, Fla. The parcel is approximately 5.2 acres and is located in a prime, in-fill market. The property fronts two different roads and carries three different zonings. Part of the property along the major road is zoned C-1, another part of the property is multi-family, and the third zoning is for high-density housing.

In this case, we want to rezone the property PD (planned development) in order to keep 1.2 acres in the C-1 zoning and to rezone the remaining 4 acres to a C-3 zoning, which is consistent to self-storage. As stated earlier, patience is needed for this exercise. We will create a timeline for the steps involved with the amendment to the comprehensive land plan and the eventual rezoning.

December 1996--Discussions with County Planning regarding land-use potential.

To begin the process, you need to research with the planning and zoning department what you would like to accomplish. This should give you an indication as to how well it will be received by the staff. It also helps to begin building a personal relationship with the staff, which can be beneficial. I have found an artist's rendering of the proposed facility to be one of the most important factors in helping to sell your ideas, not only with the zoning board, but with the neighbors and businesses in the immediate area.

January 1997--Presentation to and discussions with neighborhood groups and surrounding businesses.

This might be the most important step. Before making formal applications to the county, contact the local neighborhood and homeowner's associations and go meet with them. This is not a prerequisite to rezoning, but it helps to win over your neighbors and determine what type of opposition you will be facing during the public hearings. Take your ideas and pictures to these meetings and explain what you would like to build. These meetings are typically informal, allowing the residents to ask you questions about their concerns.

In this particular case, the homeowner's association for the condos to the north and the Pine Hills Neighborhood Association came to our public hearings and spoke favorably about our proposition. We were able to convince the residents of the condos that self-storage would be a good buffer between their homes and the commercial activity occupying the corner. Furthermore, with the present zoning in place, there could possibly be low-income housing built on the property. It is difficult for the board to deny your application when you have the support of your neighbors and the surrounding businesses.

February 1997--Application for land-use change; small-scale amendment to the comprehensive land-use plan.

The first official step is to modify the state of Florida's previously adopted land-use map. Due to the size of the property, a small-scale amendment is required. Small-scale amendment applications are only accepted twice a year and are only valid for the first 60 acres that are applied for. Due to these restrictions, it is very important to know these timetables or you could be sitting around doing nothing for six months. It is also important to be one of the first to apply to ensure that you do not get removed from the docket. Even though the application is made through the state, the local planning and zoning board handles the public hearings and will then make recommendation to the state as to whether it should be accepted or not.

March 1997--Follow-up presentation to concerned citizen groups for input.

The citizen groups have now had a chance to digest your earlier presentation and are expressing their concerns.

April 1997--Public hearing; Planning and Zoning; land-use change.

This is the first in a series of public hearings concerning the amending of the comprehensive land-use plan. Once again, the artist rendering of your proposed facility will be useful. Also, any support from the citizen groups that have been previously addressed will be of tremendous value. If the neighbors like it, why would the board not be in favor of the project? I cannot emphasize the impact of citizens standing before the board during a public hearing and stating that a self-storage facility is what they would like to see built on your property.

May 1997--Public hearing; Board of County Commission; land-use change.

This is the same type of hearing as the one above, only this hearing is in front of the County Commissioners instead of Planning and Zoning. You should prepare in the same manner as above.

May 1997--Application for zoning change.

Now that you are well underway with the amendment to the land-use plan, Zoning will accept your application for rezoning. Remember that you cannot rezone the parcel without the land-use amendment.

May 1997--Contract for survey and preliminary site engineering.

At this point in the procedure, you will have a pretty good feel as to where the process is heading. If everything looks favorable, it is time to start with preliminary engineering on the parcel.

June 1997--Pre-application conference for preliminary site-development review.

A pre-application conference with the staff helps you to define setback requirements, aisle widths, height restrictions, floor-area ratios, etc., that will need to be incorporated into your development plan.

June 1997--Presentation to Development Review Committee for site development.

This step entails the submittal of a site plan that is fairly complete. The plan will show 90 percent of what will be required to be on the plans once you submit for the actual site permit. For example, this plan will show the building layouts, the location of the office, all utilities, grading and drainage plans, retention and landscaping.

July 1997--Public Hearing; planning and zoning change.

Finally, it is time to actually begin the rezoning process. Having been through the public hearings on the proposed land-use change, you see they are basically repetitive. Typically, you are working with the same officials on the rezoning as you did with the small-scale amendment to the land-use plan.

August 1997--Public hearing; Board of County Commissioners; zoning change.

This is the final hearing to have the zoning change adopted by the commission. This is typically a formality. Hopefully, at this point, the planning and zoning staff have recommended the change for approval. If not, this is the time to fight your battle with the commission. If this is the case, you will want to contact everyone you know who is in favor of your development and ask them to attend the hearing to speak on your behalf.

August 1997--Submission of plat for review.

Now that the zoning has been successfully changed, you will be required to prepare and submit the revised plat, showing the new zoning on the property. This plat will then become part of the public record and will reflect the new zonings.

September 1997--Revisions to and final recording of the plat.

You have now completed the rezoning process that began almost a year ago. It is not uncommon for this timeline to be extended due to many delays from engineers, responses from county officials, missed deadlines, etc.

October 1997--Submit plans and specifications to building department for permits.

January 1998--Receive permits and begin development of property.

After an overview of the system and timelines involved, it becomes apparent why most people choose not to buy property without the correct zoning. However, the time is well spent when you compare what you probably saved in land costs and the proximity to an established market.

In conclusion, the cumbersome procedures for the rezoning can indeed be your friend. It may open an opportunity for you that you would not of been able to achieve otherwise. In order to successfully guide your way through the system, here are some important reminders:

1) Familiarize yourself with the process.

2) Recruit your neighbors early.

3) Be aware of deadline dates for submittals and public hearings.

4) Be friendly towards the staff.

5) Use artist renderings and photographs to sell your ideas.

Good luck, and keep in mind that the services of a professional planner might be the way to go. Any city will have consultants who specialize in these rezoning issues. They are already familiar with the local officials and have a working knowledge of the procedures required by your jurisdiction. It could save you time and some frustration.

Emmett "Buster" Owens III is director of marketing for The Rabco Corp., based in Ocoee, Fla. Rabco is a full-service contractor specializing in the design, engineering, fabrication and erection of custom and pre-engineered single- and multistory self-storage facilities. For more information, call (800) 989-0220; Web: www.rabco.com.

By Bruce Jordan

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It is no secret that the world has become a more complex place today than it was 10 years ago. As governmental agencies, environmental regulations and community groups grow in complexities, so do the difficulties in getting projects approved. Although the nuances of each project and jurisdiction vary a great deal, there are many similarities in the necessary steps to getting a project approved. While traveling throughout the country, representing clients from rural Mississippi to the urban metropolis, I have found that the same basic principles apply. This is not to say that what works in Topeka universally works in Tacoma, but there are common procedural steps. Let's take a look at them.

The Basics

The governmental approval process has gone through a major evolution during the past decade. Our purpose and intent here is to provide a reference guide to assist in obtaining approvals for prospective projects. Due to the complexities of government regulations in today's environment, a proactive approach to government and community relations is required in order to be successful.

The developer has an inherent responsibility to maintain the public's trust and respect. Relations with governmental agencies and the communities self-storage serves are an essential component to a successful project and future. An individual's first exposure to self-storage, and to the development team, may be during a community presentation or public hearing.

It is important to keep in mind that governmental employees, planners, engineers, plan checkers, city commissioners, etc., are entrusted with protecting the public interest. Health, safety, welfare and preservation of community vitality is of utmost concern to a governmental agency.

I advise my clients to familiarize themselves with the local zoning ordinances prior to selecting a particular site. Knowing the basic development standards--such as setbacks, lot coverage, allowable height and parking requirements--will allow you to analyze the economics of the site more efficiently. Zoning should drive the site-selection process, not the other way around. A 30-minute meeting with the planning department can be a very fruitful first step to avoid a potential zoning battle later on.

Zoning Compatibility

The new generation of self-storage has gone a long way to gain respectability with many cities; however, the old perceptions and images still reside in the minds of many a planning commission. Today, we frequently see projects approved in residential communities, planned communities and on prime commercial sites. The reason for the trend toward more visible and well-located sites is driven by the customer.

With higher-profile sites comes increased scrutiny by the powers that be. Take the time to educate the agencies about the latest industry trends, the land use in general and about the specifics of your project. What may seem obvious to a knowledgeable operator may not be to your local planner.

Self-storage as a land-use has the ability to adapt, thereby avoiding conflicts with neighboring uses, whether residential or commercial. In residential communities, traffic, noise, hours of operation, crime, security and aesthetics are often the primary concerns. A well-organized factual presentation to local homeowner's associations can put many fears to rest. Being a good neighbor is always good business.

Development plans should always be presented during community and/or neighborhood meetings prior to any public hearing, thereby allowing a neighborhood the opportunity to learn about the proposed project. This is the time to educate those within the community to the nuances of self-storage, assuring them that this is not a high-traffic business, nor is it noisy or crime-afflicted.

I recently addressed a homeowner's association in an upscale residential meeting a few nights prior to our public hearing. By offering solid explanations of our perceived project, we were able to alleviate the homeowners' anxieties. What started out as an assault by 12 angry homeowners ended with 10 out of 12 supporting our project at the public hearing.

The Steps to Approval

The complexities of regional zoning and environmental regulations, land-use trends and, of course, politics will play an ever-increasing role in the project-approval process. The following comprises a general list of governmental procedures that may be required to obtain a project's entitlement.

The two main categories of approvals are permitted uses and discretionary uses. Permitted uses are allowed by right, whereas discretionary approvals are at the discretion of the agency, thereby requiring considerably more effort than permitted uses. Let's take a look at the various reviews involved in the project-approval process.

Permitted Use.The term "permitted use" generally refers to a land-use entitlement granted by the agency's zoning ordinance. Normally, a permitted-use project does not need to go through a discretionary review process, meaning that the land-use for the purpose of self-storage cannot be denied. Permitted uses do not require any public hearing, and usually plans can be processed within the jurisdiction's building department.

Design Review. The term "design review" is used here as a generic term. Often, agencies may have a similar procedure referred to as the "site-plan review, project review." Design review represents the first and generally the least complex form of discretionary review. Usually the process is reserved for non-land-use issues, such as review for conformance with agency development standards, setbacks, parking requirements, lot coverage, height limitations, aesthetic issues, etc. Assuming no variances from the development standard are requested, the project should be approved, since aesthetic issues can normally be negotiated and the land-use is not subject to review. Design-review approval is typically accomplished in a public hearing conducted by either a design-review board or planning commission. Occasionally, a jurisdiction has a zoning administrator who conducts the hearing and rules on the project.

Site-plan Review. The term "site-plan review" is a generic term used to describe a process of discretionary review over the specifics of the project's site design. Usually the land-use is permitted and, hence, the review is targeted to compliance with the agency's development standards and discretionary review over the location, size and layout of the project's components from a site-design perspective. Like design review, site-plan review normally involves a public hearing by either the design-review board or planning commission. Occasionally, a jurisdiction will permit a zoning administrator to conduct the hearing and rule on the project.

Conditional-use Permits. The term "conditional-use permit" is a generic term for a process by which the agencies have discretionary control over land-use, as well as development standards and aesthetics. Conditional-use permit procedures become more complex than design review or site-plan review because the issue of land use is now discretionary.

The conditional-use permit process requires a very hands-on approach on the part of the project manager/consultant. Typically, the governmental agency will be unknowledgeable of the specifics and issues related to self-storage as a land-use. It is during this process that a proactive approach is necessary to ensure that the agency planners are well-informed as to the specifics of the self-storage land-use. The information contained herein should be useful in addressing agency concerns and separating fact from fiction.

Zone Changes. Zone changes are sometimes necessary to accommodate a self-storage project at a given site where the existing zoning will not permit self-storage as a land-use. It is common for the governmental agency to require additional applications to be processed concurrently with a zone-change application.

State laws regarding zone change differ widely and should be investigated before one is anticipated. Certain states will allow a "use variance," which essentially allows for the underlying zoning to remain in place while the approval process continues to determine whether or not a self-storage site will be compatible with the current zone code. Normally, a zone-change amendment is reviewed in a public hearing by the planning commission and is then forwarded to the city council/county supervisors for ratification. A minimum of two public hearings is usually required.

General-plan Amendment. A "general-plan amendment application" is a more complex process. Laws regarding general-plan amendments vary widely from city to city and region to region. A city or county general plan is a comprehensive yet generalized document for guiding a city's or county's growth. It is not uncommon to find that a particular parcel that has an appropriate zoning classification has a conflicting general-plan designation.

Therefore, it is important to discuss the general-plan designation and zoning classification with the jurisdiction to fully understand any potential impact it may have on a project.

Normally, general amendments involve two public hearings, one at the planning commission level and one at the city council/board of supervisors level.

An important consideration for a general-plan amendment is to verify the "window" for submittal of the application. Laws regarding general-plan amendments vary greatly. Some jurisdictions will allow a general-plan amendment to be filed only once a year within a specific time period. Other jurisdictions have no specific submittal date, and an application can be filed at any time.

Public Hearings and/or Community Relations

The importance of establishing open lines of communication and an effective working relationship with a governmental agency cannot be overemphasized. With the complexities of governmental regulations, the often conflicting overlap ordinances, and the rapid pace of changing regulations, there is no substitute for a hands-on approach. The development team should have an organized approach to dealing with the agencies and designate someone who will follow the project through the process and follow up with the agency/staff person on outstanding issues.

Public hearings and/or community presentations require special considerations. A simple, uncontested project may be handled with a brief presentation. More often than not, a project can take on additional complexities just prior to the public hearing. Opposing groups or individuals frequently surface at the 11th hour.

The presenter of the project should be well versed in all the project specifics. Detailed technical information can be presented by project consultants, such as traffic consultants, geologists, sign consultants, etc., but presentations should stick to the issues and be brief, factual and to the point to convey the necessary information. A presentation that goes beyond the issues can trigger new areas of discussion that can get a hearing off track and headed in the wrong direction. Plus, you'll usually be notified in advance if more detail and a more extensive presentation is warranted.

Finally, anything that is offered as a concession or compromise during a community presentation or public hearing will be documented and become part of the project record. Therefore, it is of the utmost importance for the project managers to ensure that the appropriate members of the project team receive notice of any concessions given during public hearings.

In Conclusion

Research is anyone's best defense when it comes to the project-approval process. Find out exactly what your local jurisdiction dictates and formulate a plan that is least likely to come up against roadblocks.

The second best defense in the project-approval process is to maintain a congenial attitude when working with anyone within the governmental agencies and neighborhood associations. It doesn't pay to make enemies when you're trying to gain their approval. Just remember: You can't fight city hall. Go in with a winning attitude and you may just walk out with project approval.
Bruce Jordan is with Valli Architects Inc. of Capistrano, Calif. He may be reached at (714) 443-0011.

Writing Sales Letters Customers Want to Read

By Cynthia Perun

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The telephone is a great tool for communicating. Since it's used so often, it's easy to be more comfortable speaking on the phone than writing a letter. On the other hand, the written word can be a very powerful medium if used correctly. More specifically, self-storage operators should consider the merits of sales letters, which, if written with flair, are a wonderful way to follow up on sales leads, generate new leads, and keep in touch with current customers.

Following are seven tips to write sales letters more effectively for better results.

1. Be the customer as you write.
   This is the most important aspect of a good sales letter, but it is often overlooked. It's not hard to accomplish. Simply imagine yourself as the reader of your letter. Write what the customer wants to read--not what you want to say.
   Keep in mind that you have a page to attract a customer. The opportunity will be lost if the only emphasis is on the greatness of your storage facility. Telling a customer that your service is wonderful and you've been in business for 20 years will not get them rushing to your door. A customer's main concern is with their belongings and how safe they will be at your storage facility.
   In your letter, don't just state, "We've been in business for 20 years." Tell readers that you've gone the extra mile in securing your site. For example, if you've just installed a new gate-access system or closed-circuit TV to help protect their valuables, say it point blank. That way, although you're not promising that they'll never have a problem (which could lead to liability entanglements), you are addressing their need for extra security.
   

2. Organize your letter.
   Remember when you were in high-school English class and your teacher explained that term papers needed a beginning, a body and then an ending? The same holds true for a sales letter.
   The beginning is the introduction. This tells the reader why you're sending the letter. The body is your "sales pitch." This gives the reader the reasons why your offer is irresistible. The ending is a wrap-up stage, where you briefly bring your points together and ask them to take advantage of the offer.

3. Write so it is easily read.
   Sales letters are thrown away without one word being read simply because they looked too wordy. Today, more than ever, people are very busy. If a letter looks like it will take too long to read, it will be disregarded or set aside, which only means it will be thrown away later.
   The first way to make it easy to read is to write in simple language or in a conversational tone. It's not necessary to write in formal language. Don't write, "We will proceed with the contract as previously specified in our meeting last week." Simply say, "We'll go ahead with the contract we talked about." This is much easier and quicker to read.
   Second, use short sentences. Once you start writing less formally, you'll also notice your sentences becoming shorter. Continue to shorten sentences by deleting unnecessary words. Try to get your point across with the least amount of words as possible.
   Third, write short paragraphs. Long paragraphs are boring. People like to have breaks in their reading. If someone picks up a letter and it has one long paragraph, they probably will not read it. Also, some people only read the beginning of paragraphs. If it's not interesting, they go to the next. Your whole sales pitch could be skipped over because of this.
   Fourth, read the letter aloud. If it doesn't flow smoothly and sound natural, rewrite it. Follow your instincts; they're usually correct.
4. Capture the reader's attention.
   You only have a few seconds to catch the attention of the reader. If you don't succeed, your letter will be "carefully" placed in the circular file. Telling the reader something he wants to know usually works best.
   For example, you are going to offer a promotion for a free-month rental with a year agreement. You could start your letter by stating, "We value you as a customer, and that's why we would like to offer you a special promotion. All you need to do is to rent a storage unit for 11 months and we'll give you the 12th month free!" That doesn't capture my attention and make me want to read further.
   People want immediate gratification and do not want to wait 11 months for something. A better way to begin your letter might be: "Would you like an additional $100? Of course you would. That's why we're offering this special promotion!" This second example definitely gets the readers' attention. They'll want to read the rest of the letter to find out how to receive the $100.
5. Get the reader interested.
   This often begins with the opening sentences. We did it with the previous example of offering $100. This statement got the attention of the reader, and it also made the reader interested in how he could receive $100 from a self-storage facility.
   Think about the last book you read or movie you saw that you really enjoyed. Chances are you thought it was good because it caught your attention in the beginning and held your interest until the end. This is the same for your sales letter. Build on your sentences and paragraphs so it urges the reader to continue with the letter.
6. Have the reader desire your service.
   This is best done when you tell the reader what he wants to hear. And that is, "What's in it for me?" People are bombarded daily with ads, billboards, commercials, direct mail and telemarketers all trying to sell them something. Your sales letter can stand out by not trying to sell them something, but by offering a benefit to them. People do not buy products or services; they buy the benefits they derive from them.
   You are not selling a 10-by-10 storage unit. You are selling a safe haven for valuables. Express that in your letter by saying something such as, "Basements can be flooded, garages can receive unexpected visitors, and items can be misplaced at friends' homes. Why trust your precious belongings to any place other than ABC Self-Storage? We can offer you a dry, pest-free, secure location to store even your most prized possessions."
   Follow this statement by listing your selling points, such as cost and location. List them in order of importance and then briefly describe the benefits that the reader will receive. This will tell the reader what you will do for him and how accommodating your service will be to his needs.
7. Ask your readers to take action.
   When you write a sales letter, you're not expecting someone to send a check with a note saying, "Sign me up!" Your sales letter is designed for a specific purpose--to get solid leads.
   These leads will not know what you want unless you tell them. If you want them to call you, say that in your letter. Be sure to put your telephone number in large, bold print. If you want them to visit your facility, invite them to stop by. Don't forget to give directions and office hours.
   It's also important to prompt your readers to take action right away. The longer it takes them to respond, the less likely they will respond at all. If you're running a promotion, offer the special for a limited time. If you only have five units available, state quantities are limited. This will generate an urgency to follow up on your letter.

Cynthia Perun is president of Creative Communications, a copywriting and marketing firm specializing in business-to-consumer and direct-response advertising. She writes letters, ads, brochures, direct-mail packages and other promotional material for clients nationwide.
Ms Perun may be reached at P.O. Box 32, Algonac, MI 48001; (810) 794-4070.

Evictions and Auctions: Limiting Your Liability Exposure
Part I

By David Wilhite

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The self-storage business is a rental business. That is to say, the self-storage owner rents out space for storage purposes to tenants; he does not store the property of customers. He acts as a landlord, not a warehouseman. Like any good landlord, the self-storage operator's goal is to keep occupancy high and retain his tenants. Unfortunately, sooner or later he will be faced with the task of evicting a tenant for failure to pay rent, then have to reclaim the storage space and remove or dispose of the tenant's property. The most common way to do this is to place a lien against the property and hold an auction to dispose of the goods.

In general, most states give self-storage operators extraordinary leverage against delinquent tenants. Nearly every state has specific statutes that govern the sale and disposal process, as provided for in the state's Self Service Storage Facility Act. However, if the procedures are not followed to the letter, or if there is an error in any step of the sale and disposal process, the self-storage operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it is not uncommon for a disgruntled tenant to file a claim against the operator charging negligence in the removal or disposition of stored property.

Sale and disposal legal liability insurance is an important coverage that is specific to the self-storage industry and should be considered an essential part of every self-storage owner's business insurance package. Sale and disposal legal liability coverage provides self-storage operators with protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the incredible diversity of goods commonly stored and the wide range of values of the property, the penalty for conversion can be extremely high.

Recently a self-storage operator was held liable for $250,000 in damages by a California court for the wrongful sale of a customer's property. The court judged that the storage owner's notice of intention of sale was defective, since the operator's newspaper ad did not include the delinquent tenant's name, which was required by state law. The court ruled that the operator was in violation of negligence and conversion as a result of this error.

Many such lawsuits are the result of trivial errors, such as reversing the numbers on an address. The chance of an error occurring is compounded by the fact that most state statutes generally require that several letters of notification be mailed to tenants with delinquent accounts, and that the self-storage operator publish a legal notice in a general circulation newspaper in the judicial district where the sale will be held. There are, of course, many variations by state on these procedures, and each must be followed to the letter to minimize the likelihood of a lawsuit. It pays to be careful! A trend appears to be developing in which storage operators who make minor violations of state statutes can be held liable for very large punitive and emotional damages--far in excess of the actual value of a tenant's stored items.

The good news is, in most cases lawsuits can be avoided. If you are a self-storage operator involved in sale and disposal, you must be aware of lien law. Consult with an attorney about preparing a written procedure that outlines the exact steps for disposing of a delinquent tenant's property. Read and follow all state statutes explicitly. Always double-check names and addresses, and don't make any changes to information on the rental agreement, such as correcting an obvious misspelling, unless accompanied by a signed change of address card.

Document, in photographs and writing, every step of the inventory and auction process. In a lawsuit, you will have to show proof that the disposal of the delinquent tenant's goods conformed to state statues. And if there is any reason to question the sale and disposal of a tenant's goods, don't do it. Many owners prefer to let tenants retrieve their property at no charge, rather than go through the potential liability of an auction. (It is certainly preferable to defending yourself in a lawsuit.) Last but not least, be absolutely certain you have adequate insurance coverage.

Sale and disposal legal liability insurance is not normally available through regular business insurance carriers and generally cannot be added to a standard business owners policy. However, the coverage can be secured through insurers specializing in the self-storage industry. 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.

David Wilhite is marketing director at Universal Insurance Facilities Ltd., which offers a complete insurance package specifically designed to meet the needs of the self-storage industry. For more information, Universal may be contacted at Box 5400, Scottsdale, AZ 85261-9957; phone (800) 844-2101; fax (602) 970-6240; Internet http://www.vpico.com/universal.

Issues in Construction

By Jim Killoran

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When it comes to self-storage development, there are three design possibilities to consider: the conventional single-story facility, a multi-story project or a conversion. The determining factor of whether to build up or stay on one level will be the cost of the land. In areas where land costs are high, you'll likely favor a multi-story facility in order to have enough net rentable square feet to make the project economically successful.

Another consideration for multi-story is the topography of your proposed site. Perhaps you can situate buildings in such a fashion that the second story is accessible without the need for stairs or lifts. This concept is much the same as that of a house with a daylight basement.

Be sure to consider your future business goals. A single story may be the obvious choice today, but how about 10 or 15 years from now? There are many facility owners around the country who wish they would have prepared their single-story buildings for a future second story. If the amount of available land that your proposed project will initially control--or can feasibly control in the future--is finite, give thought to how your surrounding area will look in the years ahead. Would building up make sense in the future? If so, plan for it now.

Even if your current proposal does not include using all the land that you have available right away, draw up a master plan that makes use of the entire parcel. As opposed to "phasing," which infers a definite plan to expand in the near future, the idea here is to take the long view, look way ahead, and give thought to some long-term "what if" scenarios: What if you were to build out in the future? How would it look? What should you do now to provide for future construction?

Granted, you may be only guessing, but it will be an educated guess. The important point is to look at the big picture and plan now to assure that you will be able to maximize your rentable square feet. Every square foot means income, and it would be foolish to paint yourself into a corner early on and limit your future earning potential.

This exercise can save you time, trouble and money in future construction. For example, if you plan now to lay some conduit for security devices--such as individual door alarms--you'll save yourself money and the headache of having to tear things apart later on.

Of course, you can't foresee everything in the future, so don't beat yourself up trying to plan everything perfectly. Just give it sufficient thought, and do what makes sense now.

Management Considerations

Odds are you will be providing living quarters as well as an office in your initial construction plans, or you will be adding these features in the near future. Therefore, some thought needs to be given to these amenities.

The Apartment. Typically, apartments for managers fall into two categories: those with a ground-floor apartment attached to the facility office, and those with a second-floor apartment over the office.

Either way, the apartment needs to be separated--by more than a door--from the area where business is conducted. It often makes sense to put the apartment above the office, with no inside connection to the office, allowing for more rentable space on the ground floor. Plus, if designed properly, the second-floor arrangement can provide the manager with good visibility of the facility's grounds.

If at all possible, build a two-bedroom apartment. Even for a one or two-person management team, one bedroom is not adequate. A two-bedroom apartment, however, allows much more flexibility. Remember, just because your managers live on the premises, they are not on duty 24 hours a day.

The Office. In planning your office space, give consideration to how it will be used. What ancillary products and services are you planning to offer now and in the future? Will you need additional work areas to accommodate those activities? Will you need display areas, shelving or racks for these products? Allow adequate space for your intended activities, and then give yourself some room to grow.

Some offices even include a separate "closing room," where a manager can take a customer to complete paperwork without interruption. This may be practical only in very large facilities where there is constant office commotion.

Curb Appeal

How will your facility impress passersby? Will it conform to its surroundings, yet distinguish itself as a self-storage facility, or will it stand in stark contrast with the rest of the neighborhood, void of landscaping, displaying only concrete, steel and asphalt?

Many jurisdictions will require that your development plans include landscaping and other design work that relate only to the aesthetics of the project. This is not necessarily bad, as every facility benefits by an adequate dose of curb appeal. It can definitely get complicated, however, if the demands made by the permitting authorities are such that your project no longer makes economic sense.

Aesthetically speaking, the industry has undergone a quantum leap since the early days of land-banking and some of the tacky projects that resulted. Today's self-storage customers expect more and will pay for more, so plan your project accordingly.

Material Considerations

The choices of material are several: steel, concrete tilt-up, concrete block, masonry, wood or a combination of these materials.

There are only a few locations in the country where wood can even begin to compete with the cost of these other materials, and while wood has its own desirable qualities, it also has a very undesirable quality: It burns. While there are a number of successful projects built of wood, it's certainly not the trend.

Steel is, by far, the most common material used for self-storage construction. When you combine the cost of materials and delivery to the site, as well as labor costs for erection, steel is typically the most cost effective, and today's sophisticated builders can offer a wide variety of style options. Plus, fires are usually contained within the unit if the building is constructed of steel.

Concrete tilt-up and block or masonry can be priced competitively in some parts of the country, and this material is generally thought of as the most secure and impenetrable of the construction material options. Again, fire damage is minimal. It is a bit more difficult to dress up concrete to achieve an aesthetically pleasing facility, but it can be done. One drawback: It is easier to replace steel components than to repair busted concrete block, as in the case of a car or truck damage.

Local building and fire codes dictate the final choices of materials, but consider the following option: Use concrete on the property-line walls of your perimeter buildings. Consider using a texture-faced block or masonry on those walls or building ends that face the front of your project; this will give a secure appearance as well as add character to the overall design. Then, use steel for the remainder of the project.

Layout

The goal is to maximize rentable square feet. Consider that an average overall rental rate is 50 cents per square foot a month, or $6 per year. If a well-thought-out layout yields 5,000 additional rentable square feet--which is very possible--you will have increased your income potential by $30,000 per year.

Layout involves numerous factors: required setback or greenbelts, width requirements for fire lanes, topographical challenges and, of course, zoning regulations. All of these make each site unique and make layout design a challenge.

The most common layout is the "circle of wagons" concept, in which the perimeter is lined with the backside of buildings and maximizes security. With a few exceptions, all ingress and egress to and from the facility should be funneled past the office through a controlled-access gate. The general rule of thumb approach to layout tells us to run buildings parallel with the longest dimension of the property. Typically, this yields the most square feet of usage.

When it comes to layout and design, it's in your best interest to consult with industry professionals that have a past record of success. Numerous companies provide building components to the self-storage industry, and many of them have computer software specifically suited for design and layout. Don't hesitate to ask for their assistance. Many have been in the business for years and are very skilled, plus, they will gladly help you through the construction phase of your facility.

Jim Killoran is the owner of LeManx Information Products, a company based in Shelton, Wash., specializing in providing information to the self-storage industry. He is 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 Michael McCune

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After attending many conferences and having fielded questions from literally hundreds of buyers and sellers of self-storage all over the United States, we have begun to realize that there is a real communication problem in how specific terms are defined regarding the sale and valuation of self-storage facilities. With this in mind, we decided to clarify a few specific terms that are used most often.

Net Income

All income, which includes rentals, sales, interest, late fees and truck rentals, if applicable, minus all expenses, which includes all operating expenses, depreciation and interest.

This is an "official" accounting term that is used by CPAs and the IRS, but not much by the rest of us when trying to understand the business operations.

Net Operating Income (NOI)

Actual income minus all operating expenses for facility (but not debt service, depreciation or interest.)

Ideally, this number tells us how well the property is doing just from operations--not from financing or from accounting requirements. This is the first number a potential buyer will look at when he reviews the financial statements. One hundred percent of the time, a potential buyer will mentally adjust this number to reflect his interpretation of the validity for some of the expenses shown on the statement. For example, sellers might not pay themselves a salary or off-site management fee, as they manage the property themselves. The potential buyer could be an absentee investor, and need to hire not only a manager to run the property, but also pay a third-party management company to work the books of his whole portfolio. He will adjust the NOI to reflect this added expense to his analysis of the property.

Cash Flow

Actual income minus operating expenses and debt sevice.

This term is best described as the "cigar box" number. This is the amount you would have left in the cigar box if all the cash income went in it and all of the expenses were paid in cash out of the box. I think this is the most important number to our spouses and kids because it represents "spendable" income before your income taxes are paid.

Capitalization Rate (Cap Rate)

A cap rate is the result of converting an income stream into a single capital value or an estimate of present worth (value). The capitalization rate is derived from consideration of marketability, liquidity preference, time preference and risks associated with uncertainty of the future.

Everybody uses it--what is it? Some people would say that real-estate brokers use the term to just look smart. And while anything along those lines would be helpful, the term is meant to be a short-cut to discuss and analyze relative value in the marketplace for competing investments. The term "cap rate" encompasses the potential return to the buyer on a perfect property that includes factors such as risk, market cycle, level of maintenance, location, etc.

Let's assume that a brand-new, fully leased property with all the bells and whistles in the best area of town required a 10 percent return to the investor to induce him to buy the property. The cap rate would be 10--not 10 percent, just 10.

Another property of lesser quality and not exactly in the best location is also for sale. Would the buyer be willing to earn only a 10 percent rate on this property when he could buy the class A property for the same rate? Of course not. He would want a higher return because of the risk and quality of the property. After a careful analysis of competition and the market, the buyer decides that he should earn 11.5 percent on the older property to compensate for the differences between the new, class A property and the older property. That would mean that the valuation would be based on say an 11.5 cap. The seller of the class B property would need to be willing to accept the buyer's analysis and live with a lower price per foot and sales price.

The term is obviously very subjective, and the exact interpretation may depend on whether you are a buyer or seller. But it is a convenient way of lumping a lot of intangibles into one number. Currently, cap rates for self-storage facilities around the country range from 9.5 to 12, with most falling into the 10 to 11 range.

Value

What your property is really worth for financing or a sale.

Appraisers will tell you that market value is determined by comparing three approaches to value: cost to replace or rebuild, market comparable sales, and the capitalized value of the income stream from the property. Oddly enough they are right, but for most buyers and sellers, more reliance is put on the capitalized value of the income stream. To obtain an estimate of value you can take the NOI and divide by a cap rate in the 11 range, assuming there are no extraordinary items related to the property. Of course, there are many other factors that contribute to the ultimate value and thus, checking the indicated value of a property with a professional broker or appraiser should help determine the final value.

Mike McCune is president of Argus Self Storage Sales Network, a nationwide network of brokers specializing in self-storage properties. Based in Denver, Mr. McCune may be reached at (800) 557-8673.

With Stanley and Jill Waldman

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Should I Prorate the Rent?

Dear Waldmans: My self-storage facility is located in a college town, which means that we rent many units to students during the summer months. Our procedure is to rent units by the month, as that is what our state laws require. If a tenant moves in after the first of the month, we prorate the rent. However, we do not prorate the rent if the tenant moves out early.

One problem I have experienced is that college students typically move out in the middle of the month and do not want to pay for an entire month's rent. In the past, I have never given students a break, but now I am wondering if I am making a mistake. What should I do?
--Bottom Line in Columbia, S.C.

Dear Bottom Line: Our facility is located in a college town and we, too, have encountered this problem. Every summer, we offer college students a small discount off the monthly rental rate and nothing more. If we were to prorate the rent for all the students who moved out early, we would certainly lose a substantial amount of money. Of course, our rental policies have made some students mad, but rules are rules. One way to alleviate any problems is to explain the rental procedures thoroughly before renting to any college student or prospective tenant. This way, if the student or tenant does not like your rules, he can look elsewhere.

Just for your information, last week, we rented to more college students than we ever have before. Obviously, those few students who did not like our procedures did not affect the other students.

Many times, state law dictates whether to use an anniversary date or a prorate date. If you have the option, we suggest that you use an anniversary date. Anniversary dates allow you to distribute the workload over the entire month rather than at the beginning of the month. Additionally, you will probably receive more late fees as people forget to pay in the middle of the month.

Note: In regard to the "Ask the Waldmans" column in the May issue of Inside Self-Storage, employees or representatives of facilities who are authorized by an insurer to issue certificates or other evidences of insurance within the State of Florida under an insurance policy issued to the lessor should be registered with the Department of Insurance by paying a $50 fee. Upon such registration and approval, a special insurance license will be issued. A facility must have a representative licensed before offering this type of service. For additional information, call the Florida Department of Insurance at (850) 922-3100.

A father-daughter team, Stanley and Jill Waldman are both self-storage operators and attorneys who graduated from the University of South Carolina School of Law. In addition, Ms. Waldman received her master's degree in labor and employment law from Georgetown University. Together, they have devoted much of their talents to the family storage facility. 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 site http://www.ask-the-waldmans.com . Editor's Note: Views and opinions on legal matters are those of the authors. Professional counsels should be obtained before any determination or positive action is taken.