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E-SoftSys, provider of the Self Storage Manager software program for self-storage operations, released Version 2.0 of its e-CRM (customer relationship management) add-on module, which provides call-center agents and company staff with 24/7 on-demand access to customer information.

CRM refers to the methods and processes companies use to interact with their customers, from the initial inquiry to post-transaction follow-up. Designed specifically for multi-facility operators, e-CRM interfaces with leading phone and call-center systems, allowing self-storage operators to track leads, reservations, marketing campaigns and more. Integrated with the Self Storage Manager centralized database, it enables users to follow up with prospective customers, take payments, manage collections and handle customer-related incidents from any location with Internet access.  e-CRM also has an integrated e-mail campaign feature.

First introduced in 2009, the module has been successfully implemented by self-storage operators including A-1 Self Storage, which has more than 40 locations in California, and Stor-All Storage, with 44 locations throughout Colorado, Florida, Georgia, North Carolina and Virginia.

E-SoftSys collaborates with clients, incorporating their feedback and suggestions when developing software, according to Kat Shenoy, president and CEO. Many of the improvements and upgrades in e-CRM Version 2.0 came from input by industry-leading operators. 

Self Storage Manager, a software application for single- and multi-facility self-storage operators, comes in a Windows-based Standard Edition or a Web-based Enterprise Edition. The program has been implemented by companies in North America, South America, Europe, the Middle East and Asia.

A Microsoft Gold Certified Partner and ISO 9001:2008 certified company, E-SoftSys also offers add-on modules such as an interface for INSOMNIAC self-storage kiosks, an interface for QlikView business intelligence and analytics, a tablet-based site-audit and walk-through application, and others. The company provides 24/7 customer support.

By Shawn Hill

As the commercial mortgage-backed securities (CMBS) market continues to rebound, defeasance is also making a comeback. Many of you may wonder what that is. Put simply, defeasance is a substitution of collateral.

More specifically, according to Wikipedia, defeasance of a securitized commercial mortgage is a process in commercial real estate finance by which a borrower substitutes other income-producing collateral for a piece of real property to facilitate the removal (defeat) of an existing lien (entailment of the property) without paying-off (through a transfer of liquid assets) of the existing note.

The next logical question is, Why would I want to substitute collateral and defease a loan?

There are many reasons to defease a commercial mortgage, chief among them is the desire to refinance the existing debt to find more advantageous financing in the markets. Another key reason is the need to sell a property, and the new borrower either cant or doesnt want to assume the loan. In both cases (and any other), its critical the loan continue to perform within the securitized pool. Thus it needs to keep making its monthly debt service. By substituting collateral, the CMBS loan continues to be paid, while the property owner also achieves his financing goals.

Nearly every fixed-rate commercial real estate loan originated since 1998 requires the borrower to defease the loan to sell or refinance. Defeasance has become so prevalent in securitized real estate loans that life-insurance companies, the U.S. Department of Housing and Urban Development and others seeking to preserve the ability to securitize their loans have incorporated defeasance into their form-loan documents as well.

The Nuts and Bolts of Defeasance

Typically, a defeasance is coordinated to close contemporaneously with a sale or refinance. The borrower uses proceeds from the sale or refinance to purchase a portfolio of U.S. government securities thats sufficient to make all of the remaining loan payments. The securities are pledged to the lender, and the lender releases the real estate from the lien of the mortgage. The promissory note, which remains outstanding after the defeasance, and the portfolio of securities are assigned by the borrower to an unaffiliated successor borrower that makes the ongoing debt-service payments.

The defeasance process involves a host of professionals, from attorneys and accountants to servicers, trustees and rating agencies. Defeasance is not a simple prepayment. The entire defeasance process typically takes 30 days, on average, of which two to three days are allocated to the closing process.

Every defeasance has two cost components: transaction costs and the cost of the securities that comprise the substituted collateral. The transaction costs consist of the fees of the various parties involved, which generally range from $45,000 to $65,000 in the aggregate, excluding borrowers counsels fee. The transaction costs vary depending on the size of the loan, the complexity of the transaction (i.e., a partial defeasance or a New York-style defeasance), and the fees charged by the servicer of the loan and their legal counsel.

Structures and Execution

With so many clients transfixed on finding the least expensive third-party transaction costs, the single biggest cost component is the defeasance securities cost. While theres a limited universe of securities eligible for each defeasance, many think defeasance securities portfolios across multiple providers would be the same. Thats not necessarily the case.

The two most important factors for defeasance portfolios are structuring and execution. Great execution means little if you purchase an inefficient structure, while poor execution can also ruin a perfectly efficient portfolio. Many trading desks that structure their own portfolio could have inventory they may want to unload, which may be good for their positions, but would be inefficient for the defeasance and subsequently increase the defeasance costs.

Likewise, an efficient defeasance structure could be submitted to various trading desks for multiple bids, but you could be choosing the best of three bad bids with layers of sales commissions buried in the trades. Defeasance consultants should have extensive experience with portfolio structuring and deep relationships with trustworthy trading desks. 

There also are a couple of variations on the standard defeasance that borrowers should understand: the New York-style defeasance and the partial defeasance.

New York-Style Defeasance

The real estate mortgage investment conduit trust (the lender) will assign the existing note and mortgage to the new lender to accommodate the borrower's (or buyer's) desire to reduce mortgage recording taxes on the new loan financing. While the servicer or their counsel may charge an additional fee to accommodate a New York-style defeasance, the savings often is worth the extra effort.

New York is the only state with a concrete ruling from the taxing authority that this structure will not require payment of mortgage tax on the existing debt. As such, nearly all defeasances of New York properties are structured New York-style. Florida is the state where the next highest frequency of New York-style defeasances when the borrower can save on both the documentary stamp and intangible tax. Other high-tax jurisdictions include Kansas, Virginia, Tennessee, Washington D.C. and some counties in Maryland (i.e., Prince George), where recording an indemnity deed of trust is troublesome. Its important borrowers examine the economics of saving on the tax.

Partial Defeasance

Some cross-collateralized loans and single loans secured by multiple properties include an option to defease a portion of the loan related to individual properties. If so, some servicers or their counsel may charge an additional fee for the additional documentation required for a partial defeasance.

Choosing a Defeasance Partner

The defeasance process has a lot of moving parts, and the real estate closing cannot happen without it. Most borrowers engage a defeasance facilitator, like commercial defeasance, to manage the transaction. Doing so saves the borrower time, money and aggravation, and provides peace of mind that the defeasance transaction will not delay the real estate transaction.

For example, while a borrower could use his own broker to structure and purchase the defeasance collateral, his lack of familiarity with the defeasance process, its timing and delivery requirements can delay closing, and the cost to purchase the collateral can be tens of thousands of dollars higher due to structuring inefficiencies and inflated securities prices. If the broker fails to deliver just one security in a portfolio of 50 securities, the defeasance cannot close, which means the sale or refinance closing has to be rescheduled.

Many conduit loans originated between 2004 and 2007 carry fairly attractive interest rates, have a fair amount of term left to maturity, and are good candidates to be assumed when defeasance doesnt make sense. Many properties are often dually marketed with their existing debt or delivered free and clear with defeasance. Each case is different and unique based on property specifics, existing debt and buyer intentions.

Recently, a portfolio of six self-storage properties, all with similar interest rates and terms to maturity, were sold to a public real estate investment trusts. However, due to various internal factors, three properties were defeased to facilitate new refinancing, while the other three existing notes were assumed. Situations like this happen all the time, so its always prudent to have every exit/transaction strategy available for analysis since very few transactions are alike and happen for the same reasons.

With so few exit strategies available for CMBS loans, there are still numerous variables to consider. Every defeasance needs to make fundamental economic sense before considering a sale or refinance. While online calculators, such as DefeaseWithEase.com, can provide a useful preliminary estimate, its important to consult with only the most experienced and knowledgeable defeasance facilitators who understand the details of each and every transaction.

An experienced facilitator can explain the process, structure an efficient securities portfolio, and proactively manage the completion of the various checklist items to meet the borrowers closing schedule. For more specialized types of defeasance transactions, like partial, multi-loan or New York-style defeasances, its even more important to engage an experienced facilitator whose familiarity with lender requirements for such transactions will keep the defeasance on track.

Knowledge, responsiveness and proactive transaction management save valuable time and money, so the borrower, broker and borrowers counsel can focus on the sale or refinancing with complete confidence that the defeasance will close on schedule.

Based in Chicago, Shawn Hill is a principal at The BSC Group, where he provides mortgage brokerage, financial consulting, and loan-workout solutions to self-storage real estate owners nationwide. He can be reached at 312.207.8237; e-mail [email protected] ; visit www.thebscgroup.com .

Real estate investment trust Sovran Self Storage Inc. this week completed a financing arrangement totaling $500 million in senior, unsecured debt.

The company will use proceeds from a 10-year, $100 million privately placed term note (the companys Series D notes) and a seven-year, $125 million unsecured term loan provided by a syndicated bank group to repay its $150 million term loan maturing in June 2012 and the $71 million outstanding on its line of credit. The bank lending syndicate has also committed $100 million for a delayed draw note to provide funding for the companys repayment of mortgage debt maturing in late 2011 and early 2012, as well as borrowings the company expects to incur later this year. The term of the note is seven years and is to be unsecured.

In addition, Sovran negotiated a five-year, $175 million unsecured line of credit, with an accordion feature of an additional $75 million, and an extension provision of up to two additional years.

M&T Bank was the sole lead arranger and book-runner in the transactions; SunTrust Bank served as syndication agent; US Bank, N.A. and Wells Fargo Bank, N.A. each served as co-documentation agents. A total of 10 lenders participated in the syndication.

The $100 million of Series D notes bear interest at 5.54 percent for their 10-year term. Sovran has entered into interest-rate swap contracts that effectively fix the interest rate on the $125 million bank group term note at 4.37 percent, payable over its seven-year term. The $100 million delayed draw note is priced at LIBOR plus 2 percent. The company expects to enter into interest-rate swap contracts that are expected to fix the rate on this note for the next six years.

This financing package provides us with greater capacity and flexibility, and extends and smoothes our debt maturity dates through 2021, said David Rogers, chief financial officer. Were appreciative of the support that the institutional lenders and our bank group have shown.

Sovran will incur a one-time charge of approximately $6 million ($0.22 per share) in the third quarter relating to the early termination of interest-rate swap agreements and unamortized costs associated with the repayment of the $150 million term note. Interest expense in 2012 is expected to be reduced by approximately $3.2 million from current year levels as a result of repaying the higher rate existing term loan and mortgage debt.

Interest expense for the balance of 2011 is expected to remain unchanged from guidance previously given. While Sovran will pay a lower rate on the term portion of its debt, its replacing $71 million of short-term, lower-cost line-of-credit debt with fixed-rate, albeit higher cost, term debt.

Sovran Self Storage Inc. is a self-administered and self-managed equity REIT that acquires and manages self-storage facilities. The company operates 371 facilities in 24 states.

Anne Ballard, aka The Hat Lady and president of Universal Management Co., is offering a three-part webinar series for self-storage facility owners called Stepping Up Your Game, aimed at teaching operational tips and techniques that will immediately improve a self-storage team. The webinars can be purchased for $39.99 each or all three for $99.99.

The live webinars will take place Aug. 11, Sept. 21 and Oct. 27 at 2 p.m. ET. They will cover:

• Better Basics: Business foundation, telephone goals, onsite greetings, tracking and reporting performance, customer questions, avoiding the discounting trap, and ways to close and follow up on traffic
• Marketing Magic: Easy marketing steps, marketing cold calls, onsite events and promotions, free resources, community support, measuring success
• Optimum Operations: Key performance indicators, improving cash flow, budget for income and expenses, manager responsibilities, scheduling tasks

Registration for the webinars can be completed at HatLadyAnneBallard.com.

Ballard will also be presenting at the Inside Self-Storage World Expo in Tacoma, Wash., Oct. 4-6. Her seminar, It's More Than Cookies and Coffee: Creating Exceptional Customer Experiences in Self-Storage, will showcase the latest in customer conveniences and amenities being offered at self-storage properties nationwide. Event details can be found at www.insideselfstorageworldexpo.com.

Ballard is founder and president of Universal Management Co., which provides self-storage facility management, staff training, operational consulting and more. She is also a former president and current board member of the Georgia Self Storage Association.

Self-storage real estate investment trusts (REITs) continue to lead the U.S. REIT market, according to new statistics released this week by the National Association of Real Estate Investment Trusts (NAREIT). The self-storage sector topped other REIT market sectors in the first seven months of 2011, posting a 19.54 percent gain.

U.S. REIT total returns were more than double those of the broader equity market in the first seven months of 2011, and significantly outperformed the market in July. All but one of the major REIT market sectors achieved gains for the first seven months of the year, and most sectors delivered double-digit returns.

The total return of the FTSE NAREIT All Equity REITs Index gained 11.79 percent and the FTSE NAREIT All REITs Index was up 10.36 percent for the first seven months of 2011, compared to 3.87 percent for the S&P 500.

FTSE is an independent company jointly owned by The Financial Times and the London Stock Exchange. The Index Series presents investors with a comprehensive family of real estate investment trust performance indexes spanning the commercial real estate space across the U.S. economy, offering exposure to all investment and property sectors.

On a 12-month basis ending July 31, the FTSE NAREIT All Equity REITs Index was up 23.72 percent, and the FTSE NAREIT All REITs Index was up 22.37 percent, while the S&P 500 was up 19.65 percent.

Fairview Self Storage in Ceres, Calif., sold for $1.2 million, or $35.13 per square foot. Located on 1.64 acres just west of Highway 99, the facility has 36,735 net rentable square feet. Built in 2003, it features 311 units with an average unit size of more than 118 square feet. 

The purchase price represents a 3.63 percent capitalization rate on the current 61 percent economic occupancy. The property features all-metal construction with asphalt drive isles. The buyer plans to increase occupancy as a large flea market operator is positioned to acquire an adjacent parcel. Additionally, new management plans on reducing operating expenses by downsizing the staff and adding a new rental kiosk. 

Bobby Loeffler, president of the Loeffler Self-Storage Group, represented the seller, Fairview Self Storage Group LLC. Mark Yandow and Joe Garvey of Self Storage Brokers of California represented the buyer.

Due to popular demand, the early-bird registration deadline for the Inside Self-Storage World Expo in Tacoma, Wash., Oct. 4-6, has been extended to Aug. 12. Attendees can save up to $300 by registering this week.

The event at the Hotel Murano and Greater Tacoma Convention & Trade Center will feature 38 seminars, four workshops, two days of product and service exhibits, and multiple networking events. Self-storage owners, managers, developers and investors will have access to five comprehensive education tracks covering the industrys hottest topics including online marketing, collections, lien sales, manager incentives, facility design, and much more. Workshops delve into the critical areas of online marketing, legal issues, development and site operation.

All registration packages include access to the exhibit hall and networking events including the popular Self-Storage Q&A, cocktail reception and Buyers & Sellers Meeting. The exhibit hall will feature more than 50 of the self-storage industrys top suppliers representing a highly diverse range of products and services.

Attendees can also take advantage of discount room rates through Sept. 9 by calling 888.862.3255 and mentioning the expo.

Details about the conference and tradeshow can be found at www.insideselfstorageworldexpo.com. Registration can be completed online or by calling 800.230.2311.