Update 8/9/19 – FHAS last month withdrew its plan to build a privately funded animal-adoption center on the 4-acre Grantland Avenue site donated by Ridenour. FHAS backed out of the plan amid continued public protests, including a lawsuit to fight the zoning approval granted by the board of supervisors in October. Instead, FHAS now expects to use public money to build an $8 million facility about a half-mile from its present location, according to a source. Construction is expected to begin next year.

“We’re just very sad and disappointed,” Mitchell told a source in reference to foregoing the Grantland facility. “It was a dream and would have been fantastic for the whole community.”

Mitchell indicated the ongoing fight had become a drain on FHAS resources, while Ridenour noted the stress had taken a personal tole. “It just about ruined my health and two years of my life,” the self-storage owner told a source. “I was hoping to solve a community problem.”

Ridenour will redirect the $3 million he had intended for the Grantland center toward other initiatives, such as spay-and-neuter services and a wellness project with the H.O.P.E. (Halt Overpopulation with Prevention and Education) Animal Foundation, according to Mitchell. Ridenour still intends to help build low-cost animal-wellness clinics in other cities, he said.

Forgotten Fresno, the community group behind the lawsuit, had also contemplated mounting a recall election against the board of supervisors, according to Elisa Bilios, a member of the protest group and a listed plaintiff on the lawsuit.

A new 4-acre site for the center is being considered at South West Avenue and Dan Ronquillo Drive. Supervisors approved the land acquisition last month for about $500,000. The center would comprise nearly 123,000 square feet, which is much larger than the current facility, according to Mitchell.

“We’re going to get an adequate shelter that will allow us to provide for the animals. That is a win,” she said.

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1/23/19 – The FHAS animal-adoption center has received a pledge from an unidentified private foundation to give $20 toward construction costs for every dollar donated by the public, with a cap of $6 million. As of Friday afternoon, private donations had reached nearly $9,000, equaling $180,000 with the foundation’s initiative, according to the source.

The gift could exceed the $3 million Ridenour gave to the project, though the self-storage owner has also provided FHAS with the land for its new building.

Since running the operation through its makeshift shelter in the parking lot of the former county morgue, FHAS has dropped its euthanasia rate from 70 percent to less than 10 percent, the source reported.

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10/26/18 – This week the Fresno County Board of Supervisors unanimously approved zoning for the FHAS animal-adoption center. More than 100 people attended Tuesday’s supervisors meeting to weigh in on the project, according to a source.

In addition to concerns about traffic and odor, resident John Lourenco suggested people might drop off dogs after hours, creating a hazard for the neighborhood and nearby Herndon-Barstow Elementary School. “The animals will likely head to the school to find food and shelter,” he said.

Pacheco reassured residents that Ridenour had adequately addressed all their concerns. “A majority of people’s concerns are based on the unknown, and only time will tell if our decision was right,” he said.

Ridenour agreed to add a block cement wall on the southside of the property, and a heating and cooling system will mitigate odors. The center won’t accept large dogs or operate an animal hospital, and will have an abandoned-dog policy.

“We are trying to build something for all of Fresno County. It has been a long road, and we are so glad we can move forward. This will be a beautiful facility,” Ridenour said.

John Kinsey, the attorney representing the neighbors, told the source the county didn’t conduct a thorough environmental review of the project and residents are considering legal action to stop it. The pet-adoption center will also require a site-plan review. If approved, construction could begin in the first quarter and be complete in about 10 months.

“We have been fighting this for a very long time, and we can finally move forward. It’s a big relief,” said Brenda Mitchell, FHAS board president.

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9/14/18 – Fresno County planners balked at moving forward with the FHAS animal-adoption center this week after some residents voiced concerns it would produce foul odors and increase traffic congestion. Though Pacheco indicated he’s in favor of the project, he encouraged Ridenour and the FHAS to gather additional support from the community, according to the source.

"I can tell you I'm in a rock and a hard spot,” Pacheco said. “I support this project, the concept and have for many years. I believe there are some issues that have to be addressed."

The retired self-storage owner and FHAS agreed to hold one more public meeting with residents before the board of supervisors reviews the project on Oct. 23.

"We've really done a good job designing this, and it’s really going to be an asset to the community," Ridenour said.

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8/13/18 – Derrel’s self-storage locations in Clovis and Fresno are collecting signatures in support of the proposed Fresno Humane Animal Services (FHAS) animal-adoption center, hospital and shelter on Grantland Avenue. Storage-facility visitors can view a rendering of the building and sign a petition through Sept. 10. Planners will consider the proposal on Sept. 11, according to the source.

Supporters have also set up an online petition on Care2. As of Friday afternoon, it had collected 2,813 signatures, 1,633 of which are from Fresno residents.

FHAS officials tweeted in support of the signature effort, sending out messages including, “We want out of this parking lot! It's horrible here! Please sign this Petition and let the Fresno County Board of Supervisors know that you support Fresno Humane building a new shelter at 99 and Grantland Ave. Thank you in advance for your ongoing support!”

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4/14/16 – Self-storage owner Derrel Ridenour of Derrel’s Mini Storage has added a $3 million cash donation to his 4-acre land offer to help Fresno County build a new animal shelter. While the board of supervisors this week appeared willing to accept the deal, some members still have concerns that the overall cost of the project will be too high and the location may not be ideal, according to the source.

Ridenour’s cash offer would double the amount of money the county had committed to replace the existing shelter, but the self-storage operator also wants to lead the development effort. His preference is to construct a 24,000-square-foot adoption center and shelter that could cost more than $9 million, the source reported. An advisory board would determine the best size and budget for the facility, Ridenour told the board. “The county needs a shelter, and they won’t get too many chances to get the land and $3 million,” he said.

The supervisors voted to keep the project at $6 million or less. If any remaining amount above the allotted $6 million fell on the county to pay for the project, Poochigian told fellow supervisors it could jeopardize plans to build a new district attorney’s office and sheriff’s office substation.

“Mr. Ridenour will not donate to a bare-bones facility,” supervisor Brian Pacheco said during the meeting. “If you don’t want to do it the right way, the best-practice way … then he’s not interested.”

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9/1/15 – Retired self-storage owner Derrel Ridenour, whose family operates Fresno, Calif.-based Derrel’s Mini Storage Inc., has offered to donate land near Grantland Avenue along Highway 99 to Fresno County officials for the purpose of building a new animal shelter. The city has been forced to look for options to relocate the shelter after plans stalled to expand the current facility, near downtown Fresno. The Grantland parcel offered by Ridenour is in the northwest portion of the city.

“I look at this as an opportunity for a good change for the animals,” Ridenour told the source. His offer is under consideration along with land that currently houses the county’s Juvenile Justice Center. The county already owns the justice-center property, which contains more than 100 acres on which to build, the source reported.

County officials were expected to review several possibilities in August. John Navarrette, county administrative officer, said he was instructed by supervisors to consider price, freeway access and existing zoning when looking for options. The existing shelter is next to the former county coroner’s office but lacks the opportunity for expansion.

Other than an aluminum building to house some animals, the shelter currently lacks adequate facilities to prevent animals from being exposed to outdoor elements during the summer and winter, according to the source. To keep the shelter at its current location would likely require eminent-domain proceedings, county officials said.

The county was scheduled to receive $11.8 million in July, with about $3 million expected to be used toward building a new animal shelter, according to supervisor Henry R. Perea. The justice-center site could potentially be used to start a vocational program involving dog care for those in detention, but board chair Debbie Poochigian recently argued for a more central location, noting that many residents who use the shelter reside in county islands just outside the boundaries of Clovis, Calif., and Fresno.

The county owns other properties that may also be considered for the shelter relocation, according to the source.

A recent letter to the editor published by the “The Fresno Bee” criticized officials for not jumping at Ridenour’s offer to donate land. Resident Don Drilling of Clovis wrote that Ridenour and his wife, Kim, are animal lovers and previously established the H.O.P.E. Animal Foundation, a clinic dedicated to providing low-cost neuter and spay services. “Mr. Ridenour is a man of action,” Drilling wrote. “As an example, take a look at the Derrel’s Mini Storage nearest you. It is not just a business; it is a complement to the neighborhood, with gorgeous landscaping and attractive walls that conceal storage compartments from view. Our elected officials should be thanking their lucky stars that a man of Mr. Ridenour’s caliber wants to help with a problem that they can’t figure out.”

Complicating the process is a change in provider for the county’s animal-control services. Liberty Animal Control Services had fulfilled the role since 2012 but filed for bankruptcy in May. California Animal Control took over in June, but county officials have recommended Animal Compassion Team as the new provider from a list of applicants. The recommendation is pending approval by the Fresno County Board of Supervisors. The new, three-year contract is scheduled to start in October, the source reported.

Derrel’s operates 55 self-storage locations throughout California. The company’s portfolio comprises approximately 11.28 million square feet of net rentable square feet in about 72,200 units.

Sources:
GV Wire, Opponents Force New Animal Shelter to a Different Spot
The Fresno Bee, Plans for a New Fresno County Animal Shelter Scrapped, But Supervisors Already Have Alternative
The Business Journal, Donor Offers $20-to-$1 Boost for Fresno Animal Shelter
ABC 30, Fresno County Delays Approving Free Animal Adoption Center
Fox26, Fresno Humane Animal Services Seeks to Build New Shelter
Care2, Support the Proposed Humane Animal Services Shelter, Adoption Center, and Hospital Project in New Fresno
The Fresno Bee, Let Ridenours Help With Animal Problems
The Fresno Bee, Rescue Group Lands Nod for Fresno County Animal Control
The Fresno Bee, Derrel’s Mini-Storage Owner Offers $3 Million to Build County Animal Shelter
The Fresno Bee, New Fresno County Animal Shelter May Require a Move
The Fresno Bee, Supervisors OK Plan for Animal Shelter to Move Forward, Despite Neighbors’ Concerns

An Uber driver’s car was damaged on Aug. 5 when wet concrete fell from a high building at the Mega Center Self Storage and Office Suites construction site in Miami. The driver and mother/daughter passengers Julie Crawford and Lexi Gaddy were approaching a stoplight at Fourth Avenue, between Seventh and Eighth Streets, in the Little Havana neighborhood when concrete suddenly covered the black Acura TSX, denting the roof and crashing through the front-passenger and back windows. No one was injured, according to the source.

“We just heard a huge crash and felt stuff all over us,” Crawford said.

A cylinder form used to pour concrete collapsed on the 13th floor of the building and spilled over safety netting that had been installed on the ninth floor. “During a pour of columns at high roof, one of the column forms, which is a Sonotube—basically a cardboard round form—failed due to the persistent rain while we were in the pouring process,” according to a statement from Enrique J. Hernandez, an operations manager for South Florida Construction Solution Inc., a Hialeah, Fla.-based construction company involved in the project. A sign at the self-storage site lists Coral Gables, Fla., firm Bec Group Services Inc. as the general contractor, the source reported.

Unsure if the entire building was about to collapse, Gaddy asked the driver to unlock the doors and encouraged her mother to jump out of the car. As they exited the vehicle, concrete splashed on their shoes and hair and filled a purse, the source reported.

Gaddy, who recently moved to Florida, was shaken but grateful to be alive. “We're fine. It's just a crazy story to tell.”

The driver said he has worked with Uber for about four years. “We have been in touch with all parties involved in the accident to check on their well-being and are thankful no one was injured,” said Uber Spokesperson Carly Debeikes.

Megacenter is a subsidiary of Red Megacentro, an owner of mixed-use properties containing self-storage, office suites, retail, showrooms and warehouse space. The company operates more than 40 locations in Chile, Peru, South Florida and Texas.

Source:
Local 10 News, Wet Concrete Falls From Building on Uber Driver's Car in Miami

 

 

Congratulations, you’ve decided to embark upon a self-storage development project! You’ve secured the financing and contractors, completed the site planning, and chosen a design. But what about insurance? In this litigious society, it’s important to protect yourself from the hazardous exposures of a construction site.

While many owners and developers might have a false sense of security by relying on contracts and insurance certificates from their general contractor (GC), it’s vital to ensure you’re covered. There are several insurance products on the market for this purpose. To help decide which policy is best for you and your project, here are a few of the most common options, from the most limited coverage to the broadest.

Additional Insured on the General Contractor’s Policy

Even with additional-insured status and hold-harmless agreements in favor of the project owner, this option has some drawbacks. When you rely on the GC’s policy, there are no dedicated insurance limits specific to your project. The GC’s limits could be exhausted on another development, leaving no coverage for the entirety of your own. In addition, the owner’s sole negligence likely isn’t covered. Depending on the state or circumstance, contributory negligence may not be covered.

When you rely solely on a certificate of insurance from your GC, you have no control over the policy status, coverage limits or exclusions. In short, this option isn’t recommended.

Claim scenario: An owner contracts with a GC to build a ground-up self-storage facility. He obtains a certificate of insurance from his GC naming the owner as additional insured, with primary and non-contributory wording and waiver of subrogation. The owner feels confident that he’s protected by the GC’s policy. Unbeknownst to him, however, the GC had a crane accident at another jobsite during the same policy period. The incident amounted to $3 million. The GC’s liability limits were exhausted, leaving no coverage for the storage owner’s project.

Owners and Contractors Protective

An owners and contractors protective (OCP) liability policy provides dedicated insurance limits to the project owner and is usually bought by the GC on the owner’s behalf. This type of policy is intended to cover the owner in the event of GC negligence.

An OCP policy should be written in conjunction with the GC’s general-liability policy. This option is relatively inexpensive and, therefore, may seem attractive. However, there’s no coverage for sole negligence of the owner. In addition, there’s no contractual liability and it may not cover contributory negligence. Finally, there’s no option to add completed operations coverage.

Claims scenario: A GC purchases an OCP policy on behalf of the project owner. An ice storm created slippery conditions, causing a pedestrian to slip and fall on the sidewalk. As a result, the pedestrian suffered significant physical injuries and sued for $60,000. The OCP underwriter denied the claim because it wasn’t related to the construction project. The owner was then responsible for the medical bills, lost wages and legal fees associated with the lawsuit.

Owner’s Interest Liability Insurance Policy

For the broadest coverage, a project owner can purchase a full commercial general-liability policy, typically referred to as owner’s interest liability insurance. This type of policy is usually written specific to each project and allows for dedicated insurance limits, including premises and contractual liability.

In addition, products and (extended) competed operations coverage may be available. An owner’s interest policy provides primary coverage for sole negligence of the owner. It would be excess coverage over the GC for vicarious liability. The option to add extended products and completed operations is important if you’re selling the building within the statute of limitations.

Claims scenario: A developer builds a $5 million self-storage facility in 2010 and sells it in 2013. In 2014, a construction defect caused water intrusion to part of the building. The water damage amounted to $120,000. In this state, the statute of limitations is seven years. The developer was sued by the buyer, and the GC is no longer in business. With extended products and completed operations coverage, this claim could be covered by the project-specific owner’s interest policy the developer purchased during construction.

Protected From Start to Finish

All self-storage owners know they need insurance to cover their business operation, but not all realize how important it is to be protected during the construction phase of a project. Don’t let the above claims scenarios happen to you! Knowing your insurance options and allowing a specialized agent to walk you through the process will help you make an informed decision and safeguard your development.

Jessica Lamoureux is the program manager for Storage Insurance Brokers, a division of World Insurance Associates LLC, which serves more than 34,000 customers from 27 offices in eight states. World Insurance places more than $300 million per year in annual premium. For more information, call 860. 372.4106, ext. 336; visit www.worldins.net/self-storage-facilities.

Update 8/7/19 – Pankey pleaded guilty to child abuse resulting in death on Aug. 1 in connection with her son, Caden McWilliams. Her sentencing is scheduled for Oct. 3. She faces a prison sentence of 16 to 32 years, according to a source.

New information surrounding the boy’s demise was also released. In December, investigators found human remains in a block of cement, which was inside a dog carrier and stored at a self-storage unit in the 5000 block of East Evans Avenue. An autopsy performed in February confirmed they belonged to McWilliams.

Based on autopsy results, it was established the child was severely emaciated and had suffered multiple injuries. He also had methamphetamine in his system. The cause of death wasn’t determined, but investigators believe maltreatment was a contributing factor. McWilliams likely died last summer.

McWilliams’ biological father, Leland Pankey, also faces murder charges in the case. He’s scheduled to appear in court on Sept. 13, a source reported.

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1/10/19 – Pankey was formally charged on Monday with child abuse in connection with the death of her son, Caden McWilliams. She was also charged with abuse of a corpse, according to the source.

Police have yet to release information about the exact date the child was reported missing or how he died. Records filed by prosecutors on Monday only indicate a range of when authorities believe the crimes occurred. They estimate McWilliams died between May 20 and Aug. 1, and the abuse of the corpse took place between May 1 and Sept. 1. A spokesperson for the Denver Police Department told “The Associated Press” last week that investigators estimate McWilliams last attended school in May.

No attorney has been listed in court records for Pankey, who couldn’t comment on the charges during her court appearance. A judge has sealed the case records, including a document that outlines the reasons for Pankey’s arrest, the source reported.

Ellis Elementary School will have grief counselors available for students and staff this week, the source reported.

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1/7/19 – The mother of a missing 7-year-old boy turned herself over to police last week after his body was discovered inside a Denver self-storage unit on Dec. 23. Police believe Caden McWilliams may have been dead since late May, though the homicide data doesn’t indicate how he died. McWilliams was found at the Public Storage facility at 5005 E. Evans Ave., according to a source.

Elisha McWilliams Pankey, 43, turned herself in on Jan. 2 after a warrant was issued for her arrest in connection with her son’s death. She appeared in court on Thursday, where her attorney waived the reading of the investigative charges of child abuse resulting in death, a class-two felony. A judge set her bond at $250,000. Pankey has been ordered to have no contact with her other child, who’s in the custody of Arapahoe County Department of Social Services.

An autopsy was performed, but the cause and manner of McWilliam’s death remains under investigation. No Amber Alert was issued for the child, and police haven’t released information about when he was reported missing or by whom. Authorities said they were led to the storage facility through a tip, a source reported.

Pankey was arrested on Dec. 22 at a hotel in Aurora, Colo., on charges of possession of heroin and drug paraphernalia. She was released from jail two days later on a personal recognizance bond. The Aurora Police Department contacted Denver police regarding the missing boy after he was discovered, a source reported.

An online records search shows Pankey was arrested previously for driving violations, including suspected drunk driving, but she doesn’t have a history of violence, a source reported.

Pankey’s former landlord, Tina Wright, told several sources that the family struggled to pay the rent and were eventually evicted from Cherry Plaza Apartments. Wright also suggested there had been instances of domestic violence between Pankey and her husband, Leland Pankey. Public records from 2011 show Leland Pankey is either McWilliams’ father or a guardian.

Police arrested Leland Pankey on Dec. 21 on a warrant for a 2017 domestic-violence charge. He’s being held on a $25,000 bond and hasn’t been charged in connection with the child’s death.

McWilliams attended Ellis Elementary School in Denver’s Virginia Village neighborhood. The school’s principal, Nichole Whiteman, called the boy a “model student” in a statement. “Caden McWilliams was the sweetest boy. He stood out from others from the moment he walked through the school doors every morning with a huge smile on his face,” Whiteman wrote. “His smile and eyes showed how kind and sweet he was at the core. Other students wanted to be his friend and looked to Caden for what to do next.”

Sources:
Heavy.com, Elisha Pankey: 5 Fast Facts You Need to Know
The Denver Post, Police Arrest Mother in Connection With Death of 7-Year-Old Son Found in Denver Storage Unit
Local 12, Mother Charged in Death of Boy Found in Denver Storage Unit
CBS Denver, Elisha Pankey, Mother of Boy Found Dead in Denver Storage Unit, Pleads Guilty

Self Storage Association Asia (SSAA), a trade association dedicated to supporting self-storage operators and suppliers in emerging markets along the Pacific Rim, has issued a reminder to members that personal mobility devices (PMDs), such as electric scooters, shouldn’t be stored at their facilities. The reminder was prompted by an Aug. 3 warehouse fire in Bukit Batok, Singapore, in two units where PMDs and other electrical items were stored, according to a source.

At issue are devices that use lithium-ion batteries, such as power banks, which carry a fire risk, according to Helen Ng, SSAA chair. PMDs were already included in a suggested list of prohibited storage items distributed by the association, but the SSAA wanted to draw a clear line linking batteries with scooters. “We reject PMDs regardless of whether they come with batteries intact or not,” Ng told a source. "Individual storage companies might have their own practices. The association does not regulate their individual practices but advises on best practices."

An employee with Integrated Storage Space Rental + Mover indicated the company allows its customers to store PMDs but asks tenants to remove the batteries. The Singapore self-storage operator isn’t an SSAA member, a source reported.

Though no one was reported injured in the recent blaze, the number of reported fires involving power-assisted bicycles and PMDs more than doubled in Singapore during the first half of 2019. Through June, there were 54 fires involving mobility devices compared to 24 last year, according to information published by the Singapore Civil Defense Force.

The SSAA reminder is reminiscent to a statement it issued in December 2016 warning customers not to store banned items or engage in illegal activity at storage facilities. It also encouraged facility operators to display a public-safety poster that included a list of activities and stored goods that are prohibited at their properties.

The association issued the poster in summer 2016 after two storage-facility fires in Hong Kong killed two firefighters and injured another. The blazes prompted government officials to suspend self-storage development inside industrial buildings, while agencies conducted safety checks throughout the region.

Launched in 2014, SSAA supports members' interests to help grow the self-storage industry in Asia. Of its 169 members in Asia, eight have facilities in Singapore, a source reported.

Sources:
The New Paper, Association Issues Reminder: PMDs Banned From Self-Storage Facilities
Channel News Asia, Fire Ravages Bukit Batok Warehouse Units Storing PMDs, Electrical Items
The Straights Times, Fire Raged for 3 Hours at Bukit Batok Warehouse Units Storing PMDs, Electrical Items

The Storage Group (TSG), an Internet-marketing company that serves the self-storage industry, has promoted Marlene Cotto to the position of client success manager, effective Aug. 12. The appointment will help the firm ensure customer satisfaction and company growth, according to a press release.

In her new role, Cotto will offer TSG clients professional insight and strategic direction on their digital-marketing needs. Her council will provide facility owners with the knowledge and confidence to choose products and services that best fit their facility, the release stated. Cotto will also act as a liaison for new clients during onboarding.

“We are thrilled to have Marlene as our new client success manager,” said CEO Steve Lucas. “Marlene has been with TSG since 2017 and has become an integral part of our success. Her relationships with our clients and knowledge of our products and services make her a perfect fit for this new role. As client success manager, Marlene will continue to build long-lasting relationships with our current and future clients. As we become more advanced as the self-storage industry’s leading digital-marketing provider, we need team members like Marlene at the forefront of our business.”

“I have always taken great pride in helping our clients find digital solutions that help accelerate [return on investment],” Cotto said. “I strongly believe that my new role will allow me to delve into my passion of helping clients in new ways as we continue to develop new strategies that exceed clients’ expectations while building client relationships.”

Based in Altamonte Springs, Fla., TSG provides online tools and marketing solutions including local-listing management, mobile websites, online rentals, pay-per-click advertising, search engine optimization, social media marketing, and software and website development.

Self-storage operators have long relied on add-on profit centers to generate extra revenue for their businesses. Among the most popular? The sale of retail merchandise. Offering an assortment of supplies—boxes, tape, bubble wrap, labels, markers, mattress covers and more—to people who are moving and packing is a no-brainer. Plus, facilities of all sizes can take advantage of this money-maker.

In a recent thread on Self-Storage Talk, the industry’s largest online community, members are discussing the products they carry, where they purchase supplies and how they determine the mark-up price. Join this conversation to get tips and share advice for an attractive, well-stocked and profitable retail-sales center. (Photo courtesy of BoxVault Self Storage in Miami)

“Capitalization rate” (cap rate) is one of the most misunderstood terms in real estate. I often feel a bit uncomfortable when first using it in conversations with self-storage owners, as it’s difficult to know if they truly understand what it means. I wouldn’t want to insult someone by defining it in overly simplistic terms, or assume he’s comfortable with it and end up with a misinterpretation. Over the years, I’ve learned to confirm a clear, mutual understanding of cap rate before moving further into discussions about facility value.

The most common misunderstanding is that the cap rate is the number by which you multiply net operating income (NOI) to arrive at property value. Many owners believe that a “10 cap” means 10 times income. This isn’t at all the case. In fact, that calculation is the opposite of what a cap rate is intended to do. To properly determine facility value, you divide the NOI by the cap rate. To determine the cap rate, you divide the NOI by the purchase price. Lower cap rates mean higher values and vice versa.

• Value = NOI / Cap Rate
• Cap Rate = NOI / Purchase Price

Let’s say a property generates gross annual income of $500,000 and has annual operating expenses of $200,000. The NOI (gross income minus operating expenses) is $300,000. This is the amount of cash flow the property generates, before debt service, in a given year. Here’s what this property is worth at a variety of cap rates:

• 5.0% = $6,000,000
• 5.5% = $5,454,545
• 6.0% = $5,000,000
• 6.5% = $4,615,385

Self-storage facilities are purchased for their cash flow. The more income a property generates, the higher its value. Buyers must compete against each other to buy a property and its NOI. Those who target a 6 percent return on investment (ROI) are generally willing to pay more for a fixed cash flow than those who target a 6.5 percent return. The buyer who’s willing to accept the lowest ROI usually wins; he’s willing to pay more than others who require a higher return.

Market Dynamics

If you’ve been in the storage business for a while, you may remember cap rates being much higher. In fact, during the 1990s and earlier, they were often 10 percent or greater, but they began compressing toward current levels for two primary reasons.

First, the asset class gained acceptance among institutional investors as being on par with multi-family, retail, office and industrial property types. This occurred when the recession-resistant nature of the business was recognized and understood. Self-storage loans experienced fewer defaults than those for other property types. As a result, competition for high-quality properties significantly increased.

Second, current low cap rates are a function of historically low interest rates. As mortgage rates fell and have continued to remain low, investors looking for cash flow have been able to pay lower cap rates and still hit their cash-flow targets.

Risk Factors

Cap rates aren’t the same for all properties within a market. Even sites that are of similar size, age, location and condition may trade in a wide range. This is because cap rates are also a function of risk within the investment.

Under new ownership, cash flow will go up, down or remain the same. If a seller is already doing a magnificent job of managing the business, there might be little you can do to improve performance. In this case, there may be some downside risk and, thus, a higher cap rate on current income warranted.

Conversely, if you’re considering two similar properties—one operating at 90 percent occupancy and another at 70 percent—most investors would be willing to pay a lower cap rate for the property with lower occupancy. The same is true when evaluating multiple comparable properties that have big differences in rental rates for the same unit sizes or large discrepancies between certain operating expenses. A lower cap rate is justified if specific opportunities are identified to improve cash flow, such as increasing occupancy and/or rental rates to market levels or saving money on operating expenses through economies of scale or other means after new management adds value.

Downside risk doesn’t only exist in property management; it can occur due to new competition entering a market. This means properties in urban or infill locations can trade at lower cap rates than virtually identical properties surrounded by lots of vacant land where new competition could develop and create a saturated market.

One of the most frequent questions I hear is, “What are cap rates these days?” As I begin my response, the asker invariably rolls his eyes as he listens to the same loaded information we’ve just discussed. As you now know, it isn’t a one-word answer!

Bill Alter is a self-storage specialist with Rein & Grossoehme Commercial Real Estate in Arizona. Specializing in storage since 1986, he’s been involved in the sale of more than 160 storage facilities totaling more than 9 million square feet and a value of more than $400 million. He can be reached at 602.315.0771; [email protected]; visit www.rcre.com/author/billa. 

Talonvest Capital Inc., a boutique real estate adviser serving the self-storage industry, has expanded its team. The firm hired Lauren Maehler as a loan administrator and David DiRienzo as an analyst. In addition, Carole Stanley was promoted to controller.

Maehler will be responsible for coordination and communication between clients, capital providers and other relevant parties to ensure the timely and efficient closing of debt and equity assignments. She has 13 years of real estate experience and holds a California real estate license. Maehler earned a bachelor’s degree from California State University.

DiRienzo will be responsible for underwriting and analyzing commercial and self-storage transactions, conducting market analysis, writing financing packages and growing the firm’s capital-market relationships. He has six years of real estate experience, including several with an investment firm where he was involved in more than $250 million in multi-family asset acquisitions. He earned a bachelor’s degree from the University of Colorado at Boulder.

“We’re excited David and Lauren joined our team. Without a doubt, their experience, work ethic and problem-solving orientation will further enhance Talonvest’s unique collaborative team approach to servicing client’s capital needs,” said company principal Tom Sherlock.

Stanley has been with Talonvest for seven years. In addition to managing the firm’s accounting, reporting, payroll and human-resource benefits, she’ll be involved in the maintenance and enhancement of the organization’s culture. She has more than 15 years of commercial real estate experience conducting cash-flow analysis underwriting and creating investment-sales and financing packages. She earned a bachelor’s degree from the University of California and holds a California real estate license.

Founded in 2010 and based in Orange County, Talonvest structures debt and equity for self-storage and commercial real estate investors and developers nationwide. The principals of the firm have more than 80 years of combined experience.

Source:
Globe Newswire, Talonvest Capital Grows the Team and Announces a Promotion