By Cary F. McGovern

Over the past few years, I have consulted with more than 200 self-storage operators concerning records management, which has had broad appeal with this industry. I receive at least a dozen phone calls each week from owners and operators interested in providing records-management services. In the course of our conversations, some issues have been unearthed that may make your decision process easier, if you are considering offering these services at your facility.

1. Records management is not for everyone.

Of the more than 500 phone calls and e-mails I have received from interested owners and operators in the self-storage industry, I would say only about half have resulted in a move forward to the next step. Records management is indeed a different business. It is operated out of your self-storage facility but with some new components. There are many similarities and resources can be cross-utilized, but it is a separate operation.

2. Records management is compatible with self-storage operations.¹

If you own or operate a self-storage operation, you have many of the components of the records-management business already in place: a facility, personnel, computers and a broad customer base. The cost for a self-storage operator to go into the records-management business is much less than a traditional start-up. It is possible to start up a small "test" operation with little or no risk and be profitable one unit at a time in less than 90 days.

3. Records management requires attention to detail and management.

Records management requires more labor and attention to detail than self- storage. You provide the services for your customer rather than the customer coming in to the facility. This requires developing a method for indexing, order-taking, retrieval, re-filing and delivery.

4. Records-management services include indexing, retrieval and delivery activities.

Outsourcing these services partially or completely to a strategic partner can minimize the labor required for these activities. Indexing can be done entirely by your customer or via the Internet with some systems. Retrieval and delivery services can be outsourced to courier services.²

5. Outsourcing requires management and control.

We are in the age of outsourcing. Companies such as the Gartner Group and other research organizations have shown the dramatic savings businesses can reap from "strategic outsourcing." Outsourcing functions that are not central to your business is usually a good decision. However, you must manage the outsourcer. Management includes strong training and internal controls.

6. Records management generates three to five times more revenue for existing space.³

In self-storage, you rent square footage. In records management, you rent cubic footage. If you want to check out your own revenue potential, go to www.fileman.com and click on the "Revenue Calculator." The site will walk you through a calculation that will determine your potential revenue for any space allocation. There is nothing in storage that delivers better revenue per square foot than records management.

7. There are at least three models for records management in self-storage.

The most common model is what I call non-traditional or "boutique" records management. This model allows for low cost and relatively slow growth without a great deal of change in your day-to-day operations. I recommend this model if you are unsure about the business. The second model is a virtual records-management business⁴ utilizing an operating partner to manage records in your facility. This model is low-cost and low-risk and can be easily implemented. The third model is the traditional model that has been used by commercial records centers for close to 50 years. It requires a new building with high ceilings, high-rise racking, full-time personnel and a significant sales effort.

8. You must use bar-code records-management software.

One thing is certain: You cannot manage a records facility without bar codes and software. This has traditionally been a major obstacle for the self-storage industry. The cost of software has been relatively high for those who want to provide a modest start-up. There is Internet-based software available that provides a solution for new start-ups since it is metered rather than purchased. You pay only for what you use, it is transaction based and has no special requirements other than Microsoft Internet Explorer and Internet access--both of which are free. (Visit my website for more details.) Of course, you may purchase software. The only two programs I recommend are the O'Neil and Andrews software systems.⁵

9. Marketing is the issue.

As my daddy used to say, "Nothing happens until the sale is made!"⁶ If you want to be in the records-management business, there are three sales approaches you can use: passive, active and Internet. A passive sales approach utilizes your current customer base, some telemarketing solicitation and advertising. Expect slow growth with this method. An active sales approach requires a salesperson and some sales cost since records management is best sold face to face. The success of the Internet model has not yet been determined, but I am currently conducting some pilot tests with Internet marketing.⁷ I expect somewhere between a 5 percent and 10 percent response. If you are interested in becoming a "beta-test" participant for this method for either records-management or self-storage sales, please contact me.

10. There has never been a better time to go into records management.

The records-management industry has grown to about 500 million cubic feet of storage in the United States alone. I believe there are about 500 million cubic feet of records still uncaptured by commercial records centers. Iron Mountain (now the world's largest records-management company) has bought Pierce-Lahey (the second largest) and has begun to execute that merger--which is a fundamental task.

The metaphor I like best is the story about the giant anaconda in the Amazon who slithers out of the river and eats a wild pig. It lies on the side of the river digesting for a long time, unable to do anything else. Iron Mountain is trying to "digest" a huge entity. The company believes it will take as long as two to three years to merge Pierce-Lahey completely into its operations. Norm Brodsky, a frequent speaker and a columnist for Inc. magazine, owns and operates a commercial records center in Brooklyn, N.Y. He wrote in one article⁸ that the best thing that ever happened to him was that Iron Mountain bought his competition. Now he has a real advantage over the guys in Boston.

If you are interested in offering records management at your self-storage facility, this is my recommendation to you: First, read all of my articles. There are about 30 of them now. They are available on my website (click on "Resources," then on "Articles") or on the web archive of this magazine (www.insideselfstorage.com). Second, call me with a list of all of your questions--I'll be happy to answer them. Third, decide the best route to take based on the model you prefer.

Offering records management is a choice you can make. Make a solid decision based on knowledge, and the outcome should be a positive and profitable one.

1 McGovern, C., "Dispelling Old Myths," Inside Self-Storage, December 1998 2 McGovern, C., "Courier Services," Inside Self-Storage, January 1999 3 McGovern, C., "Improve Your Cash Flow in 90 Days," Inside Self-Storage, February 1999 4 McGovern, C., "Virtual Records Management," Inside Self-Storage, March 2000 5 O'Neil Software (949) 458-1234; Andrews Software (800) 807-2093; FileMan FIRMS Software (877) FILEMAN 6 McGovern, C., "Selling Records Storage and Management," Inside Self-Storage, May 1999 7 McGovern, C., "Using the Internet to Sell Records Management," Inside Self-Storage, September 2000 8 Brodsky, N., "Size Matters," Inc., September 1998

By Victor Lopez

The following is part two of a two-part series on the evolution of self-storage design and site-plan considerations for a new era.

As you may recall from reading part one of this series, the design of self-storage facilities has undergone considerable evolution from its first generation. We discussed that the final evolutionary step in development of the self-storage product is the quest to develop the most economical, marketable facility possible. Following is a more detailed discussion of self-storage building design and its specific components, including individual design products.

The Metal Grid

In today's industry, the most economical and versatile structural design system for storage buildings is the 5-by-10-foot light-gauge metal grid. To understand this basic design, visualize the typical long and narrow building. At 10-foot intervals along the building length is a load-bearing wall, which consists of metal columns every five feet, connected with metal panels that form the side partitions of the units. At the top of the columns, purlins are connected and run the length of the building, supporting the roof panels. The back walls of the unit are attached to the columns of the bearing walls at the desired unit depth. This simple design allows for quick construction of the building and also spreads the weight of the structure evenly across the floor, allowing for a more efficient and economical design for the foundation.

Additional advantages of the 5-by-10-foot grid system include the variety of options for columns between doors and exterior walls. Columns between the doors can be concrete-filled block masonry, concrete tilt panels or heavy-gauge metal-finished with a textured paint. These same materials are used for exterior walls and, most often, in combination with dummy door panels or a variety of metal sheathing. For eye-catching curb appeal at the front of the facility, the grid framing can be easily blended with more traditionally framed exterior walls that support block and brick veneers or stucco.

Don't forget about the options available with coiling doors and the small area above the door called the header or filler panel. The most common choice is to use a corrugated metal panel like that of the door in the same or a different color. Header panels are also seen in various types of metal panels, pre- finished or textured and painted in the field. Finally, the header panel may be required to be a structural component of the building. Concrete-block masonry or concrete tilt-wall panels are commonly used to satisfy the requirement.

Roofing Systems

Roofing systems have also evolved into a more durable and maintenance-free component of storage building design. The standing-seam metal roof system has several advantages over the older screw-down roof. With the standing-seam roof, there are virtually no exposed screws across the span of the building, eliminating potential leaks from weathered fasteners. Metal roofing panels are available in the standard galvanized finish or a variety of colors. When properly supported by purlins and the 5-by-10-foot framing system, a 26-gauge roof panel is all you need. Right along with the roof panel is the vinyl-backed roof insulation. This is an integral part of the roof system and serves an important role--even in buildings that are not climate-controlled. Without the roof insulation, the underside of the roof panels are subject to condensation--especially in areas with high humidity--allowing water to collect inside the units.

Multi-Level Designs

As discussed in part one of this article, more and more of the sites available for self-storage dictate the use of split- and multi-level designs. The advantages to these designs are that they increase net-leasable square footage while reducing the basis for land cost, facilitating climate-controlled square footage and allowing your facility to become part of the skyline. The same principles of single-story building design also apply to split- and multi-level storage buildings. However, as your building goes up, you must consider some additional parameters.

In split-level storage buildings, there are a few additional design considerations over single-story designs. With the exception that you will add interior hallways, the upper level and roof system are the same. Retaining walls will be required where waterproofing and backfill are critical components. Load-bearing walls use stronger and/or additional columns to support the second-floor metal decking. This metal decking becomes the floor pan into which the second-floor concrete is poured.

Multi-level storage designs have more considerations, yet they remain extremely cost-effective when compared to most commercial multistory buildings. The need for more hallways and common-area spaces will reduce your coverage of net-leaseable to gross square footage to about 72 percent. Fire sprinklers and monitored fire-alarm systems increase building cost and space requirements. Each floor will require control rooms and additional overhead space to accommodate piping and sprinkler-head clearances. Elevators also require mechanical rooms, as well as areas below the foundation and above the roof to accommodate the shaft. Stairwells and stairs also add cost and consume space.

Storage Building Design Products

Now that we have discussed the framework and exterior walls of storage buildings, let's take a look at design products that make up the rest of the facility. When designing interior hallways, there are several factors that can go a long way towards a comfortable, user-friendly atmosphere.

To provide your customer with the best access to his unit, use swing doors for units that are five or fewer feet wide, and roll-up doors for all others. For longer life, low maintenance and easy operation, choose a coiling door with axial ball bearings and quick tension-adjustable axles. Wall sections are typically metal panels and, whether they are corrugated or smooth, a light glossy color should be used for the best light reflection. Consider using mitered corner guards and kick plates to help your hallways from looking beaten and worn.

Lighting should be carefully planned. Well-placed light fixtures should not only illuminate the hallway but also the individual unit while the door is open. This is effectively accomplished by placing fluorescent fixtures every 10 feet on alternating sides of the hall. Finally, corridor soffits offer a very nice finished appearance by concealing air ducts and piping, and also provide an excellent option for flush-mounted or recessed lights.

Security products have also experienced significant evolution in this industry. With security being one of the major reasons your customers will rent at your facility, these products deserve ample consideration. The first impression your security system will make is with your office control panel. This is the best way to demonstrate your security system is several layers deep. Fencing and entry control gates represent the first layer. The software available for entry control offers a variety of ways to monitor everyone passing through your gate.

Adding cameras at all perimeter drive aisles and entry gates is your second layer of security. Place additional cameras at interior hallways and in the front office. Another level of security that is rapidly gaining popularity is individual unit alarms. These door alarms have undergone major advancements in reliability and interoperability with the total security package. Yet, at a cost of about a dollar per gross square foot, you might consider using them in select areas. Wrap up the security system with customer conveniences such as intercoms and music piped into hallways and common spaces.

In conclusion, the evolution of self-storage has taken this industry from hit-or-miss backyard sheds to big business retail stores. Today, as we develop sites and design storage buildings, we realize our industry compels us to be ever mindful of ways to improve. Whether it is adding an ancillary business service to the office or using modular aerated concrete components for firewalls, we need to continue designing for the new era.

Victor D. Lopez is vice president of National Development Services Inc. (NDS) of Bulverde, Texas, which has designed and built more than 150 self-storage properties since 1980. The company's accomplishments include receipt of the "Facility of the Year" award in 1990, 1991, 1994 and 1996, and the "Design Excellence" award from Mini-Storage Institute in 1992. For more information, visit www.ndsinc.com.

By Harley Rolfe

A baffling aspect of marketing is the absence of specific language or terminology to discuss it. Even sports have a technical language all their own. But marketers use common language--just plain, everyday words and terms--to express their work.

Language is supposed to facilitate communication, but because we marketers borrow common words and attach special meanings to them, we confuse many people who are new to the marketing game. The term "marketing" is itself problematic. We have all heard and used the term--it's what we do at the supermarket. Sales? That's what we did as Boy Scouts, selling grass seed door to door. Media? Well, it has something to do with those ads we see on TV or in the newspapers. Market research? That's what big companies do. Positioning? Not sure what that is. Segments? Niches? No idea. These are common words, but what do they mean in a marketing context? All of these terms and practices should be an integral part of self-storage strategic-operative thinking.

Engineers, lawyers, doctors and computer nerds don't make the error of using common language to discuss their trades. To hear them talk is like listening to a foreign language. But they know precisely what they mean and communication among them is unambiguous. Because of that, we laypeople rarely make the mistake of thinking we know how to perform those specialties. Their lexicon serves them well.

Lawyers sometimes step over the line into common-language use, but they at least have a label for it. The terms they have adopted are called "words of art." Because most professional language is technical, we common folk are careful when we encounter their words and don't trip over their common use. Within the marketing arena, however, all technical ideas are expressed using common language.

Beyond the use of special language/ terms, many other professions also insist on adherence to a specific process to earn the right to cite accomplishment. They must demonstrate that they have observed a certain method and met a certain procedural standard. These procedures have developed over the years to ensure the highest probability of success and accuracy. In law, for example, certain steps are followed in settling disputes. Only then will a judge sanctify the result and render it enforceable. In science, the expression "scientific method" defines a careful process needed for acceptability in that professional community.

Marketing is a Process, Too

The first thing one should ask when inquiring about a marketing program is about the studies or research that form its foundation. Program effectiveness cannot exceed the quality of its groundwork. How can one take dead aim at a specific audience unless there is definite knowledge of its demographics, size, growth, use patterns, etc.? That's the first step in the marketing process.

But newcomers may be justifiably confused and disrespectful of the need for discipline and procedure in the conduct of marketing activities. Given the familiar language, it all seems like commonsense. Common-use terms trivialize and seem to obviate the need for careful process.

You may think I'm overstating here. I run into this reaction whenever I suggest that a given self-storage operation may not be engaged in marketing. The reaction is often, "Oh, yes we are (you self-important bozo)! We've advertised in the Yellow Pages from day one!" Then I'm stuck. I know that use of media is only a small part of the effectiveness of any marketing program. But I can't protest my point. If an operator says he's marketing, who am I to say otherwise? He's the only one bearing the consequences. Still, I know the chances for a good result based on such minimal effort are slim to none. And "marketing" will take the rap for being both impotent and probably costly.

Bass Ackwards...

It's natural. Media is what folks encounter in their day-to-day lives. When they think about marketing, that's what they're thinking of. When they encounter a personal business situation that seems to call for marketing, they skip process and go directly to media. They seem eager to spend the big media bucks, but neglect the small process bucks necessary to guarantee impact.

Universal use of the Yellow Pages doesn't help. It's virtually a knee-jerk action--and it's costly. Advertising in the Yellow Pages contributes to owners' feeling that they are engaged in marketing. But marketers don't start their program with media--they end with it, and only after they've done the preceding stuff. Only after they identify the audience and the appropriate message do they consider the use of media, which may be the most expensive, but isn't the most important factor in obtaining results. Without the process, media is likely to fail in its job of distinguishing a facility from the rest of the pack.

Telltale Marketing

So what is the telltale sign that a marketing program is at work? When a facility recognizes, measures and individually appeals to the various segments of its market, it is clear that management is on course. Segments are the building blocks for a marketing program. Each has its own common interests. Each should be approached according to its needs. Each approach will likely be different than that used with other groups. Once segments are identified, the rest of the process comes naturally.

Many think that since the self-storage offering is pretty simple (a bunch of empty space), that the market is simple as well. This is not the case. The needs and interests of a person moving his household goods in no way resembles that of a lawyer storing his case files. There is a myriad of separate uses of self-storage, and those uses are the segments. Taken together, they are the "market." Marketers address the market only as segments and never as a whole. The plan, then, is to address each one by fashioning a unique approach that recognizes its individual needs. That's the process.

A Bunch of Lucky Stiffs

Self-storage operators should be thankful they have segments to work with. Pity the agriculturist whose only sales channel is controlled by "exchanges," the primary role of which is to make all suppliers adhere to straight price competition. Farmers and ranchers have no choice. They must take whatever the market gives them. Self-storage operators have a choice, and it's the key to independence.

Many operators are faced with a marketplace that is not responding the way it once did. The ambiguous marketing lexicon may deceive operators into believing that because they engage in marketing-like activities, that they are practicing the real thing. Thus, they come to believe they are realizing all the fruits of marketing when they are really only dabbling.

Missed some previous issues? Check the web at www.hardnosed.com.

Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at (208) 463-9039. Further information can also be found in Mr. Harley's book, Hard-Nosed Marketing for Self-Storage.

By Mel Holsinger

You're the proud owner of a self-storage facility and have been for several years. But now you have reached a point in your life where you are contemplating the luxury of living off the fruits of your hard work and investment. You are faced with the critical question: Do I or don't I sell my facility? Each of us who participates in the ownership of a self-storage facility will at some time be faced with this decision. How and when we approach it may determine the highest value we will be able to receive for our operation.

So, when is the best time to sell? Is it when your property is running at high occupancy? Is it when you have been unable to achieve high occupancy? Should you sell when interest rates are low and financing more easy to obtain? Do you wait until all the new competition around you has filled up? What will you do with the money from the sale? Do you have a place and/or the ability to invest your money and avoid capital gains? These among other questions all need to be considered when the time comes.

The first decision that needs to be made is whether or not to use a qualified broker. In most cases, the answer is absolutely, positively, "yes." Note that I said "qualified." This is important because there are a lot of brokers who know and understand self-storage and, in many cases, that is the only property type they deal in. They are by far the most qualified to find the right buyer for your property. (For more information on this subject, refer to the November 1999 issue of Inside Self-Storage, "Self-Storage and Brokers and Sales," by Maurice Pogoda. See also this month's article by R.K. Kliebenstein and Neal Gussis.)

Potential Sales Outcomes

Now, let's talk about your property. Using the following as an example, you can insert your own numbers and get a feel for where you may fall in terms of value. For this discussion, we are going to assume that your property is 10 years old, has 50,000 square feet of rentable space, has averaged 85 percent economic occupancy over the past year, and averages $.50 per square foot in rent. You have a mortgage balance of $1 million at 9 percent interest, which has no prepayment penalties and is assumable to a qualified buyer. The income from rents averages $21,250 per month or $255,000 per year. We would be able to get some value from fees and other income but, to keep it simple, we are going to use only rental income for this example. Let's also assume your expenses are $90,000 per year including off-site management services. Thus, your net operating income is $165,000. At a 10 percent capitalization rate, your property would be worth $1.65 million. You have agreed to pay your broker a 5 percent commission on the sale. Therefore, if you sold your property for your asking price, you would receive the following:

• Sale Price: $1.65 million
• Less Commission: $82,500
• Less Mortgage Balance: $1 million
• Net Proceeds: $567,500

Without calculating the taxes you will have to pay (please see your accountant for that information), you may end up with as little as half of the proceeds, or you may be able to keep all of them.

Let's change the scenario a bit. Let's say you decide to hold on to your property for another year, become aggressive in the marketing of your facility, and are able to increase the economic occupancy to 92 percent and increase rental rates by 7 percent, only spending an additional $5,000 in the process. Now you have a property collecting $298,080 per year in rent. Your expenses are $95,000; your net operating income is $203,080; and your property is now worth $2,030,800 on a 10 percent capitalization rate. Let's look at the new results:

• Sale Price: $2,030,800
• Less Commission: $101,540
• Less Mortgage Balance: $1 million
• Net Proceeds: $929,260

You can see that by increasing occupancy by 7 percent, increasing prices by 7 percent and spending a little more money to get there, you can effectively increase your net profit by $361,760--in addition to realizing the cash flow from an additional year of operations.

Perhaps you're thinking, "But I've been unable to get my occupancy up and increase my prices over the past year. How do I do that now?" There are several ways to accomplish this:

• Hire a management company to help you if you aren't already using one.
• Give your managers an incentive-bonus program.
• Work with an advertising agency.
• Look at what has already been successful in your marketing efforts and duplicate it.
• Consider a potential change in managers.

In other words, there are solutions. You just need to identify which one is best for you.

The Information Package

Let's assume, for the sake of argument, that you have followed our second example and are ready to sell. The following is some of the information you should expect to impart to a potential buyer. I would put this package together before you see your broker:

• Two years of financial history (balance sheet, income statement, tax return)
• Two years of operational history

  1. Move-ins
  2. Move-outs
  3. Occupancy (by unit sizes)
  4. Rate increases
  5. Number of units auctioned
  6. Dollars collected on delinquent accounts, including late fees
  7. Other income collected (locks, rental trucks, administrative fees, etc.)
  8. Tenant listing and copies of tenant agreements for current period

• Itemized tax bills (property, sales, personal property) for the last two years
• Repair and maintenance bills for the past two years
• Utility bills for the past two years
• Insurance bills for the past two years and a letter from your insurance provider concerning any filed claims
• Any service agreements and/or contracts for services
• Employee W2s for the past two years
• Pictures of the property--inside office, all outside areas, aerial (if available)
• Phase I environmental study
• Environmental impact study, registration of dry wells, etc.
• Letter stating compliance with ADA regulations
• Itemization of personal-property assets (golf cart, computers, etc.)
• Title-insurance policy
• Letter from the owner stating there are no lawsuits pending against the property.

Once this is prepared and the buyer has the property under contract, expect the buyer to conduct the following:

• A market study, including all competitors within a five-mile radius:

1. Verification of occupancy, rates, fees charged, security systems, etc.
2. Physical visit to each property
3. Pictures, if permissible

• Visit city offices and investigate new building permits for projects under development
• Physical inspection, including verification of rented and delinquent units rented, etc.
• Physical inspection with contractor
• Physical inspection of personal-property items
• Interview with managers
• Physical visitation to local real-estate offices
• Physical visitation to local commercial businesses
• Physical visitation to area retail stores
• Call to Better Business Bureau for references
• Order and receive demographics report
• Get copies of local or national Yellow Pages advertising representing the facility

A prudent buyer will then do the following:

• Projection of income based on occupancy expectations
• Projection of fees based on experience
• Projection of expenses based on historical experience
• Store evaluation
• Prepare wish list of major repairs/capital items not updated (i.e., security system, new roofs, doors, paint, asphalt repair and seal coating, etc.)
• Prepare business plan
• Prepare sales contract
• Prepare lender's package.

Ready to Sell

Once you decide to sell, you'll need to have your property ready to change hands in a time period that may take as long as the following:

1. Listing with a broker: one week to one month
2. Receiving and negotiating an offer: one to three months
3. Buyer due diligence: one to two months
4. Lender approval: one to two months after buyer acceptance of due diligence
5. Close: one month after lender approval

It is difficult in such limited space to go through all the steps and decisions involved in selling your facility. This article is merely a summary of a few of the most important considerations. In addition, you should read the industry trade journals, talk to several brokers and speak to management companies that have been involved with buying and selling self-storage facilities. You should also talk with your accountant and legal counsel who have experience in these types of transactions as well as other owners who have sold their facilities.

All in all, the decision to sell is a tough one. The more information you can gather on the subject, the better off you will be at making that critical decision. Good luck.

Mel Holsinger is the executive vice president of Executive Self Storage Associates Inc., with offices in Tucson, Ariz., and Denver. Over the past 13 years, both Mr. Holsinger and company President Joe Niemczyk have assisted numerous clients in acquiring, developing, managing and selling self-storage properties. The company currently manages more than 50 self-storage properties throughout the country.

By Tom Berlin

Americans are becoming more sophisticated. Starbucks and other coffee shops have educated us on the sundry ways to enjoy coffee. The Internet has connected us to an entire universe of information. Cable and satellite television has allowed us to peek into the lives of different cultures. And the American economy continues to provide most people with an unprecedented standard of living.

As a result, our expectations of what is acceptable to us, as consumers, have risen. This is a trend impacting all retailers. For example, one long-time discount department store chain is in the midst of renovating hundreds of its stores in order to staunch the flow of its customers into more contemporary discounters that feature newer stores with wider aisles, brighter lighting, nicer displays and an overall cleaner environment.

Self-storage is no exception to this scrutiny. As the population becomes more educated about our product, their expectations and requirements of a facility are reaching higher levels. In the past, a metal building sitting in the middle of an unpaved field was completely acceptable. For some prospective tenants, it still is. But the vast majority of our customers has become accustomed to, and even demands, a higher standard.

As is regularly pointed out in industry trade journals such as this one, many new self-storage facilities are virtually indistinguishable from the most upscale office buildings or residential developments. They feature every new technological bell and whistle available, and provide customer service rivaling that of the fabled Nordstrom's chain of department stores.

Many of us with older facilities try to do whatever we can to compete by upgrading our properties with new storage doors, computer-controlled gates, surveillance cameras, door alarms, etc. But these are high-cost, capital- intensive improvements. Don't get me wrong--these are very worthwhile expenditures. We all need to consider installing what is increasingly becoming the norm at self-storage operations. But there is one area that is often overlooked by managers and operators that can keep a facility competitive even as new facilities nip at your marketshare: daily maintenance.

The Importance of Maintenance

Managers and operators are always extremely busy with the day-to-day activities of running their facilities. It's easy to forget the important role a facility's appearance and cleanliness plays in the decision-making process of the prospective tenant. Often, the customer doesn't even realize the influence of these factors. He just knows he "didn't feel comfortable" at a particular store and moves on to a competitor. Small d ifferences between competitors can decisively impact a potential customer's storage decision.

Certainly, every owner needs to ensure that his roofs don't leak, lighting on the property is adequate and working properly, paving is in good condition and doors operate smoothly. However, the daily "housekeeping" at a self-storage facility can be a critical factor in the facility's success. A new store that looks dirty will give customers a worse impression than an older location that is immaculate.

Our managers complete a daily checklist of housekeeping items. This helps ensure that easily overlooked items are still completed. Since each facility is different, every manager should develop his own list of duties that need to be handled every day. Here is a sample of the items on our list:

Office

• Straighten all work surfaces, the customer counter and the area behind it to eliminate clutter and keep areas neat and organized.
• Dust all counters, window sills, sundries displays and window blinds, and any other horizontal surfaces.
• Sweep and/or mop all hard flooring.
• Vacuum all carpeting and walk-off mats.
• Wash windows in the office entry door and elsewhere if they are fingerprinted or otherwise dirty.
• Empty wastebaskets.
• Straighten and fill all sundries item displays (not part of housekeeping perse, but something that should be done daily anyway).
• Clean the customer restrooms including the sink, commode, floor and mirror. Fill the soap, toilet tissue and handtowel dispensers.
• Empty the wastebasket.
• Replace all burnt-out lightbulbs.

Exterior

• Remove all litter from the grounds, including both natural refuse (leaves, stones, twigs, dirt runoff, etc.) and man-made rubbish such as paper, bottles, cans and, especially, cigarette butts. (Cigarette butts scattered about a property always make it look dirty, no matter how clean it is otherwise.) It is important that any trash found against your fence is also removed whether it is on your side or not. Remember that the sight lines of potential customers don't end at your property line.
• Move any "presents" from tenants, such as mattresses, sofas, boxes, etc., to the dumpster area. Don't forget to look up at the building roofs to see if anything is visible that has been thrown up onto them.
• Pull or spray with weed-killer any weeds that have sprung up from cracks in the paving, planting beds or other areas--around the dumpster, for example.
• Check the site for any damage to the gate, buildings, signage, doors, fencing, lights, bollards, etc., that may have occurred overnight.
• Make sure all exterior lights are working properly. (Obviously, none of them should be on during daylight hours, for example.)

Our managers do both the interior and exterior housekeeping at the beginning of the day. The manager, in some cases, is scheduled to start work before the office opens in order to get everything accomplished before our first customers arrive. When a manager is doing the morning site inspection, he can also overlock past-due spaces and remove overlocks from paid spaces.

Some of the activities listed above may need to be done several times a day if an office or property is especially busy or the weather is bad. It is important to keep in mind tht the acceptable standard for cleanliness should be immaculate.

Maintenance of Vacated Units

Whenever a tenant vacates, the site manager should perform a thorough inspection of the space before it is rented again. Our managers use the checklist on the following page for this purpose.

The completed checklist is placed in the vacant-space file. When a store is audited, the checklists for all vacant spaces are reviewed and the spaces inspected to ensure they are ready for the new tenant.

Keeping a property clean at all times is one of the most important aspects of a manager or operator's job. It is neverending, but it can mean the difference between a potential customer choosing to store at your facility or moving on to your competitor.

Tom Berlin is vice president of operations for Farmington Hills, Mich.-based Pogoda Management Co., one of the largest owners and operators of self-storage facilities in the Midwest. For more information, call (800) 326-3199.

Trachte Brothers outgrow their space and purchase a factory at 102 N. Dickinson St, Madison, Wis. This would be home to the manufacturing company until 1985.

Trachte Building Systems Inc. of Sun Prairie, Wis., has been a well-kept secret in the metal-building industry for the past century. From tin pans and dippers, livestock water tanks, steel garages, cotton gins, fast-food buildings and self-storage facilities, Trachte offers novice and seasoned developers an investment opportunity that can last a lifetime.

Trachte has been building more than metal structures throughout the past 100 years. The company also builds strong relationships and lasting customer loyalty--a value Trachte has upheld since the very beginning. Business partners, teachers, attorneys, farmers and blue-collar workers have all turned to Trachte to attain assistance in the development for their self-storage business, either to generate additional income or begin a new career.

"We're not just selling steel-building packages. We're selling business opportunities," says Steve Pagelow, president of Trachte since 1980. "We are dedicated to our customers' projects and their success. Our job is not finished until our customers are satisfied." Placing the customers first, providing quality products and never compromising integrity has contributed to Trachte's success since its inception in 1901, he says.

An Amazing History

Trachte enters the self-storage industry by pioneering one of the first all-steel mini-warehouses in the country.

The company was founded by George and Arthur Trachte, who named the business the Trachte Brothers Co. The owners' father, a carpenter and farmer, had sent his teenage boys to learn the tinning trade at the local hardware store in Watertown, Wis. The father figured if the boys knew the industry, it would be cheaper to create projects in-house, recalls Bob Trachte, former company president and Arthur's son.

The brothers moved from Watertown to Madison, Wis., in 1899, in search of work. With a capital investment of $200, they opened a furnace and tinsmith shop in 1901. Their first order was making pans and dippers for the Madison Candy Co. Then in 1904, younger brother, Arnold, joined the business. "The brothers were a couple of farm boys entering into something different, and they had a lot of confidence. They were very aggressive. They were ambitious. That's what made the brothers stick together," says Bob.

The family continued to manufacture a variety of products, causing the company to move into larger facilities twice before 1915. By 1912, the brothers had designed and patented the first roll-forming machine, which was used to manufacture corrugated livestock water tanks. The brothers then created the first catalog illustrating the company's line of tanks and heaters in 1915. Several original Trachte water tanks continue to stand in Portage and La Crosse, Wis.

But it was Arthur who stumbled upon the company's future--steel buildings. He developed the first steel shelter to house his new Dodge because he didn't want it damaged by weather. He rolled several straight sides and a curved top to create a garage and built it next to the cottage the family rented each year. "He was a visionary," Bob says of his father, adding that every day people would pass by asking where they could get a shelter like that for their car. By 1919, the brothers were building and selling portable steel garages for more than 20 million "cars without homes," as well as for heavy machinery.

It was in 1923 that the Trachte Brothers Co. began marketing their steel buildings throughout the Midwest and southern states. In addition, the brothers created another roll-forming machine to make larger panels for the buildings. The company also built boathouses, metal motor boats, oil tanks and the first phone-booth prototype with metal sides. It also built the first all-steel cotton mill building in Arkansas and a steel alfalfa mill in Missouri.

The company continued to expand its product line with an airplane hanger at Pennco Field in Madison to house Charles Lindberg's Spirit of St. Louis during his barnstorming tour of the United States. The following year, the Trachtes introduced the "modernistic cornice" mansard/facade for storefront designs. "We leaned more toward buildings because that was more of a production process. Today, everything is production," says Bob, who bought the company with his cousin, Len, in the early 1950s.

Trachte Brothers Co. is sold and begins to manufacture steel buildings for the fast-food industry, which becomes the company's mainstay.

The cousins continued with the family philosophy of finding needs and filling them. By the 1960s, Trachte Brothers Co. began manufacturing standard parts for its buildings. The cousins reasoned that if the company could create most of its product in-house, eliminating the middleman, it would generate more revenue and provide better and quicker service to customers. In the mid-1960s, Bob bought his cousin out of the company and, in 1967, sold the business to Paul Lindau. Bob retired in 1978, the same year Pagelow began working with the company. Lindau kept the Trachte name, but changed the company to Trachte Building Systems Inc.

In 1968, Trachte introduced the Image Era mansard/facade for fast-food restaurants. The company used the design to construct Kentucky Fried Chicken, Wendy's and Dairy Queen restaurant buildings. It wasn't until 1974 that the company found its niche in the self-storage industry by pioneering one of the first all-steel mini warehouses in the country.

In order to ensure quality and offer the convenience of purchasing a complete self-storage facility from one source, Trac-Rite Door, a Trachte subsidiary that manufactures steel roll-up doors, was created in 1981. In 1984, Pagelow bought Lindau's share of the company and is currently the majority shareholder. As a result of the company's phenomenal growth, Trachte moved to a larger plant in the Sun Prairie, Wis., Industrial Park in November of 1985.

Trachte Today: Investor Focused

"We are really focused now on our core competency--providing a good investment opportunity for entrepreneurs," says Pagelow. The company offers self-storage facilities that are erector friendly, low maintenance and aesthetically pleasing. The pre-engineered buildings are designed for flexibility and durability. The in-house engineering department can also tailor the facility to meet the customer's needs.

Trac-Rite Door is incorporated, a wholly-owned subsidiary that manufacturers steel roll-up doors.

Trachte always has its investors' best interest in mind. Each regional manager acts as a consultant and walks the investor through the development process. "What we hope to do is help these people minimize their mistakes and maximize their investment," Pagelow says.

The company is a full-time manufacturer of self-storage products, which enables it to make everything under one roof. It offers a complete self-storage product line, including single and multistory self-storage systems, movable micro-storage buildings, corridor and partition systems, and roll-up doors. The buildings are built to last with zinc-coated structural steel and no exposed structural fasteners. The product is carefully packed to prevent damage during shipping, and Trachte provides all the building materials in one package from the concrete up, including installation and management manuals.

"We are not the low-price supplier in the industry; however, we are the low-cost provider," says Pagelow. Sales peaked in 1988 when Trachte grossed approximately $10 million, but dropped slightly during the Gulf War. In 1991, sales began to increase again. "It's been a decade of continued growth and prosperity," Pagelow says, adding that last year was Trachte's best year in sales at $35 million.

As the company heads into the next decade, it is adjusting its products and services to meet the changing demands of its customers, the market and technology. "We're definitely positioning Trachte to be in business for another 100 years," declares Pagelow.

100 Years and Counting

Trachte purchases 6 acres of land in the Sun Prairie, Wis., Business Park and begins construction on its new manufacturing and office space.

"One key thing a company has to do is adapt to change. We welcome change. If you don't, you're going to disappear," says Pagelow. Trachte buildings are currently located in every state, but a majority of its storage facilities are concentrated in the Midwest and northeast regions. Trachte has also provided services to several countries, including Canada, Costa Rica, Mexico and Panama, and Pagelow envisions Trachte expanding its international presence.

"Technology has been instrumental in our growth," Pagelow says. "We are always looking at how technology can help us and our customers benefit in the future." Since the recent implementation of the company's website, Trachte has received inquiries about its product and services from Portugal, the United Kingdom, France, Spain, Sweden and Brazil. Presently, Trachte will continue to be based in Wisconsin, but a day may come when another plant may be required to meet growing market demands.

"We see the market demands growing for storage facilities, plus more people will become entrepreneurial in the future; however, the marketplace is changing and becoming more challenging with respect to designs and barriers to entry," says Pagelow. No matter how much Trachte transforms its product and services to meet the changing marketplace, its commitment to the customer to provide satisfaction and quality products will never be compromised," he adds. "People, whether they are customers or employees, are and always will be the real key to Trachte's success."

Welcome mat for the front door: $8. Plant for the office counter: $12. A box of personalized pens, complete with your facility name, to distribute to prospective tenants: $300. Framing your first dollar earned: Priceless.

We've all seen the popular MasterCard campaign that capitalizes on the value of life's precious moments. I've even received a few interesting e-mail renditions highlighting some not-so-precious moments I certainly wouldn't publicize. But the campaign makes a poignant observation on the dichotomy between items whose value is tangible and concepts or experiences whose import cannot be rightfully measured.

So it is with the self-storage product. We can itemize costs of development, construction and operations, but can we logistically place a price tag on the commodity itself? More than just a safe place to store property, self-storage represents a solution to a dilemma. For this reason, operators can justify their rents, which include not only space to keep one's belongings, but security, climate control, convenience--in short, peace of mind.

But how is value determined when you contemplate the sale of your business? After all, you're relinquishing more than a lot full of metal buildings and a set of keys. Ultimately, you're peddling your years of hard work, a steady income and your customers' trust. For some of you, the decision of if and when to sell represents a crisis of sorts, especially if you started the operation from the ground up, have many long-time customers or lived on site. But eventually, the right offer may present itself, or you'll hear the sirens of retirement calling you. To assist with this dilemma, real-estate expert Burt Gay explains how to best value, price and sell your facility on page 18, while Mel Holsinger helps you determine when is the best time to sell (page 28). Whether you ever contemplate selling your "baby," it's always wise to be aware of its value in the current market.

This month we've also included part two of Michael Parham and Victor Lopez's discussion on "Space-Age Designs," found on page 34, as well as a checklist approach to staying on top of daily facility maintenance, presented by Maurice Pogoda. A final note: You'll read in this issue about a recently passed law that could have a direct impact on you as a facility owner. The Electronic Signatures in Global and National Commerce Act was designed to validate electronic contracts entered into over the Internet. What this ultimately means for our industry is that potential tenants, when renting self-storage over the Internet, can be asked to click a button or check a box indicating their acceptance of the terms of your rental contract, creating a legally binding agreement. This will open the doors of e-commerce to several industries. I suggest seeking legal counsel to determine how this change in policy might personally benefit your self-storage operation.

Best regards,

Teri L. Lanza
Editor
[email protected]

For a complete list of references click here

By Michael Zervas

Bigger is not necessarily better in the case of the World Wide Web. As the web continues to grow at a rate beyond all expectations, it is becoming increasingly challenging for those of us who rely on this medium to access information and/or to get out our sales message.

The web's spectacular growth is rendering it almost impossible to pinpoint, within a reasonable time frame, the exact information one is looking for. In the past, "surfing" was the way to go. This translates to unstructured, serendipitous browsing, wherein you start with a particular Web page and follow links from page to page. By making educated guesses along the way, you likely will find what you need. This method can be fun when you have the time to explore and experiment, but when time is of the essence, surfing can quickly lose its charm.

There is a better way, and it costs nothing: search engines. These are databases that organize all information on the web into categories that can be searched by topic. A search engine's job is to present information that best fits and suits your needs. The information it contains will enhance your chances of coming up as a "hit." Listing your website within a search-engine database is a great way to draw attention to your product and/or service.

How Search Engines Work

Think of the search engine as a fully stocked, 24-hour-a-day library. You request a book at the front desk (or request information form a search engine), and a staff of librarians, working around the clock, seeks the information for you by constantly checking all the shelves or, in the case of the search engine, continually combing the Internet.

As the user, you enter a keyword that connects you to a database. Search-engine software (called "spiders") have been constantly and continuously combing the Internet for documents and their web addresses. These are collected and sent to the engine's indexing software, where information is extracted and sent to a database. Some engines index an entire document; others index by title only. At this point, the search engines assemble a web page, listing the results as hypertext links.

At their core, the major search engines (Yahoo, Alta Vista, Lycos, Infoseek, etc.) use a location/frequency method of determining relevance. For example, if you were searching for "Bill Clinton," most engines would return pages primarily ranked by where and how often those words appear in each document. To be more specific, a page entitled "Bill Clinton's medical history" is likely to be considered more relevant than others where the Meta tag (the title for each page on your site) doesn't mention Clinton's name. Therefore, it's important to note that the location of a given term is a major factor. Similarly, a page that repeatedly mentions Clinton is sure of getting more of a boost than one with only a single reference.

Location and frequency, though critical, are not the only factors to take into consideration. Each search engine has a unique blend of techniques that constitutes its algorithms, or the mathematical formula for ranking and sorting search engines.

Getting Ranked

Because location and frequency are so important, the title (Meta tag) for each page on your site must be a major consideration. The search engines will use the Meta tag to determine the relevancy of your site to their keywords. The best practice is to design your site verbiage so that it marries with your Meta tag and with potential keywords that can be used to find your product and services.

Be warned: Most search engines filter submissions to avoid "spamming," which is the term used to describe the electronic equivalent of junk mail. It is appropriate, though, to resubmit your site at three-month intervals, but be sure to check the search engines to see how you are ranking. Packaged software is available to accomplish this task.

Once you have determined your ranking, you may want to change your page content and Meta tags before you resubmit. If you follow this procedure of resubmitting throughout the year, you will have a much better chance of climbing the rankings.

Michael Zervas is co-owner of the Michaels/Wilder Group, a specialized advertising agency incorporating three divisions: Yellow Pages, Internet and recruitment advertising. Based in Phoenix, the award-winning firm's client base includes America West, Luby's Cafeterias, Quaker Oats and Conseco Financial Services. Mr. Zervas can be reached at [email protected].

By Burt Gay

Net-Operating Income Determines Value

As with any other investment, the value of your self-storage facility depends upon its income--not its number of units or even its square footage. If you doubt this, look at the graph below. Multiply net income (found along the horizontal axis) by roughly 10 and you will see the sales price per square foot (on the vertical axis). Net operating income of $2, $4, $6 and $8 per square foot is equivalent to $20, $40, $60 and $80 per square foot, respectively, of selling price. Notice how many self-storage facilities cluster around $4 per square foot of income and $40 per square foot of value. In fact, the average self-storage facility sells for just under $40 per square foot according to the Self Storage Almanac.

How does net income per square foot relate to your self-storage facility? If you rent 10-by-10 units for $50 per month, that is equivalent to $600 per year or $6 per square foot. If your expenses run one-third of collections, a 40,000-square-foot facility earns $4 per square foot and is worth about $1.6 million.

How Do You Calculate Net Income?

An income statement from a seller usually shows actual historical income. However, it may show what income would have been if circumstances had been better. There are no generally accepted accounting principals or rules a seller cannot break in presenting income.

Buyers and sellers create different income statements for the same facility because of timing and operating differences. Buyers will own facilities in the future when expenses may be different from the past. For example, property taxes may rise if the sale of the facility triggers a new tax assessment. Buyers and sellers also incur different expenses depending on how they operate the facility. For example, local sellers may personally supervise their on-site managers while out-of-state buyers or lenders must hire management firms for this purpose. Buyers may charge different late fees or may shut down truck rentals. One of my sales fell apart when a buyer assigned no value to $31,000 of annual truck-rental income that he planned to shut down.

Chart 2, "Typical Self-Storage," demonstrates an example of two different income statements. It is an average facility (40,000 square feet) with average rents ($6 per square foot) and has the potential to collect $240,000 per year.

Note 1. Truck-rental income may be reduced or eliminated because truck-rental distracts managers from self- storage and may disappear when the manager leaves.

Note 2. "Other" income (late fees, box sales, locks, etc.) may be reduced to some arbitrary percentage of revenues that a particular buyer historically collected, e.g., 6 percent.

Note 3. Vacancy expenses may be increased to market levels--typically 10 percent, although vacancy on a national basis averages 12 percent.

Note 4. Property tax may be adjusted upward to equal the sales price times the tax rate.

Note 5. Off-site management expenses of 6 percent may be added to hire a management firm to oversee the investment and account for the owner's time if he performed this function himself.

Note 6. Repairs and maintenance expenses may be normalized to $.10 per square foot to reserve funds for repairs and preclude owners from increasing income by deferring maintenance.

Note 7. Capital improvements expense of $.10 per square foot may be added to fund major improvements that a facility will eventually require to remain competitive.

Notice that both income statements exclude interest expense so that facilities purchased with debt can be compared to ones purchased for all cash. Also notice there is no depreciation expense. However, lenders and buyers add reserves for repairs and capital improvements that offset the absence of depreciation. In this example, the buyer has eliminated $40,000 of revenues and added $30,000 of expenses. He has cut net income by $70,000, and his perception of value may be $600,000 to $700,000 below the seller's. Unless the buyer, seller and lender have similar perceptions of income and value, there may be no sale.

Improve Your Income

Because every dollar of current income is magnified into almost $10 of sales price, it is worthwhile for a seller to maximize income before marketing begins. Income that is created before the marketing package is prepared is "current" income, while prospective income (which is more tenuous) is relegated to a "proforma" (assumed) income statement.

Why does this matter? Sellers often say, "My rents are below market, but you can raise them." Buyers then reply, "If that is really true, why didn't you raise them yourself?" One self-storage owner retained a prominent brokerage firm to sell his facility without success for a year. He then tried to sell it at auction without success. Then he tried to sell it himself. As a last resort, he gave me the listing and it went under contract at full price on the first day of marketing. How? I got him to raise rents, recalculated income and showed a higher cap rate. Unlike the stock market, which looks forward, real-estate buyers generally look back and give more credence to actual or current income. Here are some actions to consider:

• Owners should pay full rent for any storage units they have been using for free. It doesn't matter that the units would have been vacant and not brought in any rent. An owner who "saved" $3,000 per year by using six free units may have lost $25,000 in sales price. Buyers look at collections deposited in the bank. An owner who needs cash can always withdraw his money after making the deposit.
• Reduce discounts to existing customers who are paying below your current list prices. If some customers threaten to leave, restore their old rates.
• Raise rental rates if occupancy exceeds 90 percent. Since buyers disallow occupancy above 90 percent, you should maximize income from the 90 percent occupancy they will allow.
• Utilize setback spaces by adding RV parking or portable storage. Portable storage can be attractive due to tax advantages of rapid depreciation.
• Install truck rental if there is none. Truck rental creates its own income. As a byproduct, it also brings new storage customers, which helps occupancy and rents.
• Increase "other" income by raising late fees and selling boxes, locks, insurance, etc.
• Cut expenses. Appeal property-tax bills, etc.

What Cap Rate Is Appropriate?

Cap rate is an investor's yield, i.e., net-operating income divided by the sales price. Cap rate is the inverse of the price/earnings ratio used in the stock market, except that earnings are calculated differently. Just as price/earnings ratios vary over time by company, cap rates vary by time, geography, quality and risk. Investors expect higher yields for small facilities (under 40,000 square feet) and ones in bad locations (poor visibility and access). They pay premiums for good demographics: rapid population growth, high density (over 100,000 residents in five miles), high household income (associated with high rents) and a high concentration of apartments. Apartment renters need storage because they lack space and move more frequently than homeowners. Buyers pay a premium if there is vacant land for expansion, especially if restrictive zoning presents potential competitors with a barrier to entry. According to the Self Storage Almanac, the average cap rate for approximately 200 transactions is 10.5 percent (although the Almanac incorrectly calculates it at 12 percent).

Financing Affects Value

Theoreticians argue that financing does not affect value. Look at the counterexample presented in chart 3, "Financing Affects Value," and see if you agree.

In this example, financing that is only 2 percent lower in interest rate (8 percent vs. 10 percent) earns 50 percent more cash after debt service. Many investors base their purchases upon "cash-on-cash" yield, which is net-operating income after debt service divided by the down payment. Cash-on-cash is an investor's annual "cash-in" divided by his initial "cash-out" (down payment).

Sellers can raise their sales prices by offering attractive financing. If a seller offers a $200,000 second loan at 10 percent interest for five years, the buyer's cash flow drops by $20,000 per year ($200,000 x 10 percent). However, the cash-on-cash return rises to 20 percent as the down payment drops by $200,000 ($45,000/$226,000 = 20 percent). More importantly, many investors who have only $250,000 to invest (and cannot afford other large facilities) will make offers and bid up the price.

A Good Broker Affects Value

You can buy a stock over the Internet for a mere $12 commission, but a real-estate broker may charge you $100,000. Why? Real estate is not a commodity with exact specifications like books, computers, stocks or automobiles that can be readily compared and purchased over the Internet. Real-estate income statements lack generally accepted accounting principals enforced by a regulatory agency and, therefore, lack comparability. How can you compare cap rates when the income statements they are based upon are prepared differently? Buyers focus on reliable sources of information to waste less time.

If two mathematicians are given a problem and one fails to solve it, there is no amount of money--no matter how small--you would want to pay the one who failed. One-third of listed properties do not sell at all and are like the unsolved problem. Similarly, if you hire an attorney and he loses your case, he has a negative value. Many self-storage properties sell, but at prices below their worth. Some sellers who will not list their property with a broker will then accept an offer from a buyer represented by one and watch helplessly as the broker immediately resells the property at a huge profit. Even self-storage appraisals offer no assurance of fair market value. As an example, I sold one self-storage facility at $2,104,000 just after it had been appraised at $1,700,000 because the appraiser was just wrong.

The photograph above demonstrates the importance of perception. Do you see a metro-Atlanta dump site? If so, this illustrates the rule that "believing is seeing," not vice-versa. You are actually looking at a drive-in volcano on the island of St. Lucia. You believed and, therefore, perceived it differently. Good brokerage does the same thing--and affects value.

Burt Gay is a self-storage broker at Marcus & Millichap, the nation's largest investment property brokerage firm. Last year the company's 550 brokers sold more than $5 billion of real estate and, during the decade, sold $200 million of self-storage. In the first eight months of 2000, Mr. Gay has personally sold 14 self-storage facilities worth $20 million. Several of his sales included self- storage facilities in rent-up or in overbuilt areas where his prior experience as a CPA enabled him to structure unusual financial arrangements.

Mr. Gay has been a popular speaker at numerous self-storage trade shows and for the Georgia Storage Owner's Society. He graduated from Princeton University, received an MBA in finance from Wharton and became a CPA at Coopers & Lybrand. Last year he received the Certified Commercial Investment Member designation. For more information, visit www.mmreibc.com.

Chart 2
Typical Self-Storage
	Seller	Buyer
Potential Rent	$240,000	$240,000
Truck Rental	$20,000	$10,000 (Note 1)
Other	$25,000	$19,000 (Note 2)
Less: Vacancy	-$0	-$24,000 (Note 3)
Effective Income	$285,000	$245,000
Property Tax	$12,000	$21,000 (Note 4)
Off-Site Management	$0	$15,000 (Note 5)
Repairs & Maintenance	$2,000	$4,000 (Note 6)
Capital Improvements	$0	$4,000 (Note 7)
Other	$46,000	$46,000
Total Expenses	$60,000	$90,000
Net Operating Income	$225,000	$155,000

---

Chart 3
Financing Affects Value
	10% Interest	8% Interest
Income	$279,000	$279,000
Less: Expenses	-$90,000	-$90,000
Net Operating Income	$189,000	$189,000
Less: Debt Service	-$146,000	-$124,000
Cash Flow Before Tax	$43,000	$65,000
Sales Price	$1,783,000	$1,783,000
75% Loan	$1,337,000	$1,337,000
25% Down Payment	$446,000	$446,000
Cash In/Cash Out	$43,000/446,000	$65,000/446,000
Percent Return	9.6%	14.6%

By Pamela Alton

When a tenant first rents a unit from us, we often ask if he would like to pay his rent automatically each month by credit card. If he says "yes," we proceed to have him sign a form designated to authorize a charge to his account when rent is due, usually through our management software. In addition to being processed monthly, credit-card payments can also be accepted on a one-time basis when a tenant is in the pre-lien or lien status. This lowers our risk of having to conduct lien sales or auctions. I have found that tenants who pay with a credit card each month usually rent longer and are less resistant to rate increases. They may also be more willing to pay for more than one month at a time, increasing our pre-paid rents. And accepting credit-card payments is convenient for our customers.

On the other hand, credit-card payments can have their drawbacks. For example, in our self-storage operations, late fees are part of our budget--at least they should be. We all collect late fees at our facilities each month, and these fees could actually accrue enough to pay a relief manager's wages. With automatic credit-card payments, however, we forfeit those fees as we always receive our rental income on time. Accepting automatic credit-card payments has become the norm at many self-storage facilties, but you should also consider the risks of this practice.

Be Aware of the Risks

The biggest risk involved in accepting automatic credit-card payments is that the tenant can contact his credit company and deny the charge, leaving you, as the owner/merchant, with a "chargeback." If the tenant does not physically sign an electronically or manually imprinted credit-card slip, you could lose out.

Let me recant for you the tale of what recently occurred at one of the facilities I manage. There was a customer who had been a "problem tenant" for some time. He was running a moving business out of his space, and we'd had numerous complaints about--and run-ins with--this tenant. He was asked to vacate his space, and we tried our best to accommodate his moving requirements. We let him vacate on the 9th of the month and pro-rated rent for him instead of charging for a full month as stated in his contract. We even waived his late fees.

Because this particular facility was not set up to accept credit-card payments at the time of the incident, I was approached by the tenant with a request to process his credit-card payment through my personal company. I honored the request with a faxed letter from him, printed on his company letterhead, with his credit-card number, expiration date and signature. I ultimately processed the payment via telephone.

Two months later, I was notified by Visa that this tenant had denied the charge on his bill and the money had been deducted from my account. After several rebuttals and presentation of all the proper documentation, we still lost the battle. Why? Because "no signed electronically or manually imprinted draft had been provided" (to quote Visa's response). We were told, in addition, that the cardholder had "denied authorization" and that "without an imprint as well as a matching signature," we had no further recourse. If we wished to pursue the matter, it would be necessary for us to "contact the cardholder directly." The facility owner paid the debt to my company and will now proceed through small claims court to recover rent due from this ex-tenant.

The question then arises: What does this mean to our industry as a whole? Most of us accept automatic credit-card payments via phone, fax and signed authorization forms, don't we? The aforementioned incident suggests that if a tenant wants to stop payment on his credit-card, he easily can. Unless you have an actual signed credit-card slip, you will have no recourse, and the forms we all use for this method of payment are about as worthless as the paper they are written on.

The only solution I can think of is to have the tenant sign an actual credit-card slip for each month they plan to rent at the facility and place these slips in his file. Perhaps one signed slip will suffice. Rest assured, I'll be certain to have a signed credit-card slip on file along with authorization from every tenant who wishes to pay by this method.

Electronic Authorization--Wave of the Future?

Many of us have begun using the Internet to purchase airline tickets, toys for the kids, clothes--you name it. How will the credit companies' regulations effect the way we use our credit cards? What if we were to book a flight, go on vacation, and upon return deny the charge because we did not physically sign a credit-card slip? How can we protect ourselves from the sort of situation I encountered with that problem tenant?

We will obviously continue to process automatic credit-card payments; but we should be aware that this convenience involves certain risks. Each owner must ask himself whether these risks outweigh the benefits. How will credit-card companies and their card users fare in the wave of the future? Perhaps only time will tell. Until then, I will continue to accept automatic credit-card payments, knowing that it is risky at best and part of conducting business in today's world.

Electronic Signatures Act and E-Commerce More and more businesses--including self-storage facilities--are utilizing the Internet, not only as a means of marketing, but as a means of commerce. Like airlines that offer the convenience of faster confirmation and cheaper fares if customers purchase travel through their websites, other trades are discovering that in utilizing this tool, they can be making money over the Internet even in their sleep! For self-storage, the possibilities include the rental of units directly over a facility's website with the use of a customer's credit card. The dilemma then becomes, how do you get a tenant to sign an authorization/release form for automatic credit-card payments, a customer storage insurance contract and the standard rental agreement? The answer was given recently when Congress enacted the Electronic Signatures in Global and National Commerce Act. The Electronic Signatures Act--dubbed the E-SIGN law--was signed into existence on June 30 and takes effect on March 1, 2001. The law, part of Capitol Hill's "eContract 2000" program intended to modernize the nation's laws in accordance with advancing technologies, was designed to validate electronic contracts entered into over the Internet. The measure requires that consumers consent to conducting business online. What this ultimately means for our industry is that potential tenants, when renting self-storage over the Internet, can be asked to click a button or check a box that indicates their agreement to your rental contract. It will be considered a legally binding agreement. It is still advisable, however, to seek legal counsel before implementing an electronic contracting system.

Pamela Alton is the owner of Mini-Management^®, a nationwide manager-placement service. Mini- Management also offers full-service and "operations-only" facility management, training manuals, inspections and audits, feasibility studies, consulting and training seminars. For more information, call (800) 646-4648.