Wine storage can be a terrific ancillary service for self-storage facilities in the right markets. It produces a greater return per square foot than traditional storage and generates a host of other benefits, including added revenue and marketing advantages. Wine storage helps enhance a propertys image and draws a specific category of clientele. It has also been shown to draw customers who would not otherwise have visited a storage facility; about one-half of those who rent wine storage will eventually rent traditional units too.

Is There a Market?

Unlike other amenities, wine storage is not practical for most self-storage operators. It requires specific market characteristics to be successful. For example, wine storage works well in urban markets, particularly those with concentrations of condos and apartments, which normally have limited storage. It also succeeds in areas that lack basements or regions especially high in temperature and humidity. Other good targets include vacation and resort areas, where wine-loving visitors may need a place to store their collections.

Local wine merchants are a great source of information about an areas potential market, as they are constantly in contact with the wine-drinking public and know of customers who may have inquired about bulk storage. Merchants can be continuing sources of referrals as well as participants in a storage facilitys marketing events, such as wine-tastings.

For a quantitative look at a local market, seek out companies that provide demographic information or feasibility studies. They should be able to include a module that measures wine consumption in an area. No matter what resources you use, make sure theres a need for wine storage in the community before creating this ancillary service.

Facility Design

Once you know a market exists for wine storage, your level of service can vary, as will facility design. You can simply designate a portion of your regular climate-control space for wine storage, maintaining a communal room at ideal temperature and humidity levels and allowing access only in the presence of a manager. Or, the more preferred course is to create a separate wine area with individual lockers and a dedicated refrigeration system. Ultimately, the level of sophistication will be determined by the local market, the facilitys general character, and the desired business image.

To create dedicated, full-service wine storage, there are several basic standards to keep in mind. First, it must be designed and constructed to maintain ideal conditions for wine: 55 degrees in temperature and 70 percent humidity. Preferably, youll want two refrigeration units to create a redundant system that will preserve conditions in the event one of the units fails. A backup generator should be used in the case of a power failure. This will be a significant marketing tool.

Youll also want to include remote controls that enable customers to read cellar conditions from the rental office. Use measuring equipment to provide a history of the wine rooms temperature and humidity. This will generate a provenance for collector and investor customers as to the conditions under which their wine has been stored.

The lockers should be designed to accommodate cases of wine. Although it may vary in size, an average cardboard case fits in a 12-by-12-inch space, so use this dimension as your primary building block. For example, a 24-by-24-inch locker will hold four cases, while a 24-by- 90-inch locker holds 24. You can use a mix of locker sizes depending on the size of your storage area and anticipated market demand.

The lockers can be constructed from a number of materials. They range includes simple plywood boxes, cages of wooden slats, elaborate oak lockers with louvered doors, or any combination thereof. Recently, some suppliers have begun producing stainless-steel lockers. While they dont match the traditional look of wine storage, the resulting effect is quite dramatic and has been well received by customers.

Stainless-steel lockers at USA Stor-A-Way in Naples, Fla., while not the traditional choice for wine storage, offer a clean, contemporary look popular with customers.

Security

A well-designed wine-storage area allows access to wine customers only. Use an electronic keypad at the door and assign each customer an individual access code. Fit the room with video-surveillance cameras and integrate them with the facilitys general monitoring system.

In addition, the temperature and humidity controls for the refrigeration units should be monitored and tied to an alarm system. If levels should ever exceed preset limits, the facility manager will be alerted. When the facility is closed, the system can be monitored by an outside service that notifies the manager and an HVAC technician.

Aesthetic Treatments

While ideal conditions of temperature and humidity are the linchpin of the wine-storage service, aesthetics will greatly enhance its marketability and appeal. The most basic decor will include an attractive entry door that makes the rooms purpose clear to customers. For example, at Plantation Self Storage in Bluffton, S.C., the wine room features a hand-carved mahogany door designed in a wine motif.

Plantation Self Storage announces its wine area with a hand-carved mahogany door and creatively painted walls.

The rooms exterior walls, visible from the rental office, have been faux painted to give the appearance of an outdoor winery. At East Bank Self Storage in Chicago, where the facilitys wine storage is in the basement, the open staircase descending to the wine room is decorated with old barrels and murals depicting scenes of wine country. Murals are a great way to dress up the area, inside and out, and they can be used to create the illusion of depth and size.

Decorative wine-storage murals at East Bank Self Storage in Chicago.

Marketing, Amenities and Services

The marketing program for wine storage should include a brochure separate from that of the general storage facility and may even incorporate a unique name and logo. For example, Plantation Self Storage refers to its wine storage as Plantation Cellars and has created a separate brand identity. Annies Attic in San Francisco calls its wine-storage facilities La Cave.

Additional amenities can bolster customer service and marketability. Perhaps the most valuable service to offer from a standpoint of business development and marketing is a program of periodic wine-tasting, which can be conducted by a local wine merchant who will refer his customers to attend. Not only does it attract potential customers to the site, it enhances the experience for existing clients.

Strong Box Self Storage in Chicago has a tasting room adjacent to the wine-storage area that includes booths and tables for people to relax and bulletin boards full of wine-related information. The facility hosts its own wine club, established among wine-storage customers. Members can participate in bulk purchases of wine, glassware and accessories at volume discounts. Strong Box also sells wine products and accessories in its retail area. Bottle-stoppers and corkscrews imprinted with a facilitys name and logo are handy and make great advertisements.

A particularly useful service is the acceptance of wine deliveries for customers, including purchases sent directly from wineries. Restrictions on the interstate shipment of wine have recently been lifted after extensive court battles. Although rules still apply in some states, most allow direct shipment. This opens possibilities for wine consumersand storage operators who will use delivery acceptance as a marketing edge.

Costs and Returns

The chief question a self-storage operator asks when contemplating the addition of wine storage is: How much will it cost me? The next question usually revolves around how much money he can make. The accompanying charts show a sample of construction costs and potential income based on the Plantation Cellars facility mentioned earlier.

As you can see, construction costs total out at approximately $70,000. With a total case capacity of 2,032 and a rental rate of $1.50 per case per month, annual income could be as much as $36,576. Assuming a 10 percent vacancy rate, however, net annual income looks closer to $32,918, or 51.44 per square foot. In the right market, the wine-storage area pays for itself in little more than two years and then makes a nice profit center.

Wine storage is not suitable for every self-storage facility; but in the proper market, it can provide additional revenue and marketing benefits far in excess of costs.An attorney by trade, George McCord has more than 30 years of experience in a wide range of real estate and development projects.

He has supervised the acquisition, financing, construction, syndication, marketing and management of apartments, office buildings, resorts, shopping centers, residential and industrial subdivisions, condos, marinas and self-storage. He recently developed nearly 1 million square feet of storage, and his Plantation Self Storage facilities in Bluffton and Lexington, S.C., have been the winners of Facility of the Year awards. Mr. McCord is a member of the Self Storage Association, serving on the board of directors, and a founding member of South Carolina Self Storage Association. He is also a frequent speaker and participant in self-storage educational programs. For more information, e-mail [email protected].

Boat and RV storage may seem a lot like self-storage, but when it comes to maximizing profit, it has unique requirements. To successfully market an RV/boat-storage facility, keep these seven key things in mind: pricing, partnering, profitability, personnel, performance, persistence and patience.

Pricing

The biggest question often asked about operating boat and RV storage is how to price the spaces. The quick answer is: based on availability. To maximize revenue, you want to have space available at all times that will rent at the highest price the market will bear. Countless owners have lost thousands in revenue because they wanted their facility to constantly be full. This may be gratifying on some level, but it isnt savvy.

Shoot for 93 percent to 95 percent occupancy in every unit or space size. For example, if you have 300 spaces100 each of small, medium and largeyou should maintain at least five to seven open spaces in each size. If you have fewer than five available in any category, raise your price immediately.

Many a manager will say, I cant do that! Why not? Pricing shouldnt be based on anything but data. As soon as you near or hit your target occupancy rate of around 94 percent, raise your rents. If you get another renter at the higher rate, raise it again. Dont worry if one person is paying $20 more per month for the same size space as another. Have you been on an airplane lately? Is everyone paying the same price for the same quality seat? Case closed. Price your spaces rationally, not emotionally.

Partnering

Partnering will allow you to get units filled with a nominal marketing investment. Start with your obvious partners and expand to every one you can imagine. The more partners you have, the more profitable youll be.

How does partnering work? Look for those businesses in your area that are most likely to be asked for information on where to rent RV or boat storage. Two obvious candidates are RV and boat dealers. Whether someone is buying a new or used vehicle, one of his first questions will be about available storage. Some residents are allowed to park their RVs and boats at home, but strict homeowners associations have changed that scenario. Heres where you come in.

You want to be the first facility dealers recommend to their customers. How do you accomplish this? First, you need to make contact. Visit the dealers with a flier containing your facilitys contact information as well as its features and benefits. On your first visit, its also wise to bear gifts, such as one of your promotional products, cookies or pizza. Present your offering and explain your promo sheet (which should be coded for each individual dealership, by the way). When a customer comes to you, thank the dealer with an immediate phone call. Then deliver another clever but inexpensive gift that will help him remember you to his customers in the future.

Profitability

To be most profitable, you need to concentrate on the expense and revenue side of the business equation. Most of your marketing efforts will focus on revenue, but youll also want to evaluate your costs. Look for ways to intelligently reduce expenses without impacting sales.

Examine each line of your profit-and-loss statement. Look for things you can do to even slightly reduce your costs in each category. For example, replace your light bulbs with the new energy-efficient bulbs available today. Theyre more expensive in the beginning, but they pay for themselves over time in lower electricity bills. The savings may not be big, but if you make these kinds of changes with every expense item, youll buy yourself some nice additional profit.

Personnel

You also need to find the right people to help make profitability happen. In the case of a storage facility, this means hiring the right manager. How good is your manager, and how are you measuring his results? What criteria do you use to evaluate his performance?

The only thing that really matters is your numbers. What are your occupancy rates and net profits each month? If the numbers are going in the right direction, youve got the right manager, regardless of whether he is a nice person. The ultimate determining factor is occupancy. Remember, 100 percent occupancy is not the goal. If your manager can hold you at the 94 percent range and raise rents when necessary, hes getting the job done.

Performance

To see how well your facility is performing, you have to measure its results. Very few operators keep accurate measurements of their marketing efforts. Whatever plan you put into placepartnering, Yellow Pages, direct mail, etc.have a way to evaluate each effort. Review each marketing method regularly and make adjustments as necessary.

Persistence

If you think marketing is a do it once and its done affair, think again. Promoting your boat/RV storage facility requires an ongoing and consistent effort. For example, if you use partnering, youll be most successful when you thank people for referrals and give a giftevery time, without fail.

Many campaigns take a while to work. The biggest mistake you can make is using one-shot marketing in which you execute a great idea but fail to follow up on or repeat your efforts. This is almost worse then doing nothing at all. Be persistent. Once youve decided on a course of marketing action, follow it as planned, consistently.

Patience

Finally, marketing a boat/RV storage facility takes patience. If you are consistent in your efforts and follow the guidelines above, you can expect to see results in three to six months. Dont get discouragedit will happen with time. Follow the seven Ps, and youl be amazed at the profits you can make with boat and RV storage.

Fred Gleeck is a self-storage coach and consultant who helps owners and operators maximize profits. He is an expert in the field of information and seminar marketing and the author of more than 10. For more information, call 800.345.3325; e-mail [email protected]; visit www.selfstoragesuccess.com. To subscribe to his e-zine, send an e-mail to [email protected].

One of this year's hot legal topics concerns any storage operator who advertises the security advantages of his facility. Ironically, by using certain words to convince customers of the safety features you provide, you leave yourself vulnerable to lawsuitsregardless of contract language that releases you from liability.

How can tenants find you liable for theft and other damages? The theory goes something like this: Your lease provides all the normal language that would protect you from being liable to the tenant for losses, damage to property, theft, disappearance, etc. But wait! Then you say or do something beyond the parameters of the lease, giving the tenant cause to assume more protection or coverage was providedand a valid legal argument.

The most common way an owner inadvertently falls prey to this kind of liability is by using words such as safety and security in his facility name. As an operator, you go to great lengths to disclaim liability for guarding and protecting tenants property. But if you use security-related words in your name, customers can argue it led them to believe your facility was safer or more secure than others, influencing their decision to store with you.

Beware Two Words

Storage operators are always looking for ways to differentiate themselves from competition, and that can be especially difficult when it comes to outdoor or semi-enclosed vehicle storage. Lets face it: It's just parcel of gravel or paved lot. Many operators are turning to the security aspects of their property to create a marketing edge. Im not suggesting you ignore your security features, but when describing your setup, beware of these two words (and others like them): surveillance and monitored.

I often see these words in facility advertisements, brochures, websites, property signage and lease documents. The term surveillance normally appears in the context of video cameras, and monitored or monitoring when discussing video, alarms or access.

A major dictionary defines surveillance as close watch kept over someone or something (as by a detective). To monitor is defined as to watch, keep track of, or check, usually for a special purpose. Do you see the problem? When you use these words, you suggest someone is closely watching or keeping track of tenants belongings.

If you have cameras that are live but do not record (drones), and you dont stare at a monitor all day and night, you dont truly have video surveillance. If you videotape or digitally record 10 cameras but dont review the recordings regularly, again, you dont truly have video surveillance. If you claim to have surveillance at the gate and dont watch to ensure everyone who goes in and out has legitimate access, guess what you dont have?

Likewise, if you promise video monitoring, you imply someone is watching the video cameras playback at all times. If you claim to have monitored alarms, you give the impression someone is closely watching the alarm system round-the-clock, ready to dispatch the manager or police when an alarm sounds.

Manager Expectations, Responsibilities

Be cautious when describing a managers security duties. When you say a manager lives on site and therefore monitors the facility, you imply he is there 24/7. That claim has a few flaws. First, unless your manager is superhuman, I doubt he can watch the entire facility at once. Second, I doubt he is awake and watching only the facility day and night. Finally, your manager probably isnt on site all the time. He may shop, visit family and friends, or take vacations.

Considering the definitions of surveillance and monitoring, lets look at a hypothetical situation: An intruder vandalizes an expensive boat stored at your facility or steals a stereo inside an RV. If you claim you have video monitoring or surveillance, tenants might make several presumptions. They may think someone quickly noticed the thief lurking about the premises, witnessed the actual break-in, and contacted authorities while the crime was still occurring. After all, somebody is watching your video-camera output at all times, right?

Heres another scenario: Lets say your gate or vehicle-storage units are alarmed, and you have stated that you provide alarm monitoring. But all that really happens is an alarm goes off, and if the manager is present and hears it, he calls the police, or maybe checks the alarm later. Further, if you claim an on-site manager monitors the premises, a tenant might presume a manager is walking the property or looking through security cameras at all times. At the very least, he may think a manager is constantly vigilant for theft.

The term manager monitoring gives rise to a whole new level of employee responsibility. It may include detecting and notifying tenants of problems with their stored vehicles almost immediately after trouble is evident rather than when a manager happens to notice it. This is a very different standard. Your manager might not closely inspect every vehicle daily. But if you claim to have monitoring, a tenant could contend the manager has a duty to closely inspect every vehicle at least once a day for damage, theft, leakage, etc.

These hypothetical scenarios do not even begin to consider how a manager will know whether a vehicle has been stolen or removed by the tenant, and if he has a duty to investigate further. That is a separate issue altogether.

Based on the language you use in your collaterals and advertising, tenants can argue you changed your contractual relationship and assumed a greater responsibility to watch and care for their stored vehicles. Theres nothing wrong with putting your best foot forward and aggressively marketing your facility. But watch your words so you dont take on a higher duty of care than you intend.

Jeffrey Greenberger practces with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151; e-mail [email protected].

The goal of providing any product or service is to compel customers to: 1) Rent from you instead of your competitor; and 2) Buy from you an item or service he needs and might otherwise go elsewhere to find. The idea is to get him stay at your establishment and put money in your pocket rather than go to Home Depot, Office Max, Wal-Mart, the post office, etc.

These days, there are sundry ways to accomplish this. Following are a few of the most successful.

Business Centers

An increasing number of people are launching home-based businesses. Not only do many of them need office space, they require storage for inventory. In response, mini-offices that can be leased on a monthly basis are popping up in storage facilities across the country. Storage owners have also opted to incorporate small business centers into their sites, offering phones, Internet access, photocopiers, fax machines and more. From there, they can explore other services, such as an in-house notary public.

Pack and Ship

This type of ancillary is not necessarily new to self-storage, but it does open a variety of fresh ideas. Pack and ship services can be as simple as a drop-box for UPS or FedEx or the sale of stamps and shipping/packing materials, to complete parcel shipping, mailing and P.O. boxes. Depending on the extent of the operation, additional staffing may be required. But especially during holiday seasons, providing the community an optional outlet for shipping can mean a significant revenue increase.

Moving and Storage

This offering can be particularly popularand lucrativein areas with populations of older adults. A self-storage owner contracts with a small local moving company to market a combined service of packing, loading, transporting and unloading the contents of a customers storage unit. This may be more appealing to prospects than hiring a large warehouse/moving company, as most find comfort in being able to visit their stuff from time to time. Keep in mind that while services can be offered as a package, separate contracts should be signed for each to avoid legal issues and insurance nightmares.

Boat/RV Storage

When assessing added service to the boat and RV community, convenience is the key. Proximity to bodies of water or highways will make your facility more appealing to these customers, as will amenities like electricity, running water, dump stations, wash racks, propane, fill stations, battery chargers and vacuums. Some self-storage operations go so far as to offer services such as RV/boat clean-up and make-ready.

A word to the wise: These amenities may entice some folks to take up residency at your site. A watchful manager should ensure your RV-storage facility does not become an RV park.

Records, Wine, Trucks and Trailers

The more sophisticated services of records storage, wine storage and truck rental can require sizable startup investments of money, time and research. But they can also be extremely profitable when implemented in the right market.

Records and wine storage are usually priced by the cubic foot and demand a degree of service and space specialization. For example, wine storage requires strict temperature and humidity control as well as high security, while records storage often necessitates complementary services such as retrieval and delivery.

Truck and trailer rental boosts a self-storage business by providing an added bonus for tenants, i.e., free use of a truck at move-in, as well as attracting customers who might not otherwise visit the site. Of course, trucks require extra time and effort on the part of the facility manager, who must market, maintain and rent them. They also need the proper insurance.

Thinking Outside the Storage

Thinking outside the literal box is the way to conceive new services in this industry. The first step is to research your market and identify unfulfilled consumer needs. Then you must determine if there will be a return on your investment. Dont jump into anything. Keep in mind that what works in one market may not work in another. No amount of enthusiasm can replace due diligence.

Todays state-of-the-art facilities have only a conceptual likeness to the cinder-block buildings and graded rock driveways that launched the storage industry in the mid-60s. Since then, every visionary step and brilliant ancillary service has been conjured in the imagination of somebody. Why shouldnt the next somebody be you?

Ann Parham is the president and founder of Bulverde, Texas-based Joshua Management Corp. Ms. Parham began her career in self-storage more than 20 years ago as the co-owner of NDS Construction. Joshua Management was created through a quest to provide comprehensive customer service to the self-storage industry. The company offers site management, employee training, financial reports, accounting, brokerage and marketing. For more information, call 210.477.1222; visit www.joshuamgmt.com.

PhoneSmart Director Tron Jordheim knows hell need Spanish-speaking employees to bolster his business in years to come. So will other companies. Rather than wait for Mohammed to come to the mountain, hes done something better: Hes created a scholarship-essay contest to support bilingual skills in the local workforce.

This year, PhoneSmart will provide two $500 scholarships to students of higher education in mid-Missouri. Those eligible include high school students living in Boone County, where the company is headquartered, and college students attending schools in the area. Younger applicants are asked to write a comprehensive report on how being a Spanish-English speaker creates career advantages; the second group must write an essay on the challenges and rewards of creating a bilingual society. The deadline is Oct. 31, and contest winners will be announced in December.

Missouri is in the position many states were in several years ago, Jordheim says. Our Spanish-speaking population is just starting to bloom. We have the choice of resisting this change or embracing it and making the best of itbecause were not going to stop it. The best thing to do is welcome Spanish speakers into our workforce and view their language skills as a positive, not a negative.

Bilingualism particularly affects PhoneSmart because many of its self-storage clients are in areas with significant Spanish-speaking populations. Though statistics indicate 75 percent of U.S. Hispanics are comfortable speaking English, businesses that can speak to them in either language have a tremendous sales advantage, according to Jordheim.

The odds of writing a reservation double or triple if you can speak Spanish with someone. It creates immediate rapport, he says. Even though the Hispanic population is not yet a major portion of self-storage users, they are moving up as a demographic in the market. They will be storing stuff soon, and lots of it.

PhoneSmart employees Lucia Darnell (left) and Alexia Cardona will act as jurors for the contest, sponsored by director Tron Jordheim.

Learning the Art of Scholarship

Since this is Jordheims first shot at crafting a scholarship program, he isnt sure what to expect. For his first publicity effort, he mailed an announcement to high schools in the area in May. The timing wasnt the bestschools were just about to break for the summer and PhoneSmart received no response. Jordheim then attended a conference about statewide population growth at the University of Missouri. Representatives from several local colleges praised his idea and pledged help to promote it.

In September, another announcement was sent to area colleges and follow-up calls made to high school guidance counselors and financial-aid offices. Were also doing a mailing to food and construction businesses, because a large percentage of new immigrants work in those sectors and have kids in school, Jordheim says. Our main flier is in English with a Spanish blurb.

As of press time, Jordheims expectations were modest: I hope we get a lot of essays, but Ill be happy if we get 10. It takes time to get the word out about a new scholarship, and our statistical area is small (we probably have a local population of 150,000). But if we get a good response, Id like to do more next year and give away a lot more scholarships.

While the jury is still out on the programs rate of response, contest jurors are in and ready to go. PhoneSmart has enlisted the help of two employees to review and judge submitted essays: Lucia Darnell and Bolivian-born Alexia Cardona. Jose Garcia, Cardonas father as well as an assistant professor at University of Missouri-Columbia, is also on the judging panel.

Contest judge Jose Garcia, shown with his daughters, is an assistant professor with the Department of Rural Sociology at University of Missouri-Columbia.

Double-Edged Benefit

Jordheim freely admits the scholarship program isnt completely altruistic. Five years down the road, wed like to have more Spanish speakers working for us than we do now. If we can encourage those capable of being fluent in Spanish and English to work on their skills, well have a bigger pool of candidates, he says. Though he doubts this years recipients will become PhoneSmart employees, Jordheim believes the program will increase peoples awareness of the importance of bilingualism and the companys interest in those skills.

The world is a very small place these days, Jordheim says. If PhoneSmart can do business with all the Spanish speakers in the United States, we can eventually do business with Spanish speakers throughout the world. The potential for future business is very real.

PhoneSmart is a sales-solutions business that provides self-storage operators with call-center services, secret-shopping services, sales training and management programs. For more information, call 866.639.1715; e-mail [email protected]; visit www.phone-smart.info.

After years of gathering data, Pasadena, Calif.-based Self Storage Data Services Inc. (SSDS) has introduced a tool that tracks site-level market conditions and operating results for self-storage. Through an exclusive arrangement with SSDS, Inside Self-Storage will publish the U.S. Self-Storage Performance Index (SSPI) quarterly.

The index allows operators and participants in the capital markets to track industry trends. It measures the health of the domestic market based on key operating statistics from facilities in the countrys 50 largest Metropolitan Statistical Areas (MSAs). Specifically, it uses the asking rental rates on 100-square-foot, climate-controlled units as the benchmark for industry revenues.

Source data is gathered from sources public (SEC filings of self-storage REITS) and private (surveyed and contributed). In the most recent quarter, data from more than 6,600 properties was used in the calculation of the SSPI, which represents a 39 percent sample of the known facilities in the top MSAs.

Definitions

• Physical unit occupancy, displayed as a percentage, is the number of occupied units divided by a facilitys total units.
• Concessions are value-based on their financial impact, assuming a six-month median tenancy and a discount factor based on the prime lending rate.
• Revenue per occupied unit, or RevPar, is calculated by multiplying asking rental rates by physical unit occupancy, and then deducting the cost of concessions.
• Operating expenses are calculated as a percentage of RevPar.

The Data

The SSPI for the quarter ending June 30 was 97.1, up from 93.3 in 1Q 2005 and 91.0 in 2Q 2004. On an annualized basis, the index is up 1.6 percent. The industrys operating performancealong with the economyhas continued to improve since 4Q 2004. The increase in 2Q 2005 was the largest since 3Q 2004. The index has improved nearly 10 percent (or 8.7 basis points) since hitting its lowest point in 1Q 2003.

Compared to the same quarter last year, the most recent data shows:

• Median asking rents for a benchmark unit went up 9.4 percent.
• Physical unit occupancy was unchanged.
• The effective cost of rental concessions increased 5.6 percent.
• RevPar rose 8.9 percent.
• Operating expenses went up 3.7 percent.
• Net operating income per occupied unit increased 6.7 percent.

Self Storage Data Systems Inc. publishes the Self-Storage Performance Index as well as other statistical data on self-storage operation. It also reports on the supply and demand factors affecting the industry. For more information, call 626.304.2920; visit www.ssdata.net.

What do we know about interest rates today? We know theyre very hard to predict in the short run. We know theyre currently at 42-year lows and have remained there longer than at any other time in the last century. We know low interest rates have a very positive (if not perfect) correlation to higher real estate valuesthe lower the rate, the higher the value. And we know, unfortunately, higher interest rates depress real estate prices. (See Graph 1.)

At the time of this writing, the Federal Reserve has raised the short-term rates for 10 months running and indicated that it intends to keep raising them until long-term rates go up. The Fed isnt sure why, but the long-term rates (10 years or longer) have not gone up with short-term rates as they have in the past.

Click here to view graph 1.

Cap Rates

The only real reason to buy an income-producing property is the return, so value is directly related to the amount of revenue it generates. Other factors do come into play, but income makes up the lions share of a propertys worth. Cap rates are just a quick way of determining value.

A cap rate is the un-leveraged rate of return you can expect to earn on a property. A higher sales price produces a lower cap rate and is better for a seller, while a lower sales price produces a higher cap rate and is better for a buyer. The more a buyer pays for a property, the lower his return. For example, if a propertys income is $200,000 and it sells for $2 million, the cap rate is a 10 (the return is 10 percent). If it sells for $2.2 million, the cap rate is 9.1 (the return is 9.1 percent).

A word of caution: Some sellers in todays market are using modified formulas to calculate lower cap rates, either out of ignorance or for more nefarious reasons. There is only one true way to calculate a cap rate, and that is to divide a propertys net operating income by its sales price. The main reason cap rates go up (prices go down) is because of competing investments in the marketplace. Today, cap rates range from a very rare 7 percent to 11 percent. The vast majority of properties fall into the 8.5 percent to 10 percent range.

The Virtues and Vices of Leverage

Most storage owners borrow money to buy a property. If the interest rate on the loan is below the cap rate, an owner has positive leverage, which simply means he is making profit off the lenders money and his cash-on-cash return is higher. If the interest rate is greater than the cap rate, the owner gives up some of his return to help pay the interest on the loan. Think of it this way: If the lender takes less income in the form of interest, the property is worth more and vice versa. The blessing and the curse is the lenders income is fixed and the owners income is not, making the latter more volatile.

A Peek Into the Future

While we know a lot about interest rates, cap rates and value connections, were not certain what this means for the future. Many storage owners are looking for a solution that will minimize their vulnerability to fluctuations in interest rates and value. As you begin your quest for the optimum strategy, ask yourself the following: How big is the risk vs. opportunity? What is the likelihood interest rates will change and by how much? What is the timing, and can you afford to wait?

Since cap rates rise with interest rates, well use them as a proxy in the following example. Lets see what a 2 percent change in rates would do to the value and equity of a hypothetical self-storage facility (2 percent is the average amount cap rates have dropped in the last two years). Well assume the following:

• The facility has a $1.88 million loan at 75 percent loan-to-value.
• Revenue is $300,000, and expenses are $100,000, leaving a net operating income of $200,000.
• The base cap rate is an 8. In reality, it might be higher or lower depending on the quality and location of the site.

As you can see by the change in value and, more important, equity, cap and interest rates are critical to an owners financial well-being. If they go up 2 percent, its unlikely the property could be refinanced for the amount of the current loan because it would not meet loan-to-value and debt-service coverage requirements. The situation is exacerbated because in times of rising interest rates, real estate markets become much less liquid (i.e., its harder to sell). Of course, if rates find new historic lows, the picture gets quite rosy.

Whats Going to Happen? What Should You Do?

Thats the $64 question! Think about your objectives. If youre going to own your property for the next 10 or 20 years, you dont have any serious concerns about overbuilding in your area, and you have locked down good financing, you dont have to worry too much about interest or cap rates. But if youre thinking about retiring or selling in the next three to five years, rates are going to be very important to you.

If rates go up and you have to sell at the wrong time, your equity could be substantially impaired. On the other hand, you could make a lot of additional profit if the rates continue to hit new lows and prices increase. If you take a chance and sell now, youll still capture the highest prices in 44 years. Its a tough call. As the saying goes, If you dont bet the farm, you dont lose the farm.

In short, a long-term, well-financed holder is a lot less sensitive to changes in interest and cap rates. An owner with relatively temporary ownership, however, should consider whether the potential for short-term reductions and corresponding gains outweigh the possibility of increases and a resulting loss of value.

Give serious thought to whether you believe interest rates will go up or down. If you feel lost value could overshadow potential gain, act now. In my opinion, lower interest rates and a significant drop in cap rates seem less likely. You can bet the farm and find out.

Michael L. McCune has been actively involved in commercial real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In 1994, he created the Argus Self Storage Real Estate Network, now the nations largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.self-storage.com.

As an industry, were doing a poor job of educating customers about the value of the business in general and our facilities in particular. Differentiation does little for your bottom line if you dont broadcast the benefits of your business.

Youve heard it all before: To be successful in self-storage, you need to set yourself apart from the competition. Differentiate. Diversify. But even that isnt enough. Once youve created your unique advantages, you have to communicate them to prospects via your sales and marketing efforts. Thats the way to create opportunity and boost your bottom line.

The average self-storage operator converts less than 30 percent of his callers to renters. What this indicates is, as an industry, were doing a poor job of educating customers about the value of the business in general and our facilities in particular. Differentiation does little for your bottom line if you dont broadcast the benefits of your business. When properly communicated to your customer base, the distinctive traits of your facility will help you battle competitors, overcome objections, improve your marketing and gain confidence in your offering.

Battling Competition

Knowing your competition is one of the most effective ways to beat it. Shop your competitors regularly and learn as much as you can about their operations. If youre familiar with the other facilities in your area, you can tailor your sales presentation to emphasize your strengths and their weaknesses. For example, let it be known to customers that youre the only facility in town with climate control, video surveillance or truck rental. It builds confidence to be able to say, No other facility in town offers X, Y or Z.

Overcoming Objections

Communicating your advantages can also help you overcome customer objections. For example, if a prospect says youre more expensive than the facility up the street, build value into your store by touting your benefits. Explaining the features of your site can help him understand why the extra cost is worthwhile. If he says hes worried about security, talk about your access gates and video cameras. If he has concerns about temperature or humidity, point out your climate- controlled units. Most any objection can be tackled if you have a firm grasp of your sites high points and can communicate them effectively.

Improve Marketing

Incorporating details about your benefits makes your marketing more interestingand effective. If you offer truck rental, appliance dollies and moving supplies, your advertising can then say: Take care of all you moving and storage needs in one place! Any advantage can be turned into an essential part of your marketing campaign, especially one that outshines your competitors.

Know what sets you apart from the competition and advertise it effectively and consistently. Over time, your customer base will understand the importance of each feature and how it can help them. You can even launch separate programs for each differentiating characteristic. Its amazing how much marketing synergy can be created.

Distinguishing your facility from the rest of the marketplace will give you a competitive edge and greater confidence in the products and services you sell. It allows you to build value and trust with your customers and bolsters your sales and marketing. When communicated loudly and clearly, your sites unique advantages are the key to maximizing profit.

Brad North is the founder of Advantage Business Consulting, which specializes in onsite sales, marketing, feasibility and operational training for the self-storage industry. He has produced two live videos and a workbook titled Maximizing Your Sales and Marketing Program, which can help managers improve their sales and marketing efforts. Mr. North also launched A TelePro, a mystery-shopping service that assists in educating, evaluating and improving the phone-sales performance of self-storage professionals. For more information, call 513.229.0400; visit www.advantagebusinessconsulting.com.

On Sept. 20, leaders of the real estate investment trust (REIT) industry rang the closing bell at the New York Stock Exchange to commemorate 45 years in service. Taking part in the ceremony were several members of the National Association of Real Estate Investment Trusts (NAREIT), the representative voice for U.S. REITs and publicly traded real estate companies worldwide:

Steven A. Wechsler, president and CEO
R. Scot Sellers, first vice chair (chairman and CEO of Archstone-Smith)
Milton Cooper, past chair (chairman and CEO of Kimco Realty Corp.)
Steven Roth, past chair (chairman and CEO of Vornado Realty Trust)
Glenn J. Rufrano, member of the Board of Governors Executive Committee (CEO of New Plan)
Scott Rechler, member of the Board of Governors (chairman, president and CEO of Reckson Associates Realty Corp.)

To honor the milestone, NAREIT ran a special print advertisement in The Washington Post and several other D.C. publications. The ad featured a smiling President Dwight Eisenhower with a headline that read, Ike signed the law creating real estate investment trusts 45 years ago today. Now, REIT investors around the world are smiling. The ad was intended to remember the work of President Eisenhower and the 86th Congress, and express NAREITs interest in working with President Bush and the 109th Congress in a continuing effort to improve the worlds first REIT model. To view the ad, visit www.nareit.com/advertisement/45thad.pdf.

In addition, the cover story of the September/October edition of Real Estate Portfolio magazine, titled Forty-five @ 45, highlights the 45 events that shaped the course of the REIT industry. To read the feature, visit www.realestateportfolio.com.

NAREIT members include REITs and other businesses that own, operate and finance income-producing real estate, as well as those firms and individuals who advise, study and service those businesses. For more information, call 1-800-3NAREIT; visit www.investinreits.com.

Edmund C. Olson, chairman of Los Angeles-based A-American Self Storage, and Craig D. Olson, president, will donate $50,000 to the American Red Cross and $50,000 to the Salvation Army to support relief efforts in the aftermath of Hurricane Katrina. Edmund made the announcement during his induction to the Self Storage Association (SSA) Hall of Fame on Sept. 8 in Las Vegas. A-American has been an active participant in the SSA for more than 30 years.

"The immense catastrophe that has transpired in the Gulf States has affected so many that it will take the support of Americans throughout the country to help in this unprecedented recovery process," Edmund said. "It is my hope that this contribution will set an example that will be followed by many other business leaders. He encouraged self-storage professionals who were present at the SSAs fall conference and tradeshow at Caesars Palace to make a donation to the Red Cross, which had representatives on site.