An article published yesterday on MarketWatch, the digital network of The Wall Street Journal, identified self-storage as one of seven unconventional investments that are currently beating stocks and may continue to do so moving forward.

According to the article, a well-managed self-storage business produces annual returns of 5 percent to 10 percent and enjoys certain tax advantages. Risks were also mentioned, such as the need for active management, the potential of high vacancy rates, and losses due to property damage and theft. In addition, author Jeff Reeves said self-storage is incredibly illiquid and may be difficult to exit when the owner is ready to retire.

The other six investments identified in the article are gold, cash, land leasing, 10-year Treasury notes, Build America Bonds and parking lots.

Olympia Steel Buildings recently released a new pre-engineered steel-building system for the self-storage industry. A variety of popular building layouts are available, and building consultants are available to guide facility owners through the purchase and design process. Features of the buildings include:

• Hot-dip galvanized framing
• Precision fabrication
• Unlimited sizes
• Expandable units
• Fire resistance
• Available in 12 energy-efficient colors
• 40-year warranty against chipping, cracking, peeling or blistering
• 25-year rust-through perforation warranty
• 50-year warranty on structural frames
• Colored roof option
• Two types of insulation
• Choice between weather-resistant PBR roof or Zeus-Shield standing-seam metal roof
• Capable of meeting
• LEED Green Building Certification guidelines

Olympia Steel Buildings are supplied by Universal Steel Buildings Corp., which has produced pre-engineered steel buildings for more than 40 years. The company provides buildings for commercial, industrial, agricultural, residential, government and military applications.

The Station 6 Volunteer Fire Department of Chester, Ohio, is developing an 88-unit self-storage facility on land it owns along U.S. Route 30. Station 6 Storage should be up and running by November, according to Chief John Hissam.

The self-storage operation will be a way for the department to sustain itself without constantly draining the taxpayers, Hissam said. All revenue from the facility will flow directly to the fire department, providing a regular monthly income.

At present, approximately 95 percent of the departments annual revenue comes from an event called the Fall Bash, which helped fund the land purchase and construction of the self-storage operation. The department owns a total of 5 acres, and as many as 100 more storage units may be added, Hissam said.

Two self-storage facilities in Mississippi sold earlier this month. Lock Up Self Storage in Kiln, Miss., sold Sept. 14 to an out-of-state investor for $337,500. The facility consists of 31,660 rentable square feet with a total of 344 regular and climate-controlled units.   

B&G Climate Control Warehouse in Biloxi, Miss., sold Sept 9 for $1.3 million. The buyers were also out-of- state investors. The facility has 38,830 square feet.

Bill Barnhill and Stuart LaGroue of Omega Properties Inc. represented the sellers. Barnhill and LaGroue are the Argus Self Storage Sales Network broker affiliates for the Alabama, Mississippi and Florida Panhandle markets.

Based in Denver, Argus was formed in 1994 to assist self-storage owners and investors with their facility sales and purchases. The network has 36 broker affiliates covering nearly 40 markets nationwide.

Aussie Storage London recently opened in Battersea, London, United Kingdom, with more than 700 self-storage units in 40 different sizes.  Open every day, the facility has a covered loading/unloading area and a variety of packing and retail products, and a team security guards who patrol the facility 24 hours a day.

Aussie Storage London is the brainchild of Australian businessman Brian Burgess, the managing director of Aussie Group, a London-based company that supplies a range of services including commercial cleaning, waste disposal and removals.

A lot of customers from the removals side of our business were complaining that they couldnt find good storage facilities in London, everywhere was either too remote, too expensive or they just didnt do the job properly Burgess said. That made me think that maybe we could do something at Aussie Group. I looked into the possibility of supplying storage services and saw that there was a real gap in the market for an affordable storage facility that was professionally run and totally secure. We were able to find the perfect location in Battersea, which is large enough for our needs and offers excellent access, and things have taken off from there.

U-Store-It acquired two N.Y. self-storage facilities totaling 2,204 units from Storage Deluxe for an undisclosed price. The facilities are located in Bronx and Brooklyn and include 12,160 square feet of warehouse space.

The Houston office of HFF (Holliday Fenoglio Fowler, L.P.) brokered the sale. HFF senior managing director Aaron Swerdlin, managing director Doug McCarron and associate director Barbara Guffey led the investment sales team. HFF operates out of 17 offices nationwide and is a provider of commercial real estate and capital markets services to the U.S. commercial real estate industry. 

Given that the properties were located in the boroughs and due to Storage Deluxes strong reputation we had very strong interest in the offering and we are very pleased with the outcome.  U-Store-It was an excellent buyer and performed extremely fast, said Swerdlin.  

Storage Deluxe is a real estate company specializing in the acquisition, development and management of self-storage properties. The company owns, has interests in, and manages 29 facilities containing more than 3 million square feet of storage space.

U-Store-It is a self-administered and self-managed real estate company focused on the ownership, operation, acquisition and development of self storage facilities in the United States.  The company owns, has interests in, and manages 483 facilities containing more than 31.5 million square feet of storage space. 

David Rogers, chief financial officer of Sovran Self Storage Inc., will present at the 2010 Western New York Investors Conference on Sept. 24, 11 a.m. ET. The event will be held at the Hyatt-Regency Hotel in Buffalo, N.Y. A live webcast of the presentation will be available under the events tab at www.unclebobs.com/company/investment.

The conference is an annual event showcasing the investment opportunities available in the stocks of publicly traded companies in Western and Upstate New York, as well as companies from outside the region. Since its inception, the event has attracted a diverse ensemble of companies as well as a growing audience of professional investors and analysts. Attendance is by invitation only.

Sovran is a self-administered and self-managed real estate investment trust in the business of acquiring and managing self-storage facilities. The company serves more than 170,000 customers and operates 371 facilities under the name Uncle Bobs Self Storage.

Ive had the good fortune of being able to study a lot of unique financial deals in my career. As a former lender, Ive worked on easy dealsthe no-brainers any lender would love to haveas well as the hairy deals, those that are marginal, complex, underperforming, undercapitalized, or all the above. While the past two years have changed the landscape for borrowers and lenders, one truth in lending remains: Good deals get done.

Lending institutions have become fragmented, and each bank has its own criteria for deciding to whom it lends and on which terms a deal works for its corporate goals. On a single deal, three banks might propose such different terms and conditions that it takes a Philadelphia lawyer to sort the best from the worst.

Standards may be re-emerging, but theres still some uniformity from bank to bank on how deals are being done. This article paints a picture about todays financial landscape.

The Pros

As part of my research into the lending environment, I contacted several front-line professionals who see market changes as they unfold. Joining in the discussion are:

• Mike Mele, senior director, National Self Storage Group, Marcus & Millichap Real Estate Investment Services
• Shawn Hill, principal, The BSC Group
• Anita Huedepohl, owner, Liberty Funding
• Chris Sonne, senior managing director of valuation and advisory, National Self Storage Group, Cushman & Wakefield Western Inc.
• Mitch Hassell, senior vice president, BB&T

I asked this group of finance experts about todays market dynamics, the deals that are getting done, and what we can expect in the near future.

Current Market Dynamics

The volume of deals being done has declined over the past two years. Banks and investors have been tighter with the capital that makes deals happen. As markets continue to churn toward greater efficiency, a natural evolution of available deals will occur. Until the bad debt is off of the banks books, we probably wont see any substantial shift in lending policies, Mele says. But we are seeing some increased activity on bank-owned properties.

As banks begin to shed those toxic assets, well probably see some increased access to capital. The debt markets are starting to reform, Hill says. Conduits are coming back on the $10 million-plus transactions now, and as that source of capital reemerges it will invariably take some of the pressure off the banks.

Plus, were seeing more willingness and direct action from banks to clean up their books, by either selling their bad loans, initiating foreclosure action, or completely restructuring the debt with the existing sponsor, Hill adds. Because of these factors, there are a lot more capital options in the market today than 12 months ago for acquisition and refinance transactions.   Theres definitely capital available for deals with strong sponsors, core assets and solid cash flow.

If you have one of those good stories, now may be a great time to search for deals and put them together. The market has changed over the past two years, Sonne notes. Cap rates in self-storage peaked near the end of 2009, and are now declining again. Today were seeing a much greater spread in cap rates. Many markets are seeing sub-8 percent cap rates, but they might be as high as 9.5 percent, suggesting a 200-basis point spread from market to market. Two years ago, that spread was much tighter. Cap rates are being driven by individual market dynamics, such as supply and demand and demographic trends. Overall, its a great time to buy.

Borrowers: Be Prepared

I would argue that it takes the same type of borrower to assemble a deal today as it should have several years ago. A good deal is a good deal. I look at deals the same as I always have, by developing solid internal and external analysis, stressing the expectations, identifying the risks, and mapping out the strategies. Many of todays bank-owned properties are deals that should not have been done. Five years ago, borrowers expected a deal to get done almost despite every logical analysis. Lenders have now returned to very solid underwriting.

[Our] approval rates are not materially different than they were two years ago, Hassell points out.  "We're making all the good loans we can. We continue to manage to prudent lending guidelines and practices and wont make loans to businesses, no matter the size, if they are unable to afford the loan. [Our] underwriting standards have not changed. We are more diligently verifying and documenting credit information on borrowers, which may make borrowers feel like our credit standards have changed. But our underlying standards have not changed.

Again, good deals will get done. What you might have submitted and verified five years ago on a deal might have changed, but a good deal can find capital. Money is available for transactions, Huedepohl says. But the borrower had better have his 'ducks in a row.  It takes a nice, clean, detailed loan package and a strong borrower to make transactions close. Lenders look at many transactions on a case-by-case basis, and they are lending to those borrowers who can back up their story with assets, cash flow and liquidity.

Todays Debt Structures

The new construction deal is looked on by local and regional lenders on an institution-by-institution basis. Construction loan-debt structures are all across the spectrum from different lenders on the same deal. Not many deals go though with a long interest-only period following construction. Two years ago, we might have seen development deals with 36 months of interest-onlythose deals are gone for a while. The shift has really gone back to the strength of the borrower or borrowing group.

You can find a great deal, a great structure, if you have good assets, cash flow and liquidity, even on a development deal. Those are sort of relative terms, but you shouldnt expect to borrow $3 million if you only have a $1 million balance sheet. If your development deal will be $400,000 in the red during leaseup, you need mitigate that with cash or other dependable net income before you go to the bank. When you do go to the bank, realize its probably going to want to see 30 percent to 35 percent into the deal, unless your financial strength can convince the bank otherwise.

On established assets with strong cash-flow history, there are plenty of options, according to Hill. Banks and insurance companies are loaning money. We have options open for organized mezzanine financing, and preferred equity structures to assist on the equity side of a deal. But even with more options out there, the borrower has to be realistic with what a property is worth, he says. The average deal being done is 65 percent to 70 percent loan-to-value, five-year terms, 6 percent to 6.5 percent on 25-year amortization. But if you need a sub-8 cap rate to get to 70 percent LTV, thats not happening very often today, Hill says.

This landmark economic downturn has forced us to look at deals with better analysis, whether were the investor, developer, borrower or lender. The assets are out there, and its the good dealsappropriate structure and sponsorship, solid equity positions, positive market dynamics, and dependable cash flowthat we should all be looking to put together.

Benjamin Burkhart is the owner of StorageStudy.com and BKB Properties. As a consultant to real estate developers and owners, he specializes in project analysis, development and acquisition feasibility, and sales training. To reach him, call 804.598.8742; e-mail [email protected] .

A self-storage manager was robbed and pistol-whipped during a robbery Sept. 11 at a U-Store-It self-storage facility in Memphis, Tenn.

Memphis police arrested and charged 37-year-old Theotus Barnett with aggravated robbery and especially aggravated kidnapping. Barnett is being held in Shelby County Jail on $75,000 bond.

According to police, customers found the manager of U-Store-It at 3040 Austin Peay on the floor behind the counter. She was bleeding from the head. The self-storage manager told police a man posed as a customer then attacked her with a handgun. He forced her into a breakroom, demanded she turn off the recording system then stole money from the cash register.

A new self-storage facility and retail strip mall may be constructed on a 3-acre plot in McHenry, Ill., by land owner Thomas Grieco. According to city documents, the proposed project would include 13,560 square feet of self-storage space for 230 units in five buildings.

Griecos lot is at 305 N. Front St., between the Fountain Shoppes Shopping Center and the Warsaw Inn Restaurant. He is asking the city for two variances. The first address the minimum width of the lot. The second addresses current city zoning that only allows one main building per lot.

City staff believes its unrealistic for the entire property to be used for retail because of its 670-foot length, according to a memo to the City Council. The self-storage buildings would be toward the rear of the lot.

If the conditional-use permits are approved, the project must still go through the building-permit and engineering processes.