The Arizona Self-Storage Association (AZSSA) has appointed Anne Mari DeCoster as its new executive director.

A graduate of Georgetown University, DeCoster has experience in the areas of marketing, strategic planning and business operations. For the past eight years, she served as director of administration for a self-storage development company. Previously, she worked for Booz Allen & Hamilton, providing program management, business development and quality assurance.

Over the past few years, DeCoster has participated in many AZSSA projects, including tradeshow committee work, revenue-enhancing activities and strategic plan development. She replaces Denise Nunez, who has served on the AZSSA Board of Directors for eight years and as executive director for nearly two years. Nunez now takes the position of regional liaison chair.

Founded in1996, the AZSSA was created to strengthen the self-storage industry in Arizona, promote professional standards and quality, and present a unified voice on issues affecting the industry in the state. The association has more than 500 facility and vendor members.

StorageVault Canada Inc. has agreed to acquire Parksville Mini Storage in Parksville, British Columbia, Canada for $2.8 million. If all conditions of the acquisition agreement are satisfied, the transaction will close on Nov. 1.

Parksville Mini Storage is a 135-unit facility with 27,000 square feet of rentable storage area and an additional 1.5 acres of undeveloped vacant land. The facility is part of the Regional District of Nanaimo, which includes the City of Nanaimo, City of Parksville, Town of Qualicum Beach and District of Lantzville. StorageVault intends to develop and operate a PUPS portable-storage business on the vacant land.

The purchase-price payment terms for the acquisition are a $100,000 initial refundable deposit, a $180,000 deposit to be paid upon removal of due-diligence conditions, a final cash payment of $1,120,000 at closing, and a $1,400,000 vendor-take-back mortgage with an annual interest rate of 5 percent. StorageVault intends to finance the cash portion from the proceeds of its previously closed preferred-share offering.

StorageVault owns and operates Canadian PUPS portable storage in Saskatoon, Trans Can Mini-Stor in Regina, and Kenaston Self Storage in Winnipeg. The company intends to grow through the acquisition of self-storage properties and the development of portable-storage facilities in Canada. Its common shares are listed on the TSX Venture Exchange.

The Storage Group, a division of Resource Technology Management Inc. (RTM), recently formed to provided Internet marketing and value-added consulting services exclusively to the self-storage industry. 

Self-storage veterans Brian A. Pelski, the companys director of operations and Larry Hanks Jr., director of sales bring more than 30 years of self-storage experience to the executive team. They join RTM Internet marketing and technology experts Robert T. Mueller, managing director, Donald R. Shouldice and Steven T. Powell as principals of The Storage Group. RTM is a 17-year old technology and Internet marketing company.

The Storage Groups full-service Internet marketing package features a mobile website that provides prospective storage customers navigation to all pertinent information as they search the Internet from smart phones such as iPhone, Blackberry, Android, Windows Mobile and others.  The use of mobile websites is exploding and will soon be a vital tool every self storage property will need to survive in this increasingly competitive market place, Mueller says.    

Additional bundled services include a traditional website thats fully optimized in design and development, content management and eCommerce services, ongoing search-engine optimization (SEO), and search-engine marketing (SEM) with no up-charge to manage custom pay-per-click campaigns. Transparent and consolidated reporting along with personalized recurring account-management meetings via clients preference for either webinars or conference calls are also part of the full-service package. The Storage Group provides its full service package for one low monthly fee with no upfront charges or deposits. 

By John R. Nikolich

Lets not sugarcoat it: Capital markets are ugly and have been since September 2007 when the debt capital markets shut down. The bad news is the ugliness has persisted for three years. The good news is were closer to the end than the beginning.

In an article I published in 2006, I wrote, In real estate, there always seems to be a disconnect between uses of capital and availability of capital. Currently, capital is readily available, but there is a shortage of desirable investment opportunities. The only sure thing is that prevailing conditions always change, and it is likely that there will be an abundance of investment opportunities but a dearth of capital, in the not-too-distant future, as a result of some unforeseen event that draws capital away from real estate.

Little did I imagine how prescient that observation would be. Over the past three years, theres clearly been a lack of capital, but there has also been a lack of investment opportunities. Lenders learned in the 1990s that once they took over properties, they experienced an additional 20 percent discount in pricing from vulture investors who understood the banks needed to liquidate assets quickly due to their lack of operational expertise.

Today, lenders have been reluctant to take back properties and decided to continue extending loans, hoping for a better day. This is better known as pretend and extend. Additionally, floating-rate loans, benchmarked to 40-year-low interest rates, have kept struggling real estate owners alive for the time being.

Access to Capital

Beginning in 2009 and continuing through 2016, approximately $2 trillion in commercial real estate debt will mature. While the debt side of commercial real estate has been held together with Duct tape, it too has it breaking point and were almost there. Lenders have significantly discounted real estate loans internally, and with the recent valuation rebound off the 2009 lows, once the banks are able to liquidate properties for a price higher than carrying value, theyll be able to book a profit, which will result in markedly improved transaction volume. Soon opportunities will be on the horizon and access to capital will be critical.

Although focus is typically on cost of capital, we need to keep in mind that the lowest cost of capital is irrelevant if the going-in basis is wrong. If a property was purchased at the peak (2004 to 2007) with a 5 percent interest rate on the debt, even if zero percent interest rate debt was available, it wouldnt make up for the 20 percent to 30 percent reduction in value. Availability of capital will be critical going forwardbetter to have the appropriate going-basis with a higher cost of capital that can be optimized over the next few years as capital markets recover.

Self-Storage Tested

The self-storage industry is experiencing its first real test since its beginnings in the early 1970s. At the time, the economy was in terrible shape, but self-storage was in its infancy and demand exceeded available supply; therefore, the deep recession didnt have much impact on the sector.

With the evolution of self-storage and the amount of development experienced over the past 10 years, the industry is mature and experiencing its first true economic test.  Its a common belief that self-storage prospers in good and bad times. In good times, the population is more mobile, producing high utilization. On the flip side, when theres an economic downturn, people downsize their homes. While they may part with their residences, theyre less inclined to part with their stuff, which bodes well for the industry.

Operationally, storage has experienced a numbers of peaks and valleys since the Great Recession began in 2008, and the industry has weathered the storm relatively well when compared to other real estate asset classes. In the office sector, when the giants fall, they fall hard (we arent quite there yet), and the retail sector is under demolished. The United States has 26 square feet per person of retail space while Europe has 2 square feet per person. Thats rightno typo. There could be some interesting conversion opportunities coming.

Lately, weve seen storage occupancies dip below 85 percent and, in some instances, dangerously close to 80 percent. Breakeven occupancy, inclusive of debt payments, is at 65 percent, so established properties are not in danger of defaulting on a cash-flow basis. However, the margin of error is becoming increasingly uncomfortable as consumers are reviewing personal expenditures as incomes decline. Its important to monitor operating performance for signs of consumer weakness and to closely watch the net move-in/move-out ratios.

Self-Storage Resilience

Five years ago, self-storage began transitioning to an institutional asset class with all the positive attributes of each core real estate sector (multi-family, office, retail and industrial) without any of the disadvantages. Storage debt default rates were among the lowest in commercial real estate, and storage was the darling of investors. That all changed with the onset of the Great Recession, and institutional investors retreated back to what was familiar and comfortablecore real estate. Unfortunately, a number of investors got into the storage industry during 2004 to 2007 at peak valuations, so while operationally storage has held up well, in hindsight, their timing wasnt ideal. 

While some investors have fled self-storage, they are beginning to recognize and appreciate the resilience of the sector and the stable operating performance it delivers, and renewed interest is emerging. Another interesting source of capital that has emerged for storage is retail investors.

In the real estate downturn of the early 1990s, many real estate companies were faced with two options: filing bankruptcy or going public as a real estate investment trust (REIT). Retail investors were the key to the public REIT markets success. They were attracted by strong dividends and were able to invest in REITs at a low-cost basis and participate in asset appreciation, a nice twofer.

Meanwhile, institutional investors who put money in real estate in the late 80s were the sellers. REITs transitioned from retail to institutional ownership from the mid-1990s to the mid-2000s, and private institutional real estate ownership also increased significantly as real estate became a desired asset class, subsequently driving up pricing. Many investors are currently licking their wounds and selling off real estate assets again, and retail investors are positioned to pick up the pieces and get in at the right basis at the bottom of the cycle. Déjà vu?

Self-storage doesnt possess the shortest lease (that distinction belongs to hotels, with a one-night lease), but it also doesnt experience the immediate drop-off in demand of the lodging industry. While inflation isnt a concern in the near term, with real unemployment hovering close to 20 percent, eventually inflation will appear. When it does, properties with shorter lease durations will have the ability to adjust rates quickly to take advantage of increasing prices and act as an effective inflation hedge.

As long as storage continues to weather the storm, investors will remain attracted to the sector and be eager to provide capital to leading operators who have a strong and deep management team and a demonstrated record of success and are willing to co-invest alongside outside investors. Stay tuned; things will get interesting soon. Be prepared to take advantage of compelling investment opportunities.

John R. Nikolich is managing director and founder of Flint Creek Partners LLC. Nikolich has more than 20 years of experience in the real estate industry and has raised more than $6 million in equity and debt capital for public and private real estate companies. He founded Flint in 2002 to provide custom-tailored investment banking solutions, venture capital and financial advisory expertise for private and public real estate clients. For more information, call 847.462.5927; e-mail [email protected]; visit www.flintcreekpartners.com.

Augusta Self Storage in Augusta, Ga., recently sold to a private investor. The self-storage facility has 240 units totaling approximately 27,500 square feet, and an onsite apartment. The property also has the potential for expansion with 4 acres of available land.

Augusta Self Storage opened in 1978 and is located near the Augusta National Golf Course. Dale C. Eisenman of Midcoast Properties Inc. represented the seller.

The city council in Pomona, Calif., this week approved to issue up to $9.3 million in recovery zone facility bonds for the construction of a business center that will include a self-storage facility. 

Plans for the Fairplex Business Center include converting six racing horse barns into an office, warehouse and light-industrial center. Another six barns will be converted into a self-storage facility at a cost of about $1.7 million.

The Recovery Zone Facility Bonds were allocated to the city by the state as part of the federal American Recovery and Reinvestment Act. The city is eligible to issue the tax-exempt bonds to assist in carrying out projects that result in the creation of jobs and assist in economic recovery efforts.

Two council members were concerned that self-storage facility didnt align with the Acts goals of creating jobs. The project will still need to go through the citys planning and zoning channels.

Phil Murphy, CEO and founder of Storage By The Box, has been named a Young Entrepreneur of the Year as part of The Business Ledger's Entrepreneurial Excellence Awards. Bestowed each year to Chicago-area business leaders under the age of 40, the award recognizes young executives who exemplify the leadership qualities that drive company growth and overall success.

Murphy, along with recipients in six other award categories, will be honored at reception in Wheaton, Ill., on Sept. 16. His profile will also appear in a special section of the Business Ledgers Oct. 18 issue.

Launched in February, Storage By The Box is a ship-and-store, by-the-box storage option that allows customers to ship and retrieve boxes for storage through a secure online portal. Users simply pack and photograph their belongings, note the contents of each box, and schedule a pickup through StorageByTheBox.com. The company provides free boxes, packing materials and FedEx shipping to place items in storage. The service can be used for personal storage, business storage, records storage and more. The company also offers document-destruction services.

The Storage By The Box team has more than 20 years of experience in the self-storage industry. Murphy currently owns several self-storage facilities in the Greater Chicago Area.