2009 Spring Self Storage Newsletter
Content
PGP SELF-STORAGE REPORT – SPRING 2009
Understanding Self-Storage Values is Our Business!
About PGP Valuation Inc…
PGP Valuation Inc was established in 1978 and is now one of the largest and most successful appraisal firms in the world, with approximately 30 members of the Appraisal Institute (MAI) and 150 professional appraisers on staff in the United States and Canada. In November 2006, FirstService Corporation acquired a controlling interest in PGP. FirstService is the parent company of Colliers International (CMN), one of the largest and most respected real estate services companies in the world. FirstService also acquired a controlling interest in MHPM Project Management, Cohen Financial, and PKF Consulting. The result of this alliance is a powerhouse of comprehensive client services, including appraisal and consulting, commercial brokerage and management, and lending.
States in which we have recently appraised – Alabama Alaska Arizona Arkansas California Colorado Connecticut Florida Georgia Hawaii
• An important subset of the last fact: there are some 27,650 small business entrepreneurs (90% of all self-storage companies) who own and operate just one “primary” self-storage facility. • More than 700,000 self-storage units nationwide are rented to military personnel (4% of all units); however, in communities adjacent to US military bases, military occupancy can range from 20%-95% of all rented units. • Nationally, at year-end 2008 primary self-storage facilities employed approximately 160,000 persons, or an average of 3.1 employees per facility • During the peak development years (2004/05) approximately 8,700 new self-storage facilities, or 480 million square feet of space were added. • Gross square footage of self-storage “per capita” in the US (at the state level) ranges from 1.60 to 18.65 square feet 83.9 percent of all US counties (or 2,634 out of 3,141) have at least one “primary” selfstorage facility
Idaho Illinois Indiana Kansas Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana N Carolina New Hampshire New Mexico New Jersey New York Nevada N Dakota Ohio Oklahoma Oregon
Our Role With the FDIC…
PGP Valuation is the contracted Quality Control and Consulting firm for all real estate related issues for the FDIC. Our Scope of Work is to provide, monitor, and assist the FDIC in the following areas: • • • • • Appraisal Reviews Establish/Monitor Quality Control Process Appraisal Ordering Monitor the REO and Loan Process Coordinate and Interact with Asset Managers and PCAM (Post closing Asset Managers) to Establish QC Protocols
This involves the REO properties (non-performing and bank owned assets) non REO (performing or troubled assets) under FDIC receivership.
Recent Self-Storage News…
(Info provided Self-Storage SSA)
INSIDE THIS ISSUE
Understanding Operating Expenses Conversation on Capitalization Rates and National Sample of Recent Sales What Do Those Involved in the Market Think of What is Going On Boost Your Value! 10 Ideas to Increase the Value of Your Property
For more information, contact the PGP Valuation SelfStorage Team (see the back of the newsletter for contact information).
Pennsylvania N Carolina S Carolina Tennessee Texas Utah Virginia W Virginia Washington Washington, D.C. *Puerto Rico
• At year-end 1984 there were 6,601 facilities with 289.7 million square feet of rentable self-storage in the U.S. At year-end 2008, there were 51,250 “primary” selfstorage facilities representing 2.35 billion square feet. This represents an increase of more than 2.0 billion square feet. • The top 5 self-storage companies, including the 4 public companies (Public Storage, Extra Space, Sovran and U-Store-It – Real Estate Investment Trusts) plus U-Haul (a public company/non-REIT), own and operate some 4,630 self-storage facilities, or 9.0% of all primary facilities.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC. ALL RIGHTS RESERVED
UNDERSTANDING OPERATING EXPENSES
Accurate valuation is enhanced by solid operating history. However, it is common to rely upon expense comparable data when valuing properties through direct capitalization. Understanding how operating expenses vary from region-to-region is key, especially for specialized lenders and investors looking to expand into other national markets. The table to the right is a sampling of over 200 expense comparables located throughout the country (evenly distributed). In addition, we have added information from the most recent Self Storage Almanac. Possible considerations for comparing operating expenses are discussed below. Real Estate Taxes: Every state has its own method for calculating property taxes. There are several states (like Michigan and California) that reassess facilities based on sales price. Therefore, since the definition of “Market Value” assumes a sale, appraisers are forced to use an amount calculating the value of the property and the tax rate. Each local jurisdiction must be reviewed and understood. This can oftentimes cause headaches for refinances and construction loans. Insurance: Rates are fairly similar across the nation. Special consideration should be given to flood, earthquake, hurricane, or other natural disaster areas. Typical range for this category is $0.15 to $0.25/SF. It is typical for lower rates to be achieved through blanket policies. It will be interesting to see if or how much policies rise over the next couple years due to a variety of factors. Utilities: Both location and climate play a role in this category. Densely populated areas typically see higher energy costs. The number of climate controlled units at a facility should also be considered. Typical range for this category is $0.15 to $0.40/SF. Repairs and Maintenance: This category includes cleaning out the units, replacing doors, landscaping and any maintenance associated with the facility. Areas that require a snow removal expense and/or elevator servicing are typically higher. Long term expenditures are also affected by climate; however, these expenses are typically covered in the reserves category. Typical range for this category is $0.15 to $0.30/SF. Age and physical characteristics play a part in budgeting for this category. Off-Site Management: This is typically done on a percentage basis (EGI). Therefore, areas with higher rents result in higher management costs. Typical costs range from 4% to 6% of Effective Gross Income. This expense is not to be confused with General/Administrative expenses.
Operating Expenses $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
Per SF
On-Site Management: This category is greatly impacted by location and average living expenses. Unless zoning restricts, it is common for resident managers to live on-site. Expenses are often higher for facilities not offering living accommodations for managers. Typical range for this category is $0.75 to $1.25/SF. Advertisement: The amount of competing facilities and the property’s access and exposure are primary considerations for this category. Typical range for this category is $0.20 to $.40/SF. General/Administrative: Fairly comparable from region-to-region. This expense includes accounting, legal fees, other professional fees, and general administrative costs. Typical range for this category is $0.25 to $.40/SF. Reserves: This category takes into consideration capital improvements over a holding period. For self-storage facilities, it would typically include replacing the roofs, resurfacing the streets, and replacing the fencing and storage doors. Typical range for this category is $0.10 to $.20/SF.
SELF-STORAGE CAPITALIZATION RATES
There have been fewer sales in 2008 than seen in previous years. The reduced number of sales owes in some degree to the lack of credit available and the particular aversion to risk on behalf of lenders as well as investors in the current market. The uncertainty surrounding the ultimate fallout from the downturn in the national economy has led to a pullback from both lenders and investors. While buyers view the market with some skepticism and expect an increase in rates, sellers have remained optimistic or are unwilling to believe that capitalization rates may have risen from historic lows of the mid-2000s when many properties traded in the 6.0% to 7.0% range. These rates were driven down by equally historically low interest rates spurned by the Federal Reserve Bank’s lowering of the Fed Rate to help jumpstart the economy after the 9/11 terrorist attacks and earlier downturn in the dot.com market. While the lower rates did promote more debt by consumers and made housing more affordable, the subsequent housing boom was not built on solid economic drivers (job gains, increase in exports, etc.) and the run-up in housing prices was not supported. The hastily prepared, adjustable rate loans were bundled together and sold on Wall Street, incorrectly rated and sold to uninformed investors. The US economy, that was held up primarily by the housing market (mortgage companies, lenders, developers, home-builders, contractors, etc. all experienced substantial growth over this period) became very unstable when supply exceeded demand and home prices began to fall. Concurrently, the adjustable rate loans began to see large rate increases that the unqualified buyers were unable to keep pace with. As housing prices declined, borrowers were unable to refinance their loans resulting in defaults. The loans sold on Wall Street were spiraling in value and almost overnight, investors in the large conduit loans stopped buying the paper. Lenders that were not prepared to carry and service the massive amounts of residential and commercial paper were now burdened with loans that had no buyers at rates that were too low to sustain. The mounting loans that were going into default coupled with the growing uncertainty surrounding the economic outlook and crashes in the global economy caused many banks to stop lending altogether. In late 2008, the Federal Government again interceded to create TARP, a $700 billion dollar bail-out for many of these lenders that had created the market instability, fearing that these companies collapse would spark further economic decline through job losses, lower retail sales and a further decline in housing prices. The government’s primary concern was the lending environment had seized up after Wall Street stopped buying paper. The uncertainty on the part of lenders continues today with some lenders quoting 600 to 2,000 basis points over the historically low Treasury rates for new loans, with only the most qualified buyers and the safest of loans being written. At the same time, loan to value ratios decreased from 90% to 100% down to 50% to 60%.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
Ta xe In su s ra nc e Re Ut pa ili t ie irs s & M M a n a in a g t. em en Pa t Ad y r o ll v Ad e r t i s m in i n g is t ra t iv e
PGP Valuation SS Almanac
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SELF-STORAGE CAPITALIZATION RATES (CONT.)
As a result, only well capitalized buyers even qualify for a loan in the current environment. While sellers have been reticent to sell, since few buyers are even less credit are available for deals priced below 7.0%, qualified buyers have realized that they now control the market and many also fear the uncertainty surrounding pricing. Investors have reported equity return requirements near 12% with limited risk to venture from the sidelines. Consequently, a stalemate between buyers and sellers has taken hold of the commercial real estate market. The standoff will likely continue until sellers, some that have already lost up to 20% in book value on their investments, need to either refinance their existing loans or cannot afford the new payments as rates adjust upwards and, in either event, are forced to sell. In a published article by Royce Rowles of PGP Valuation Inc, Royce discusses the ratio between annual net income and sales prices. “While the NOI may be falling at many properties (due to increased vacancy rates and/or more competitive rental rates), it almost certainly does not account for the entire value decline in this market. Major value declines also come from the changing status quo between buyers and sellers. Buyers have become much more patient and are expecting a much more favorable ratio between their NOI and purchase price. In other words, when there are fewer buyers (as often is the case in a down market) capitalization rates move upward. In situations where there are recent comparable sales, anyone valuing a property can easily extract and apply very current and realistic capitalization rates to estimate Market Value. This is because during times of appreciation, the market is usually active. Extracting supportable capitalization rates is easy. However, when transactions are scarce finding market capitalization rates can be significantly harder. When this happens, oftentimes sellers have an unrealistic opinion of value because they are relying on dated capitalization rate sources.” The following is a sample of recent self-storage sales collected from across the United States by PGP Valuation.
NATIONAL SAMPLE OF RECENT SALES
Name of Facility
Handy Storage Northwest/Southern Storage First ChoiceStorage Sundance Self Storage Storage Pros Self Storage Extra Space Storage Clock Tower Self Storage Pak Rat Storage Spare Room Self Storage Storage City Bradley Premier Storage U-Stor-It Self Storage Assured Security Storage Stowaway Self Storage U-Store-It American Self Storage Ontario Airport Self Storage Advanced Heated Storage Best Storage Taylor Blue Star Self Storage Lockaway Self Storage Silverado Self Storage Self Storage Depot Storage Post Self Storage Green Bay Avenue Storage Extra Space Self Storage Extra Space Storage American National Mini Storage MJM Self Storage Lockaway Storage Red Lion Self Storage Kirby Raines Self Storage Sierra Del Oro Storage Center Arrowood Mini Storage Stor-A-Lot Hesperia Almond Blossom Self Storage Mini-Storage Warehouse Indian Self Storage Newtown Storage Fisher’s Landing Storage U-Stor-It Self Storage Storage Mall Ameri Self Storage Storage One Scappoose Secure Storage Safe and Sound Storage Extra Space Storage 88th Street Storage
Location
Denver, CO Memphis, TN Miami, FL Roseville, CA Middletown, RI Colorado Springs, CO Kent, WA Durango, CO Buffalo, NY Sacramento, CA Windsor Locks, CT Hudson, OH Hermiston, OR Asheville, NC Deland, FL New Lenox, IL Ontario, CA Stanwood, WA Taylor, TX Lewisville, TX Ontario, CA Las Vegas, NV Moreno Valley, CA Maple Shade, NJ Milwaukee, WI Austin, TX Alpharetta, GA Orland, CA Cheshire, CT Sunnyvale, CA Vincentown, NJ Memphis, TN Corona, CA Port Orchard, WA Hesperia, CA Ripon, CA Medford, OR Moreno Valley, CA Newtown, PA Vancouver, WA Endicott, NY Rush, NY Richland, WA Las Vegas, NV Scappoose, OR Vancouver, WA Farmington Hills, MI Vancouver, WA
Sale Date
3/13/2009 3/5/2009 12/30/2008 12/12/2008 12/8/2008 11/25/2008 11/24/2008 11/1/2008 11/1/2008 10/31/2008 10/7/2008 10/6/2008 10/1/2008 9/30/2008 9/29/2008 9/24/2008 9/22/2008 9/19/2008 9/15/2008 9/12/2008 9/11/2008 9/5/2008 9/5/2008 8/25/2008 8/20/2008 8/13/2008 8/08/2008 8/06/2008 8/6/2008 8/4/2008 7/31/2008 7/15/2008 7/9/2008 7/1/2008 6/20/08 6/4/2008 5/21/2008 5/16/2008 5/16/2008 5/13/2008 5/13/2008 4/28/2008 4/21/2008 4/8/2008 4/3/2008 3/19/2008 2/12/2008 1/28/2008
Sale Price
$2,125,000 $2,440,000 $4,640,000 $7,700,000 $5,675,000 $5,900,000 $6,333,333 $2,300,000 $990,000 $2,720,000 $2,600,000 $2,640,000 $1,850,000 $3,400,000 $3,020,000 $3,400,000 $3,800,000 $2,790,000 $2,200,000 $4,900,000 $9,600,000 $11,300,000 $7,550,000 $7,100,000 $6,500,000 $4,250,000 $5,125,000 $1,800,000 $2,600,000 $8,625,000 $3,185,000 $1,470,000 $13,100,000 $2,173,500 $2,550,000 $2,935,000 $6,524,000 $3,500,000 $2,400,000 $5,500,000 $2,250,000 $1,350,000 $3,405,000 $6,400,000 $5,000,000 $3,100,000 $5,500,000 $3,500,000
Rentable SF
33,500 101,650 66,105 96,765 62,700 71,434 58,148 35,100 23,000 52,379 36,300 66,645 37,275 54,700 37,752 38,325 40,466 27,150 47,710 63,671 80,000 84,197 117,640 85,200 69,084 67,045 57,750 43,900 72,125 44,700 52,725 50,000 95,842 25,949 71,250 45,205 122,000 56,600 32,000 44,655 36,130 31,250 50,495 57,675 78,020 43,200 80,175 41,083
Price/SF
$63 $24 $70 $80 $91 $83 $109 $66 $43 $52 $72 $40 $50 $62 $80 $89 $94 $103 $46 $77 $120 $134 $64 $83 $94 $63 $89 $41 $36 $193 $60 $28 $137 $84 $36 $65 $53 $62 $75 $123 $62 $43 $67 $111 $64 $72 $69 $85
Year Built Occupancy Cap Rate
2002 N/A 1960 2002 2001 2002 1988 2006 2002 1978 2002 1981 1991/97 1985 1987 2000 2004 2000 1997 2000 1987 2003 2003 2001 1963 2004 2000 1990 2002 1987 1998 1995 2004 1998 1989 2001 1975 2003 1997 1996 1985 2008 2004 1996 1998 2006 1987 2006 N/A 76%-84% 83% 85% 80% 94% 90% 95% 92% 64% 80% 82% 90% 90% 80 85% 78% 100% 100% 88% 88% 93% 75% 90% 86% 87% 88% 76% 88% 85% 92% 78% 71% 90% 85% 85% 99% 80% 95% N/A 85% 90% 93% 94% 94% N/A 85% N/A 8.0% 8.0% 7.8% 7.6% 7.3% 7.0% 7.6% 7.8% 8.3% 8.7% 7.0% 8.6% 7.0% 8.1% 8.0% 7.8% 7.1% 6.9% 6.9% 8.3% 7.1% 7.1% 7.0% 7.3% 8.4% 7.8% 7.1% 8.0% 8.6% 7.1% 7.8% 7.8% 6.8% 6.7% 8.0% 6.3% 7.1% 7.6% 6.9% 7.5% 9.0% 8.5% 7.2% 7.1% 7.5% 8.0% 8.5% 7.9%
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
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LET’S FIND OUT WHAT THE MARKET THINKS
How have the Capital markets affected lending for the self storage industry?
Like most other income property classes, with the exception of apartments, financing for self-storage properties has been hard hit with limited capital available in today's market. Because of the management intensive nature of self-storage, lenders including banks and insurance companies who once were willing to fund loans on this property type have either taken selfstorage off their lending list or have tightened up underwriting parameters by decreasing loan to value ratios and increasing debt service coverage requirements. In general, underwriting Cap rates exceed 8.50%, loan to value ratios cap out at 60% and debt service coverage requires a minimum 1.30x. Only well located, seasoned and stabilized properties with sound management qualify for and have access to the lowest priced capital which in today's market comes from a small group of insurance company lenders. Ten year fixed rates, in general start at 7.50% with the only nonrecourse money coming from insurance company lenders. Kenneth M. Fox, Cohen Financial (415) 591-3111 Due to Wall Street exiting, the financing arena for commercial real estate has created a huge void to be filled by banks and life insurance companies. Since capital is at a premium, lenders have become significantly more selective with the sponsors they elect to do business with and more conservative on their underwriting of commercial real estate. In today’s lending environment, leverage on self-storage is typically in the 65% to 70% range with a 20 to 25 year amortization schedule and a debt service coverage ratio of between 1.20x to 1.30x on a trailing 12 month basis. We are having tremendous success with larger owner operators with significant experience and financial wherewithal with our life company and strong banking relationships on a national basis. James Elmore, Tavernier Capital Partners, LLC (561) 998-8300 As the credit crunch continues to impact self-storage lending, one of the biggest risks right now facing a self-storage owner is the ability to refinance. Great rates with unbeatable terms are now a thing of the past and self-storage owners have got to reposition themselves in this new financial environment. Owners must be fully aware of impending maturities and now more than ever allow themselves plenty of time to find financing for their facilities that are coming due. As lenders continue to preserve the cash they have, seeking loan options sooner rather than later is crucial and will allow an owner to fully assess all financing alternatives and possibilities. With the conduit market being no-existent, borrower’s should begin with their local banking relationships and extend their search to include regional commercial banks and life insurance companies. These lender’s criteria seem to get more stringent as the months pass with quality and leverage being heavily scrutinized. Even your favorite local bank might not be in the market when it comes to refinancing your current loan. The best advice I can give is to start early and identify as many lenders as possible up front that will give you a couple of different options and provide backstops in case potential deals fall through the cracks. Shane Weeks, Capmark Finance Inc. (205) 991-6700 The conduits are gone. Regional and local banks, credit unions and life companies are where the money is at. Also underwriting has tightened and they are looking closely at the sponsor. Only a handful of lenders are doing non recourse loans. Regarding financing in the upcoming year - you can still get recourse financing at 65%. 3, 5 & 7 year terms and 25–30 amortization are available. Chuck Mills, CEM Capital (949) 724-1404
With the single-family market struggling, how do you think this will affect the self-storage industry?
The self-storage industry in difficult economic times historically has increased in revenue and occupancy. In 2009, we have seen the same monthly trends; but to increase revenue and occupancy we must improve every skill; customer service, phone etiquette, collections, marketing and maintenance of the properties. Along with improved skills; we have to offer specials that attract the struggling families. The current specials for the new tenants range from 3 months 1/2 off to rent one get a second unit for free for 6 months. All current tenants can pay for three months and get the 4th month free. If any tenant asks for a discount we give 10% no questions asked and with a smile on our face. The managers must be in continual training on customer service, collections, reporting and most importantly cleanliness of the property. Everything counts to gain the tenant in a struggling market. Limited dollars means more price shopping and good customer service comparison for the single family looking for storage. Daniel “Skip” Elefante, Platinum Storage Group (949) 770-2232 The difficulties with the single family market translates to difficulty in the self-storage market with respect to the ability of self-storage owners to obtain financing for their project whether it is to take out an existing construction loan coming due, obtain a loan in order to acquire an existing facility, or procure a construction loan. The popular wisdom and the media have been playing on the historical assumption that when people lose their homes they automatically move into a small apartment and store their excess belongings in a storage facility. The driver in this case has more to do with that individual losing his/her job and thus their home. If that is the case, it becomes difficult to find the funds to pay rent on a storage facility as well. The entire process, in my opinion, is driven by job losses that translate into home forclosures that result in banks not having funds to loan to self-storage operators. Until we can restore the job markets I do not see the banks recovering and being able or willing to return to the business of lending to self-storage owner/operators. Kenneth E. Nitzberg, Devon Self Storage (510) 450-9204
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
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BOOST YOUR VALUE 10 Ideas to Increase Your Facility’s Value
1) Market Intelligently 2) Don’t Give it Away for Free 3) Leverage Zoning 4) Maximize Unit Efficiency 5) Image Is Everything 6) Put Your Best Face Forward 7) Track Your Performance 8) Know Your Neighbor 9) Utilize Security 10) Storage Income is not Everything
1) Market Intelligently – Are you maximizing your marketing dollar? Are you thinking outside the box? A variety of marketing tools exist in today's self-storage industry. In addition to traditional media types such as print ads and yellow page listings, an effective website can be essential to capturing today's savvy consumer. Approximately 80% of your tenants will come from a certain demographic and are coming from a select few marketing programs. Know your demographic! Some great ideas can be found in Ken Brown’s great article in the February 2009 SSA Globe Magazine. 2) Don’t Give it Away for Free – Are concessions hurting or helping you? Concessions are a powerful tool to attract tenants. However, be careful not to advertise blanket specials. Instead, concessions should be strategically targeted to increase income by discounting specific unit types that have historically low occupancy levels. This will not only increase the productivity of those unit types with higher vacancies, but will also sustain the economic productivity of unit types heavily demanded by the market. 3) Leverage Zoning – Are you aware of the extra value hidden in the land beneath your facility? Knowing the zoning code that governs your parcel can open up opportunities to create substantial income streams that are steady, dependable, and low-maintenance in nature. Potential ways to leverage your zoning include RV storage, cellular tower’s, billboard leasing and a host of other creative ideas. 4) Maximize Unit Efficiency – Is the layout of your facility negatively affecting your income generating potential? Maximize the productivity of your property. Remember that overall income trends upward as unit sizes decrease in most markets. To the degree that the market will absorb them, partition unnecessary large units into unit sizes that rent at a higher price per SF to recapture lost potential income. Again, know your demographics! Ending up with too many 5x5 units will result in low occupancy and unsatisfied income expectations. 6) Put Your Best Face Forward – Who is the face of your facility? Your choice of staff will be the face of your business. Managers who can give a good impression to potential tenants with charisma and attentiveness as well as capture your vision of professional service will attract and retain your tenants. Capitalize on the great supply of talent swimming in the current job market. 7) Track Your Performance – Do you know exactly what your facility’s weakness is? Do you know how potential customers are being received by your staff? By keeping detailed records on a per unit basis you can address individual supply and demand issues. By keeping track of your customer service and tenant flow you can notice trends that may help you capture more business. In both instances, tracking your performance can help you chart your path to increased value. 8) Know Your Neighbors – Do you participate in your community? All things being equal, the vendor that establishes more relationships within the community and becomes known for its services will always generate the most business. Get involved with businesses and residents, and you will gain a more intimate knowledge of your market area, which will allow you to customize yourself to their needs. 9) Utilize Security – Do tenants know your facility is safe? Reliable and visible security features will attract high quality tenants and lend to the credibility of the facility. Video surveillance, electronic gates, fencing, individual unit alarms, and on-site management are all becoming standards in the self storage community. 10) Storage Income Is Not Everything – How much ancillary income does your facility produce? The most successful operators in this industry have recognized that income is not limited to the monthly rent of their units. Additional income generators include RV/boat storage, specialized wine storage, safe deposit boxes, and a host of other creative ideas. Also, look at miscellaneous income items which could include administration fees, late fees, merchandise sales, truck rental, video conference rooms, and auctioning services. 5) Image is Everything – What first impression does your facility give to potential customers? The best tenants will be looking for high-quality, attractive facilities. Simple practices such as a fresh coat of paint, pressure washing doors and exteriors, picking up trash, and sweeping out units are all affordable ways that please those paying attention to detail. A few flowers and nice landscaping will also add greatly to your facility’s curb appeal.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
5
MEET OUR TEAM
A core strength of PGP Valuation Inc has long been its belief in specialization. With teams of individual specialists devoted to every major asset class, PGP has redefined the valuation process. In particular, the Self-Storage Team has become a model for the industry due to its sweeping market knowledge, intimate awareness of self-storage trends, and efficiency. The Self-Storage Team is headquartered out of PGP Valuation Inc’s Roseville location under the leadership of Jeffrey Shouse, Self Storage Director. His team of self-storage specialists has appraised facilities in nearly every U.S. state. In 2008 the Self-Storage Team looks to expand their global market share. Continual exposure to self-storage facilities is what sets the Self-Storage Team apart from the typical, generalist appraiser. PGP Valuation Inc have developed a database of market transactions, operating expenses, and rental rates that is growing with each appraisal. The impact of this wealth of information ripples throughout the analysis and is not limited to just an improved comparable selection. In the experienced hands of the Self-Storage Team, the database allows the appraiser to track historical trends to more accurately gauge how the self-storage industry is evolving. This equates to a report with a more insightful market analysis, accurate projection of net operating income, and a capitalization rate that reflects the state of the local market. As we look forward to 2009, it is clear that hiring an appraiser with the expertise required to perform a proper analysis is of paramount importance. In 2007 and 2008, clients of all different sizes trusted the SelfStorage Team at PGP Valuation Inc with the valuation of approximately 400 facilities for a variety of purposes. Whether the value is to be used for acquisition/disposition, estate planning, property tax dispute, or litigation, utilizing an appraiser that is an expert in valuing self-storage facilities and who understands the industry is essential.
Who Do I Contact?
Jeffrey Shouse (Sacramento Office) 916.996.0638
Royce Rowles (Denver Office) 303.217.7552
Stan Mastelerz (Seattle Office) 206.965.1110
Announcement……
For the past decade, only a few appraisal firms would be considered experts in the valuation of self storage facilities. In 2009, many of those experts are now together at one company, PGP VALUATION INC. PGP Valuation Inc is pleased to announce the addition of Bruce Nell, Matt Bilger, James Scott and Chuck Schierbeck to their National Self Storage Valuation Group. Bruce Nell was a principal with Crown Appraisal Group and their Director for Self Storage Valuation, with Matt Bilger Co-Director. They are also joined by two experienced appraisers: James Scott and Chuck Schierbeck. Together this team has worked on self storage projects in nearly every market in the US. This experience is added to the industry leading Self Storage Valuation Group at PGP. Together the team has appraised thousands of facilities across the United States, Canada and the Caribbean.
Phil Steffen (Phoenix Office) 602.222.5165
Stan Wolf (Dallas Office) 214.217.9333
Kathryn Skiff (Vancouver Office) 360.823.5276
Eric Witherall (San Diego Office) 619.814.4722
Bobby Hastings (Honolulu Office) 808.591.2846
John Griffin (San Francisco Office) 415.288.7887
PGP Releases New Report Format: “Asset Management Report” PGP has created the Asset Management Report as a simple, cost effective format to help identify potentially weakening commercial real estate markets, properties at risk, and loans that need early management attention. The Asset Management Report is a regulatory compliant appraisal in a customized format that delivers critical information you need to limit management and review costs and maximize return on your loan portfolio. ASK US ABOUT IT!
Spring 2009 Newsletter COPYRIGHT © 2009 PGP VALUATION INC.
Chris Jarvis (Chicago Office) 312.602.6155
Matt Bilger (Ohio Office) 614.540.2944
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Understanding Self-Storage Values is Our Business!
About PGP Valuation Inc…
PGP Valuation Inc was established in 1978 and is now one of the largest and most successful appraisal firms in the world, with approximately 30 members of the Appraisal Institute (MAI) and 150 professional appraisers on staff in the United States and Canada. In November 2006, FirstService Corporation acquired a controlling interest in PGP. FirstService is the parent company of Colliers International (CMN), one of the largest and most respected real estate services companies in the world. FirstService also acquired a controlling interest in MHPM Project Management, Cohen Financial, and PKF Consulting. The result of this alliance is a powerhouse of comprehensive client services, including appraisal and consulting, commercial brokerage and management, and lending.
States in which we have recently appraised – Alabama Alaska Arizona Arkansas California Colorado Connecticut Florida Georgia Hawaii
• An important subset of the last fact: there are some 27,650 small business entrepreneurs (90% of all self-storage companies) who own and operate just one “primary” self-storage facility. • More than 700,000 self-storage units nationwide are rented to military personnel (4% of all units); however, in communities adjacent to US military bases, military occupancy can range from 20%-95% of all rented units. • Nationally, at year-end 2008 primary self-storage facilities employed approximately 160,000 persons, or an average of 3.1 employees per facility • During the peak development years (2004/05) approximately 8,700 new self-storage facilities, or 480 million square feet of space were added. • Gross square footage of self-storage “per capita” in the US (at the state level) ranges from 1.60 to 18.65 square feet 83.9 percent of all US counties (or 2,634 out of 3,141) have at least one “primary” selfstorage facility
Idaho Illinois Indiana Kansas Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana N Carolina New Hampshire New Mexico New Jersey New York Nevada N Dakota Ohio Oklahoma Oregon
Our Role With the FDIC…
PGP Valuation is the contracted Quality Control and Consulting firm for all real estate related issues for the FDIC. Our Scope of Work is to provide, monitor, and assist the FDIC in the following areas: • • • • • Appraisal Reviews Establish/Monitor Quality Control Process Appraisal Ordering Monitor the REO and Loan Process Coordinate and Interact with Asset Managers and PCAM (Post closing Asset Managers) to Establish QC Protocols
This involves the REO properties (non-performing and bank owned assets) non REO (performing or troubled assets) under FDIC receivership.
Recent Self-Storage News…
(Info provided Self-Storage SSA)
INSIDE THIS ISSUE
Understanding Operating Expenses Conversation on Capitalization Rates and National Sample of Recent Sales What Do Those Involved in the Market Think of What is Going On Boost Your Value! 10 Ideas to Increase the Value of Your Property
For more information, contact the PGP Valuation SelfStorage Team (see the back of the newsletter for contact information).
Pennsylvania N Carolina S Carolina Tennessee Texas Utah Virginia W Virginia Washington Washington, D.C. *Puerto Rico
• At year-end 1984 there were 6,601 facilities with 289.7 million square feet of rentable self-storage in the U.S. At year-end 2008, there were 51,250 “primary” selfstorage facilities representing 2.35 billion square feet. This represents an increase of more than 2.0 billion square feet. • The top 5 self-storage companies, including the 4 public companies (Public Storage, Extra Space, Sovran and U-Store-It – Real Estate Investment Trusts) plus U-Haul (a public company/non-REIT), own and operate some 4,630 self-storage facilities, or 9.0% of all primary facilities.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC. ALL RIGHTS RESERVED
UNDERSTANDING OPERATING EXPENSES
Accurate valuation is enhanced by solid operating history. However, it is common to rely upon expense comparable data when valuing properties through direct capitalization. Understanding how operating expenses vary from region-to-region is key, especially for specialized lenders and investors looking to expand into other national markets. The table to the right is a sampling of over 200 expense comparables located throughout the country (evenly distributed). In addition, we have added information from the most recent Self Storage Almanac. Possible considerations for comparing operating expenses are discussed below. Real Estate Taxes: Every state has its own method for calculating property taxes. There are several states (like Michigan and California) that reassess facilities based on sales price. Therefore, since the definition of “Market Value” assumes a sale, appraisers are forced to use an amount calculating the value of the property and the tax rate. Each local jurisdiction must be reviewed and understood. This can oftentimes cause headaches for refinances and construction loans. Insurance: Rates are fairly similar across the nation. Special consideration should be given to flood, earthquake, hurricane, or other natural disaster areas. Typical range for this category is $0.15 to $0.25/SF. It is typical for lower rates to be achieved through blanket policies. It will be interesting to see if or how much policies rise over the next couple years due to a variety of factors. Utilities: Both location and climate play a role in this category. Densely populated areas typically see higher energy costs. The number of climate controlled units at a facility should also be considered. Typical range for this category is $0.15 to $0.40/SF. Repairs and Maintenance: This category includes cleaning out the units, replacing doors, landscaping and any maintenance associated with the facility. Areas that require a snow removal expense and/or elevator servicing are typically higher. Long term expenditures are also affected by climate; however, these expenses are typically covered in the reserves category. Typical range for this category is $0.15 to $0.30/SF. Age and physical characteristics play a part in budgeting for this category. Off-Site Management: This is typically done on a percentage basis (EGI). Therefore, areas with higher rents result in higher management costs. Typical costs range from 4% to 6% of Effective Gross Income. This expense is not to be confused with General/Administrative expenses.
Operating Expenses $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
Per SF
On-Site Management: This category is greatly impacted by location and average living expenses. Unless zoning restricts, it is common for resident managers to live on-site. Expenses are often higher for facilities not offering living accommodations for managers. Typical range for this category is $0.75 to $1.25/SF. Advertisement: The amount of competing facilities and the property’s access and exposure are primary considerations for this category. Typical range for this category is $0.20 to $.40/SF. General/Administrative: Fairly comparable from region-to-region. This expense includes accounting, legal fees, other professional fees, and general administrative costs. Typical range for this category is $0.25 to $.40/SF. Reserves: This category takes into consideration capital improvements over a holding period. For self-storage facilities, it would typically include replacing the roofs, resurfacing the streets, and replacing the fencing and storage doors. Typical range for this category is $0.10 to $.20/SF.
SELF-STORAGE CAPITALIZATION RATES
There have been fewer sales in 2008 than seen in previous years. The reduced number of sales owes in some degree to the lack of credit available and the particular aversion to risk on behalf of lenders as well as investors in the current market. The uncertainty surrounding the ultimate fallout from the downturn in the national economy has led to a pullback from both lenders and investors. While buyers view the market with some skepticism and expect an increase in rates, sellers have remained optimistic or are unwilling to believe that capitalization rates may have risen from historic lows of the mid-2000s when many properties traded in the 6.0% to 7.0% range. These rates were driven down by equally historically low interest rates spurned by the Federal Reserve Bank’s lowering of the Fed Rate to help jumpstart the economy after the 9/11 terrorist attacks and earlier downturn in the dot.com market. While the lower rates did promote more debt by consumers and made housing more affordable, the subsequent housing boom was not built on solid economic drivers (job gains, increase in exports, etc.) and the run-up in housing prices was not supported. The hastily prepared, adjustable rate loans were bundled together and sold on Wall Street, incorrectly rated and sold to uninformed investors. The US economy, that was held up primarily by the housing market (mortgage companies, lenders, developers, home-builders, contractors, etc. all experienced substantial growth over this period) became very unstable when supply exceeded demand and home prices began to fall. Concurrently, the adjustable rate loans began to see large rate increases that the unqualified buyers were unable to keep pace with. As housing prices declined, borrowers were unable to refinance their loans resulting in defaults. The loans sold on Wall Street were spiraling in value and almost overnight, investors in the large conduit loans stopped buying the paper. Lenders that were not prepared to carry and service the massive amounts of residential and commercial paper were now burdened with loans that had no buyers at rates that were too low to sustain. The mounting loans that were going into default coupled with the growing uncertainty surrounding the economic outlook and crashes in the global economy caused many banks to stop lending altogether. In late 2008, the Federal Government again interceded to create TARP, a $700 billion dollar bail-out for many of these lenders that had created the market instability, fearing that these companies collapse would spark further economic decline through job losses, lower retail sales and a further decline in housing prices. The government’s primary concern was the lending environment had seized up after Wall Street stopped buying paper. The uncertainty on the part of lenders continues today with some lenders quoting 600 to 2,000 basis points over the historically low Treasury rates for new loans, with only the most qualified buyers and the safest of loans being written. At the same time, loan to value ratios decreased from 90% to 100% down to 50% to 60%.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
Ta xe In su s ra nc e Re Ut pa ili t ie irs s & M M a n a in a g t. em en Pa t Ad y r o ll v Ad e r t i s m in i n g is t ra t iv e
PGP Valuation SS Almanac
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SELF-STORAGE CAPITALIZATION RATES (CONT.)
As a result, only well capitalized buyers even qualify for a loan in the current environment. While sellers have been reticent to sell, since few buyers are even less credit are available for deals priced below 7.0%, qualified buyers have realized that they now control the market and many also fear the uncertainty surrounding pricing. Investors have reported equity return requirements near 12% with limited risk to venture from the sidelines. Consequently, a stalemate between buyers and sellers has taken hold of the commercial real estate market. The standoff will likely continue until sellers, some that have already lost up to 20% in book value on their investments, need to either refinance their existing loans or cannot afford the new payments as rates adjust upwards and, in either event, are forced to sell. In a published article by Royce Rowles of PGP Valuation Inc, Royce discusses the ratio between annual net income and sales prices. “While the NOI may be falling at many properties (due to increased vacancy rates and/or more competitive rental rates), it almost certainly does not account for the entire value decline in this market. Major value declines also come from the changing status quo between buyers and sellers. Buyers have become much more patient and are expecting a much more favorable ratio between their NOI and purchase price. In other words, when there are fewer buyers (as often is the case in a down market) capitalization rates move upward. In situations where there are recent comparable sales, anyone valuing a property can easily extract and apply very current and realistic capitalization rates to estimate Market Value. This is because during times of appreciation, the market is usually active. Extracting supportable capitalization rates is easy. However, when transactions are scarce finding market capitalization rates can be significantly harder. When this happens, oftentimes sellers have an unrealistic opinion of value because they are relying on dated capitalization rate sources.” The following is a sample of recent self-storage sales collected from across the United States by PGP Valuation.
NATIONAL SAMPLE OF RECENT SALES
Name of Facility
Handy Storage Northwest/Southern Storage First ChoiceStorage Sundance Self Storage Storage Pros Self Storage Extra Space Storage Clock Tower Self Storage Pak Rat Storage Spare Room Self Storage Storage City Bradley Premier Storage U-Stor-It Self Storage Assured Security Storage Stowaway Self Storage U-Store-It American Self Storage Ontario Airport Self Storage Advanced Heated Storage Best Storage Taylor Blue Star Self Storage Lockaway Self Storage Silverado Self Storage Self Storage Depot Storage Post Self Storage Green Bay Avenue Storage Extra Space Self Storage Extra Space Storage American National Mini Storage MJM Self Storage Lockaway Storage Red Lion Self Storage Kirby Raines Self Storage Sierra Del Oro Storage Center Arrowood Mini Storage Stor-A-Lot Hesperia Almond Blossom Self Storage Mini-Storage Warehouse Indian Self Storage Newtown Storage Fisher’s Landing Storage U-Stor-It Self Storage Storage Mall Ameri Self Storage Storage One Scappoose Secure Storage Safe and Sound Storage Extra Space Storage 88th Street Storage
Location
Denver, CO Memphis, TN Miami, FL Roseville, CA Middletown, RI Colorado Springs, CO Kent, WA Durango, CO Buffalo, NY Sacramento, CA Windsor Locks, CT Hudson, OH Hermiston, OR Asheville, NC Deland, FL New Lenox, IL Ontario, CA Stanwood, WA Taylor, TX Lewisville, TX Ontario, CA Las Vegas, NV Moreno Valley, CA Maple Shade, NJ Milwaukee, WI Austin, TX Alpharetta, GA Orland, CA Cheshire, CT Sunnyvale, CA Vincentown, NJ Memphis, TN Corona, CA Port Orchard, WA Hesperia, CA Ripon, CA Medford, OR Moreno Valley, CA Newtown, PA Vancouver, WA Endicott, NY Rush, NY Richland, WA Las Vegas, NV Scappoose, OR Vancouver, WA Farmington Hills, MI Vancouver, WA
Sale Date
3/13/2009 3/5/2009 12/30/2008 12/12/2008 12/8/2008 11/25/2008 11/24/2008 11/1/2008 11/1/2008 10/31/2008 10/7/2008 10/6/2008 10/1/2008 9/30/2008 9/29/2008 9/24/2008 9/22/2008 9/19/2008 9/15/2008 9/12/2008 9/11/2008 9/5/2008 9/5/2008 8/25/2008 8/20/2008 8/13/2008 8/08/2008 8/06/2008 8/6/2008 8/4/2008 7/31/2008 7/15/2008 7/9/2008 7/1/2008 6/20/08 6/4/2008 5/21/2008 5/16/2008 5/16/2008 5/13/2008 5/13/2008 4/28/2008 4/21/2008 4/8/2008 4/3/2008 3/19/2008 2/12/2008 1/28/2008
Sale Price
$2,125,000 $2,440,000 $4,640,000 $7,700,000 $5,675,000 $5,900,000 $6,333,333 $2,300,000 $990,000 $2,720,000 $2,600,000 $2,640,000 $1,850,000 $3,400,000 $3,020,000 $3,400,000 $3,800,000 $2,790,000 $2,200,000 $4,900,000 $9,600,000 $11,300,000 $7,550,000 $7,100,000 $6,500,000 $4,250,000 $5,125,000 $1,800,000 $2,600,000 $8,625,000 $3,185,000 $1,470,000 $13,100,000 $2,173,500 $2,550,000 $2,935,000 $6,524,000 $3,500,000 $2,400,000 $5,500,000 $2,250,000 $1,350,000 $3,405,000 $6,400,000 $5,000,000 $3,100,000 $5,500,000 $3,500,000
Rentable SF
33,500 101,650 66,105 96,765 62,700 71,434 58,148 35,100 23,000 52,379 36,300 66,645 37,275 54,700 37,752 38,325 40,466 27,150 47,710 63,671 80,000 84,197 117,640 85,200 69,084 67,045 57,750 43,900 72,125 44,700 52,725 50,000 95,842 25,949 71,250 45,205 122,000 56,600 32,000 44,655 36,130 31,250 50,495 57,675 78,020 43,200 80,175 41,083
Price/SF
$63 $24 $70 $80 $91 $83 $109 $66 $43 $52 $72 $40 $50 $62 $80 $89 $94 $103 $46 $77 $120 $134 $64 $83 $94 $63 $89 $41 $36 $193 $60 $28 $137 $84 $36 $65 $53 $62 $75 $123 $62 $43 $67 $111 $64 $72 $69 $85
Year Built Occupancy Cap Rate
2002 N/A 1960 2002 2001 2002 1988 2006 2002 1978 2002 1981 1991/97 1985 1987 2000 2004 2000 1997 2000 1987 2003 2003 2001 1963 2004 2000 1990 2002 1987 1998 1995 2004 1998 1989 2001 1975 2003 1997 1996 1985 2008 2004 1996 1998 2006 1987 2006 N/A 76%-84% 83% 85% 80% 94% 90% 95% 92% 64% 80% 82% 90% 90% 80 85% 78% 100% 100% 88% 88% 93% 75% 90% 86% 87% 88% 76% 88% 85% 92% 78% 71% 90% 85% 85% 99% 80% 95% N/A 85% 90% 93% 94% 94% N/A 85% N/A 8.0% 8.0% 7.8% 7.6% 7.3% 7.0% 7.6% 7.8% 8.3% 8.7% 7.0% 8.6% 7.0% 8.1% 8.0% 7.8% 7.1% 6.9% 6.9% 8.3% 7.1% 7.1% 7.0% 7.3% 8.4% 7.8% 7.1% 8.0% 8.6% 7.1% 7.8% 7.8% 6.8% 6.7% 8.0% 6.3% 7.1% 7.6% 6.9% 7.5% 9.0% 8.5% 7.2% 7.1% 7.5% 8.0% 8.5% 7.9%
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
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LET’S FIND OUT WHAT THE MARKET THINKS
How have the Capital markets affected lending for the self storage industry?
Like most other income property classes, with the exception of apartments, financing for self-storage properties has been hard hit with limited capital available in today's market. Because of the management intensive nature of self-storage, lenders including banks and insurance companies who once were willing to fund loans on this property type have either taken selfstorage off their lending list or have tightened up underwriting parameters by decreasing loan to value ratios and increasing debt service coverage requirements. In general, underwriting Cap rates exceed 8.50%, loan to value ratios cap out at 60% and debt service coverage requires a minimum 1.30x. Only well located, seasoned and stabilized properties with sound management qualify for and have access to the lowest priced capital which in today's market comes from a small group of insurance company lenders. Ten year fixed rates, in general start at 7.50% with the only nonrecourse money coming from insurance company lenders. Kenneth M. Fox, Cohen Financial (415) 591-3111 Due to Wall Street exiting, the financing arena for commercial real estate has created a huge void to be filled by banks and life insurance companies. Since capital is at a premium, lenders have become significantly more selective with the sponsors they elect to do business with and more conservative on their underwriting of commercial real estate. In today’s lending environment, leverage on self-storage is typically in the 65% to 70% range with a 20 to 25 year amortization schedule and a debt service coverage ratio of between 1.20x to 1.30x on a trailing 12 month basis. We are having tremendous success with larger owner operators with significant experience and financial wherewithal with our life company and strong banking relationships on a national basis. James Elmore, Tavernier Capital Partners, LLC (561) 998-8300 As the credit crunch continues to impact self-storage lending, one of the biggest risks right now facing a self-storage owner is the ability to refinance. Great rates with unbeatable terms are now a thing of the past and self-storage owners have got to reposition themselves in this new financial environment. Owners must be fully aware of impending maturities and now more than ever allow themselves plenty of time to find financing for their facilities that are coming due. As lenders continue to preserve the cash they have, seeking loan options sooner rather than later is crucial and will allow an owner to fully assess all financing alternatives and possibilities. With the conduit market being no-existent, borrower’s should begin with their local banking relationships and extend their search to include regional commercial banks and life insurance companies. These lender’s criteria seem to get more stringent as the months pass with quality and leverage being heavily scrutinized. Even your favorite local bank might not be in the market when it comes to refinancing your current loan. The best advice I can give is to start early and identify as many lenders as possible up front that will give you a couple of different options and provide backstops in case potential deals fall through the cracks. Shane Weeks, Capmark Finance Inc. (205) 991-6700 The conduits are gone. Regional and local banks, credit unions and life companies are where the money is at. Also underwriting has tightened and they are looking closely at the sponsor. Only a handful of lenders are doing non recourse loans. Regarding financing in the upcoming year - you can still get recourse financing at 65%. 3, 5 & 7 year terms and 25–30 amortization are available. Chuck Mills, CEM Capital (949) 724-1404
With the single-family market struggling, how do you think this will affect the self-storage industry?
The self-storage industry in difficult economic times historically has increased in revenue and occupancy. In 2009, we have seen the same monthly trends; but to increase revenue and occupancy we must improve every skill; customer service, phone etiquette, collections, marketing and maintenance of the properties. Along with improved skills; we have to offer specials that attract the struggling families. The current specials for the new tenants range from 3 months 1/2 off to rent one get a second unit for free for 6 months. All current tenants can pay for three months and get the 4th month free. If any tenant asks for a discount we give 10% no questions asked and with a smile on our face. The managers must be in continual training on customer service, collections, reporting and most importantly cleanliness of the property. Everything counts to gain the tenant in a struggling market. Limited dollars means more price shopping and good customer service comparison for the single family looking for storage. Daniel “Skip” Elefante, Platinum Storage Group (949) 770-2232 The difficulties with the single family market translates to difficulty in the self-storage market with respect to the ability of self-storage owners to obtain financing for their project whether it is to take out an existing construction loan coming due, obtain a loan in order to acquire an existing facility, or procure a construction loan. The popular wisdom and the media have been playing on the historical assumption that when people lose their homes they automatically move into a small apartment and store their excess belongings in a storage facility. The driver in this case has more to do with that individual losing his/her job and thus their home. If that is the case, it becomes difficult to find the funds to pay rent on a storage facility as well. The entire process, in my opinion, is driven by job losses that translate into home forclosures that result in banks not having funds to loan to self-storage operators. Until we can restore the job markets I do not see the banks recovering and being able or willing to return to the business of lending to self-storage owner/operators. Kenneth E. Nitzberg, Devon Self Storage (510) 450-9204
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
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BOOST YOUR VALUE 10 Ideas to Increase Your Facility’s Value
1) Market Intelligently 2) Don’t Give it Away for Free 3) Leverage Zoning 4) Maximize Unit Efficiency 5) Image Is Everything 6) Put Your Best Face Forward 7) Track Your Performance 8) Know Your Neighbor 9) Utilize Security 10) Storage Income is not Everything
1) Market Intelligently – Are you maximizing your marketing dollar? Are you thinking outside the box? A variety of marketing tools exist in today's self-storage industry. In addition to traditional media types such as print ads and yellow page listings, an effective website can be essential to capturing today's savvy consumer. Approximately 80% of your tenants will come from a certain demographic and are coming from a select few marketing programs. Know your demographic! Some great ideas can be found in Ken Brown’s great article in the February 2009 SSA Globe Magazine. 2) Don’t Give it Away for Free – Are concessions hurting or helping you? Concessions are a powerful tool to attract tenants. However, be careful not to advertise blanket specials. Instead, concessions should be strategically targeted to increase income by discounting specific unit types that have historically low occupancy levels. This will not only increase the productivity of those unit types with higher vacancies, but will also sustain the economic productivity of unit types heavily demanded by the market. 3) Leverage Zoning – Are you aware of the extra value hidden in the land beneath your facility? Knowing the zoning code that governs your parcel can open up opportunities to create substantial income streams that are steady, dependable, and low-maintenance in nature. Potential ways to leverage your zoning include RV storage, cellular tower’s, billboard leasing and a host of other creative ideas. 4) Maximize Unit Efficiency – Is the layout of your facility negatively affecting your income generating potential? Maximize the productivity of your property. Remember that overall income trends upward as unit sizes decrease in most markets. To the degree that the market will absorb them, partition unnecessary large units into unit sizes that rent at a higher price per SF to recapture lost potential income. Again, know your demographics! Ending up with too many 5x5 units will result in low occupancy and unsatisfied income expectations. 6) Put Your Best Face Forward – Who is the face of your facility? Your choice of staff will be the face of your business. Managers who can give a good impression to potential tenants with charisma and attentiveness as well as capture your vision of professional service will attract and retain your tenants. Capitalize on the great supply of talent swimming in the current job market. 7) Track Your Performance – Do you know exactly what your facility’s weakness is? Do you know how potential customers are being received by your staff? By keeping detailed records on a per unit basis you can address individual supply and demand issues. By keeping track of your customer service and tenant flow you can notice trends that may help you capture more business. In both instances, tracking your performance can help you chart your path to increased value. 8) Know Your Neighbors – Do you participate in your community? All things being equal, the vendor that establishes more relationships within the community and becomes known for its services will always generate the most business. Get involved with businesses and residents, and you will gain a more intimate knowledge of your market area, which will allow you to customize yourself to their needs. 9) Utilize Security – Do tenants know your facility is safe? Reliable and visible security features will attract high quality tenants and lend to the credibility of the facility. Video surveillance, electronic gates, fencing, individual unit alarms, and on-site management are all becoming standards in the self storage community. 10) Storage Income Is Not Everything – How much ancillary income does your facility produce? The most successful operators in this industry have recognized that income is not limited to the monthly rent of their units. Additional income generators include RV/boat storage, specialized wine storage, safe deposit boxes, and a host of other creative ideas. Also, look at miscellaneous income items which could include administration fees, late fees, merchandise sales, truck rental, video conference rooms, and auctioning services. 5) Image is Everything – What first impression does your facility give to potential customers? The best tenants will be looking for high-quality, attractive facilities. Simple practices such as a fresh coat of paint, pressure washing doors and exteriors, picking up trash, and sweeping out units are all affordable ways that please those paying attention to detail. A few flowers and nice landscaping will also add greatly to your facility’s curb appeal.
Spring 2009 Newsletter
COPYRIGHT © 2009 PGP VALUATION INC.
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MEET OUR TEAM
A core strength of PGP Valuation Inc has long been its belief in specialization. With teams of individual specialists devoted to every major asset class, PGP has redefined the valuation process. In particular, the Self-Storage Team has become a model for the industry due to its sweeping market knowledge, intimate awareness of self-storage trends, and efficiency. The Self-Storage Team is headquartered out of PGP Valuation Inc’s Roseville location under the leadership of Jeffrey Shouse, Self Storage Director. His team of self-storage specialists has appraised facilities in nearly every U.S. state. In 2008 the Self-Storage Team looks to expand their global market share. Continual exposure to self-storage facilities is what sets the Self-Storage Team apart from the typical, generalist appraiser. PGP Valuation Inc have developed a database of market transactions, operating expenses, and rental rates that is growing with each appraisal. The impact of this wealth of information ripples throughout the analysis and is not limited to just an improved comparable selection. In the experienced hands of the Self-Storage Team, the database allows the appraiser to track historical trends to more accurately gauge how the self-storage industry is evolving. This equates to a report with a more insightful market analysis, accurate projection of net operating income, and a capitalization rate that reflects the state of the local market. As we look forward to 2009, it is clear that hiring an appraiser with the expertise required to perform a proper analysis is of paramount importance. In 2007 and 2008, clients of all different sizes trusted the SelfStorage Team at PGP Valuation Inc with the valuation of approximately 400 facilities for a variety of purposes. Whether the value is to be used for acquisition/disposition, estate planning, property tax dispute, or litigation, utilizing an appraiser that is an expert in valuing self-storage facilities and who understands the industry is essential.
Who Do I Contact?
Jeffrey Shouse (Sacramento Office) 916.996.0638
Royce Rowles (Denver Office) 303.217.7552
Stan Mastelerz (Seattle Office) 206.965.1110
Announcement……
For the past decade, only a few appraisal firms would be considered experts in the valuation of self storage facilities. In 2009, many of those experts are now together at one company, PGP VALUATION INC. PGP Valuation Inc is pleased to announce the addition of Bruce Nell, Matt Bilger, James Scott and Chuck Schierbeck to their National Self Storage Valuation Group. Bruce Nell was a principal with Crown Appraisal Group and their Director for Self Storage Valuation, with Matt Bilger Co-Director. They are also joined by two experienced appraisers: James Scott and Chuck Schierbeck. Together this team has worked on self storage projects in nearly every market in the US. This experience is added to the industry leading Self Storage Valuation Group at PGP. Together the team has appraised thousands of facilities across the United States, Canada and the Caribbean.
Phil Steffen (Phoenix Office) 602.222.5165
Stan Wolf (Dallas Office) 214.217.9333
Kathryn Skiff (Vancouver Office) 360.823.5276
Eric Witherall (San Diego Office) 619.814.4722
Bobby Hastings (Honolulu Office) 808.591.2846
John Griffin (San Francisco Office) 415.288.7887
PGP Releases New Report Format: “Asset Management Report” PGP has created the Asset Management Report as a simple, cost effective format to help identify potentially weakening commercial real estate markets, properties at risk, and loans that need early management attention. The Asset Management Report is a regulatory compliant appraisal in a customized format that delivers critical information you need to limit management and review costs and maximize return on your loan portfolio. ASK US ABOUT IT!
Spring 2009 Newsletter COPYRIGHT © 2009 PGP VALUATION INC.
Chris Jarvis (Chicago Office) 312.602.6155
Matt Bilger (Ohio Office) 614.540.2944
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