Self Storage the Journey
Content
Self-Storage The Journey
Dean Brown
Copyright © 2008 by Dean Brown First Edition All rights reserved. No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means without written permission from the author. I have researched and prepared this book utilizing information received from owners and operators of self-storage businesses as well as from builders and developers. I have also researched thousands of articles on all of the subjects covered in this book. However, I cannot be responsible for your own profit or loss in this field. This book cannot be used as any type of warranty. Any similarity to the articles or published information is strictly coincidental as my research and experience has yielded so many like thinking minds from a vast variety of professionals and authorities. You should consult professionals in each area of question. This book is strictly a guide, and not the final authority. You are your best judge in your particular situation.
International Standard Book Number: 978-1-4276-3722-2 Library of Congress Control Number: 2008943878
ii
Self-Storage • The Journey
Table of Contents
Your Introduction To Some Exciting Information .................................................ix Acknowledgements ..................................................xi
Chapter One The Beginning of Self-Storage In The United States .....................................................1
Baby Boomers Gave Birth to the Self-Storage Industry .....2 Consumption Accelerated This Industry .............................4 Three Distinct Groups of Self-Storage Owners and Developers .......................................................6 Key Considerations .................................................................6 An Attractive Investment........................................................9 Self Storage Has a Good Chance of Success: .....................10 Where Are Things Headed in The Near Future? ..............10 It’s Not a Huge Initial Investment .......................................11 Don’t Overlook Small Towns ...............................................13 The Forecast for Self-storage ................................................15
Chapter Two Should You Buy, Or Build?........................................17
Building a Self-Storage Facility ............................................19 Consider Your Exit Strategy .................................................21 Should I Sell, or Refinance? ..................................................21 The Importance of Building Value ......................................24
Chapter Three Types of Facilities ........................................................25
Basic Dry Storage Only .........................................................25 Conversions ............................................................................25
Table of Contents iii
Private Storage in Multi Family Buildings .........................28 Multi-Story Self-Storage........................................................28 Mobile Storage........................................................................29 Climate Control ......................................................................32 RV & Boat Storage Facilities ................................................37 Open Space .............................................................................37 Covered Space ........................................................................38 Covered Canopy with Walls ................................................38 Indoor Space ...........................................................................38 Condo Style ............................................................................39 Land Costs and How Big .....................................................40 How Is The Parcel of Land Shaped? ..................................41 Good Security Is a Must ........................................................41 Insurance For Rv/Boat Storage ............................................43 Lease/Rental Agreements .....................................................43 Rental Agreements Need to Be Geared to Boats and Rvs With Addendums Which Include The Following Items ..............................................................44 Addressing The Parking Issue ............................................45 Angled Parking ......................................................................46 Condominium Style RV and Boat Storage .........................47 These Facilities Can Include One or All These ..................48 There are numerous options to consider offering: ............48 Levels of Service .....................................................................50 Devising a Unique Marketing Strategy ..............................51 Know Your Target Client ......................................................54 Financing For This Emerging Market .................................55
Chapter Four Strategies .......................................................................57
Some Decisions For Your Strategy Include ........................57 How Do You Know When to Expand? ...............................57 Trends ......................................................................................59
iv Self-Storage • The Journey
Some Dos and Don’ts on How to Avoid Some Mistakes .60
Chapter Five Feasibility Study and Site Selection ........................63
Should I Hire a Consultant in The Beginning?..................63 Feasibility Study.....................................................................64 Several Key Areas of The Feasibility Study .......................65 Some of The Markets We Can Look At Are:.......................67 Self-Storage Land Use Entitlements ....................................69 Understanding Entitlements ................................................69 Permitted Use No Discretionary Review ...........................70 Permitted Use With Discretionary Review ........................70 Conditional Use .....................................................................71 Rezone Or Zone Change .......................................................72 General Plan Amendment ....................................................72 Understanding Building Codes ...........................................72 Occupancy Definition and Classification ...........................74 Construction Type Classification ........................................74 Exits..........................................................................................76 Site Selection and Unit Mix ..................................................77 Planning Your Site Layout ....................................................79 More Site Selection Considerations:....................................83
Chapter Six The Loan Process .........................................................85
The Construction Loan Package ..........................................89
Chapter Seven
Planning and Construction ........................................91
Gate Access Systems ..............................................................92 Hose Bibs.................................................................................92 Heating and Air Conditioning .............................................92 Office Design ..........................................................................94
Table of Contents v
Community Planning Committee Considerations............96 Green Building .......................................................................97 Security ....................................................................................98 Fingerprinting ......................................................................100 Identity Theft ........................................................................100 Access Control ......................................................................101 Remote Management ..........................................................101 Choosing a Kiosk for Your Self-Storage Business ...........102 Alarm Systems .....................................................................104 Video Surveillance ...............................................................104 It’s Up to You ........................................................................105 Sound Systems and Intercoms ...........................................106 Parking and Traffic Flow Planning ...................................106 If Multi-Story, Lifts Or Elevators ......................................107 Snow Guards ........................................................................109 Facts About Construction Pricing .....................................110 Increased Costs.....................................................................110 Choosing a Contractor ........................................................111 Phasing a Self-Storage Project ............................................113 The ADA (Americans with Disabilities Act) ....................113
Chapter Eight Marketing And Advertising ....................................117
Marketing Prior to Opening ...............................................117 Grand Opening Preparations .............................................118
Chapter Nine Operations, Maintenance & Upkeep .....................119
Holding an Auction/Lien Sale ............................................120 Pest Control ..........................................................................121 Mold .......................................................................................122 Operational Expense ...........................................................123 Analyzing Cash Flow ..........................................................123
vi Self-Storage • The Journey
Maintenance .........................................................................124 Auditing ................................................................................129 Here Is a Sample Checklist For a Space Audit: ................130 The Action Plan ....................................................................135
Chapter Ten Additional Security Measures ................................137 Chapter Eleven Employees ...................................................................143
Staffing, Training and managing a self-storage facility .143 What do you pay your Managers? ....................................146 Training Managers for a New Site ....................................146 Mystery Shopping ...............................................................146 Hiring and training for success..........................................147 Email in the Workplace .......................................................147 Here Are Some Tips For Personal Safety in The SelfStorage Industry...................................................................148
Chapter Twelve Customer Relations ...................................................151 Chapter Thirteen Insurance Concepts ...................................................157
Are You Properly Covered? ...............................................157 The basic types of insurance you will need ....................157 Pay With Rent Tenant Insurance .......................................160
Chapter Fourteen Legally Thinking .......................................................163
Property Damage and Loss ................................................164 Some Other Legal Suggestions ..........................................164 Environmental Claims .......................................................165 When a Customer has Caused Damage ...........................165
Table of Contents vii
Limiting Value of Items Tenants are Allowed to Store...166 Legal Trends in Self-Storage ..............................................167 Search Warrants and Subpoenas .......................................168 Should a Self-Storage Accept Packages? ..........................170 Cash Put in a Box .................................................................171 Late Fees ................................................................................171 Lien Sales...............................................................................171 When a Tenant Files Bankruptcy .......................................172
Chapter Fifteen Rental/Leasing Agreements .....................................173
The Self-Storage Lease Should Address The Following 173
Chapter Sixteen Rental Rates and Increases ......................................179
Establishing Rental Rates....................................................179 Ask Yourself These Important Questions ........................181
Chapter Seventeen Expanding Remodeling Adding Value .................185
Some Ways to Add Value to Your Facility .......................186
Summary ...................................................................199
viii
Self-Storage • The Journey
Your Introduction To Some Exciting Information
In the last several years, we have received countless e-mails and telephone calls with so many questions regarding self-storage. 1. How do I get started in the self-storage business? 2. Where can I get more information on the self-storage industry? 3. What is this self-storage industry I hear so much about? There is a growing demand for information about this ever-changing industry. People want to know if it’s too late to get involved. With so many questions and with such limited consolidated information available to the public, the information contained in this book is invaluable. Certainly, you can find out about the different aspects of the industry on your own, but that process won’t guide you towards any educated decision as to whether or not you should get involved. My name is Dean Brown and I am president of American Steel Buildings, Inc. I developed this resource to provide you with a proper starting point. This is a journey into the history, and future, of the self-storage industry. I know this material will help you decide whether or
Your Introduction To Some Exciting Information ix
not self-storage is for you. This information can serve as your guide and foundation if you choose to pursue this dream and turn it into a reality. It was not designed to give you every detail about every aspect of the industry, but rather to provide an overview and to stimulate your thinking process, so you make decisions concerning your involvement. This resource is also for folks who are already in the selfstorage business and are looking for ways to expand, sell, or refinance. It is valuable for those who want to know more about the new Condominium Style RV and Boat Storage models which seems to be so successful for many. The self-storage industry is still a great business consideration. Darren Newberry, General Manager of American Steel Buildings, Inc., says it this way, “I really enjoy helping people overcome all of their obstacles and fears about going into the self-storage business and giving them information so I can see their dream become a reality.”
x
Self-Storage • The Journey
Acknowledgements
When I or my staff would receive a phone call or e-mail from someone asking us many questions about how to become involved with the self-storage business, we loved to help them. However, this person would represent one of hundreds who needed information pertaining to the self-storage business. We have constantly received inquiries from men and women of every age, ethnicity and situation who ask generally the same types of questions. One day last winter, I thought, why not address all of these questions in one book? By doing this, we could provide a way to help so many more men and women who have these self-storage business questions. Whether it is for the openly inquisitive or the more private, each person can be equipped with this informative book and still remain confident in their own ability to journey on into this self-storage business arena. I decided to move forward with my in depth research to create such a book. This involved speaking with my staff, reading thousands of articles and communicating with many developers and builders, as well as some great steel building erection crews. Darren Newberry, the General Manager of American Steel Buildings, Inc. was a wealth of information. He has helped a countless number of folks with his knowledge of the self-storage industry. Thank you Darren! A big thanks to Beverley Halsey as well. Beverley has
Acknowledgements xi
been a top estimator and a key person in our success. Her knowledge in the area of customer needs supplied tremendous insight for this project. I would also like to thank Rachel Jenkinson for her many hours of examining this book with her thoughts and view points. She is a real blessing in our offices as well as an influence in our lives. Also, I thank my sister Vicky Walters who put us in touch with our wonderful editor Dr. Gillian Silver-Rodis who makes her home in Las Vegas. Thank you Gillian for taking the time for this project. Thank you Sue for your sacrifices which included my late night scants to the office with new ideas to add and many weekends spent working on this project.
xii
Self-Storage • The Journey
Chapter One
The Beginning of Self-Storage In The United States
Self-Storage’s humble beginning started shortly after World War II ended. There was a substantial increase in military personnel needing to store their personal items. As they began to look for places to store their extras, they began to rely on their friends with extra garage space to help with this need. It was also during this time that the nation became much more mobile. Not only did Americans travel more mobile (because of so many highways being built and better paying jobs across the states), but income began to grow and folks began to buy more “things” than they actually needed. After a few years, this generation had acquired so many “things,” that the need really became evident that a solution was needed. This led to a shortage of room on, and in, their immediate property. Because of this booming time in America’s history, new homes - without basements and attic space - seemed to appear everywhere. And this, my friend, is what American ingenuity is all about. This is the legacy of this self-storage concept and its development into the business it is today. A few entrepreneurs began to build some simple concrete block buildings with roll-up doors. The problem with block buildings were they had to constantly deal
Chapter 1 - The Beginning of Self-Storage In The United States 1
with cracks and leaking. After some time, these buildings had to be sealed and painted so often that this led to the search for a better structure. In their search for a better building, someone built a metal building and found that this seemed to be the answer. During the early 1970s, metal buildings began to be constructed more and more. Still, they were a far cry from what we see today. But, it was during this time period that so many metal building companies got their start, as they were less expensive to build and maintain. The challenge was that these early buildings were constructed with heavier gage steel which was galvanized and therefore prone to rust. We have all seen the unsightly white powder-looking substance which began to appear on these buildings as they aged.
Baby Boomers Gave Birth to the Self-Storage Industry
For the past 40 or so years, American companies have eagerly pursued the Baby Boom generation. These folks began to spend large sums of money on homes, toys and just plain stuff. Boomers spent so much money on valuable things that safe storage became a real challenge. One would think they only needed so much stuff and this trend would slow down. Quite the opposite, as competition on who had the latest and best was greatly encouraged by savvy corporate marketing schemes for toys folks just couldn’t seem to live without.
2
Self-Storage • The Journey
The turn of the century saw these Baby Boomers begin to reach retirement age. However, a good portion of this segment isn’t spending their free time just puttering around the country in RVs or taking in 18 holes on the golf course. Rather, so many of them are starting their own businesses. A 2006 study by the Ewing Marion Kauffman Foundation showed that people between the ages of 55 and 64 are the most likely Americans to start up a new business. Why is this phenomenon taking root? Well, according to an article in U.S. News & World Report, it’s possible that the Baby Boomers are having a sort of existential crisis. After so many years spent working for other people, they want to work for themselves. And, unlike many young people, they actually have the money and experience to do so. Many of these aspiring entrepreneurs are considering the Self-Storage industry as promising a post-retirement career. It’s one of the few small business investments that provides relatively low-risk but high-reward.
Here’s why:
Many of these folks have built a huge network of contacts developed through their years in the corporate world. They reasoned they could use this information during their post-retirement years to enhance their own ideas and businesses. For Boomers with an entrepreneurial itch, getting started in the self-storage industry could be the perfect outlet.
Chapter 1 - The Beginning of Self-Storage In The United States
3
Consumption Accelerated This Industry
Self-storage businesses in the United States generated more than $20 billion in 2007. Just about 93 percent of that revenue came from rent and the rest was generated through the sale of products and services. Now the offspring of Baby Boomers (born between the late 1970s and the early 1990s) have picked up the same spending habits of their parents. They are spending more than $170 billion a year on the same types of things. This means they are now teenagers to late-20s and over 70 million strong, and they are beginning to catch up with the 80 million Baby Boomers. This new market also is beginning to create new surges in consumer behavior, attitudes, and society. A good portion of them are into apartment dwelling, which tremendously limits their storage space. Two high-use groups are the military and students. While the use of self-storage by students is increasing, the Iraq war has caused the military folks to start using self-storage at a higher than usual rate. The military use of self-storage facilities is about three percent of the industry. Sometimes for a year at a time, they find the need to store their belongings. They are always relocating as well as spending time overseas. Often they aren’t in control of their time and receive short notice on their orders. This puts a burden on getting their affairs in order. Most operators use extra courtesies to support these customers with the extended late payment notification.
4
Self-Storage • The Journey
Self-storage can be marketed to both of these segments by showing students the advantages during their college years and the convenience for the military service. The self-storage industry has evolved into what we see today. Drive-up, drive-through, climate-controlled, multi-story storage units with wine cellars, gun safes, vaults and so much more. These new generations of customers are now used to seeing these facilities and this is a good thing, as amenities generate longer income for operators. If you look around, you can most likely see a need for storage in your own community. Now storage facilities are even being built to blend into neighborhoods, some even after plush living quarters. You will learn things in this book about buildings that have become so beautiful and convenient. And, you will be left with this one question: How can business minded entrepreneurs pass up this opportunity? Perhaps you should join this phenomenon of some 40,000 facilities, and view this industry as a great income investment. Better yet, even though many larger companies have bought up many facilities, the “mom and pop facility” still dominates the industry. In 2002, Prudential Real Estate Investors listed the self-storage industry as the leading desirable class of business for investors. The self-storage industry has seen a number of changes during the last 10 years. Five self-storage companies have gone public, one has gone from being publicly traded to privately owned and another publicly traded company has become a part of the market force industry leader as the result of a buyout. While these transactions have totaled over $4 billion, it is important to note that they represent less
Chapter 1 - The Beginning of Self-Storage In The United States 5
than 10 percent of the industry nationwide. To put this in perspective, the top 15 operators in the country own less than 17 percent of the mainstream market. This lack of consolidation is one of the key reasons the self-storage industry has become one of the most sought after types of investments in American today. This comes down to the only reason investors look to self-storage is the quality of the product for investment purposes—to make money.
Three Distinct Groups of SelfStorage Owners and Developers
1. RIETs (Real Estate Investment Trusts) have really grown in the last few years. Now the larger investors (many non-self-storage investors) are, in a large part, turning away from other real estate sectors to the self-storage industry. Some are even going into partnership with smaller operations to pursue larger transactions and increase holdings. 2. New folks who are non self-storage investors are now looking to get into the industry as they become more aware of the outstanding returns. With experience in the office, industrial or retail real estate sectors, they are now adding self storage to their adventure. 3. Some are buying existing self-storage facilities to enter a new arena. Others chose to develop their first facility from the ground up.
Key Considerations
If you consider becoming a developer in this industry, you need to become diligent and do your homework in regards to new projects. Field knowledge is a must. Don’t
6 Self-Storage • The Journey
just concentrate on the specifics, but take a look at the industry as a whole and decide for yourself. • Every aspect of a new project must be well thought out. The potential customer base and specific market area of a new project must be examined, along with the existing competition and future competition as well. Next, consider location. • Investigate diverse opportunities and educate yourself about any area of consideration. The site selection process is very important and must be done with care. Make the choice to diligently do your feasibility and market studies. • Interest and capitalization rates are also important given the dynamics in today’s market. The financial institutions that developer’s turn to for their loans, should have a working knowledge of the industry in terms of cash flow, lease-up, and the overall process of building a facility from conception to completion. • Today’s developer must consider facility management and operations early on in the development process. Hiring experienced industry managers will help make your project a success.
Chapter 1 - The Beginning of Self-Storage In The United States
7
• If you plan to build a larger facility, your manager must be familiar with self-storage. They must be responsible for leasing space, marketing, as well as retail sales and ancillary services. Bring this person in early during the process so you can get a feel for him/her as a prospective manager. They may even have a few good ideas to help this process along. They can also help set up the office, reserve or lease space, and support your grand opening. All in all, the “build it and they will come” philosophy won’t cut it. Following that thinking mode has the potential to cause failure. The more you educate yourself during this process, the better prepared you will be to enjoy profitability. There are more than 40,000 facilities in the US. This is clearly an industry where continued strategizing and planning is just as important to newcomers as it is to top operators and self-storage REITs. Investing in self-storage doesn’t mean you will automatically become successful. You must become extremely diligent in regards to site feasibility and location, as discussed in Chapter 5. Self-storage is a wonderful investment. The rents are comparable to rents found in apartment ownership, yet the hassles of operations and management are far fewer. Not only has self-storage matured, but it is finally understood by lenders and Wall Street. The industry has abandoned its humble beginnings and is now sought after by sophisticated investors who realize the potential. For many years, few self-storage facilities were for sale because so many owners were very content with their
8
Self-Storage • The Journey
investments. But now, the expansion boom is opening up new opportunities. Are you in the market for a self-storage facility? This area was once considered a secondary real estate investment category, but today self-storage is moving to the forefront of the commercial real estate markets. Some buyers are purchasing these properties while some are choosing to consolidate their operations. This has begun to create what many are calling the most active selfstorage investment market ever. Self-Storage REITs (Real Estate Investment Trusts) account for only about 5 percent of the equity REIT market, yet have one of the second highest 10-year compound annual return rates. Favorable cap rates, especially compared with other sectors, are driving this interest. Cap rates for self-storage are higher than other asset classes which represent what Wall Street calls a “core asset”.
An Attractive Investment
What else makes the self-storage business a good investment? The failure rate is very low compared to so many other businesses. Your facility also will pay for itself in a very short period of time. Are you older? If so, this is an ideal area to consider. According to the 2006 Merrill Lynch New Retirement Study, the fastest growing groups of entrepreneurs in the U.S. are Baby Boomers seeking their ideal retirement. They are seeking a “retirement career” to help them stay mentally and physically active. Self-storage businesses are a quickly growing segment of this societal upswing.
Chapter 1 - The Beginning of Self-Storage In The United States 9
Self Storage Has a Good Chance of Success:
Any new business is risky, and those risks have to be accounted for before taking the plunge into entrepreneurship. However, self storage steel buildings have a better track record than other start-up commercial ventures. According to an in-depth study by National Development Services Inc. of the performance of multifamily, office, retail and self storage developments in Texas, Oklahoma, New Mexico, Colorado and Louisiana, self storage steel buildings have a failure rate of about 8 percent. Other real estate ventures have a failure rate nearly six times that amount 53 to 63 percent).
Where Are Things Headed in The Near Future?
What are the expectations for the near future? Good. As economic concerns grow a safe, long-term investment holds even more promise. According to the latest “Confidence Index” issued by the Mini-Storage Messenger, rental trends in 2008 show a slight increase and confidence in the self-storage industry is very good. This optimism supports the longstanding position that self-storage is insulated from broader economic pressures, and is more insulated than other businesses and real estate sectors. The Mini-Storage Messenger goes on to explain the occupancy levels have increased slightly, while capital expenditures remain unchanged. Declining interest rates make investment even more attractive.
10
Self-Storage • The Journey
It’s Not a Huge Initial Investment
Compared to other new businesses, industry investors also will experience at a smaller initial cost with self storage steel buildings. Based on a 75 to 80 percent occupancy rate and the land purchase, materials and construction, you could still have your loan paid off in about six years. That’s considerably less time than most other small businesses. If you own your own land, and put up self-storage buildings, you are ahead of the game. At the same occupancy rate, is would take you two and a half to three years to break even and be on your way to the greatest profit margin. This business doesn’t require a huge staff to maintain. Most likely you’ll be managing your own facility with a couple of employees for the day-to-day upkeep. After years of working in giant buildings amongst thousands of other people, who doesn’t want that kind of limited responsibility? You can become part of a growing industry with demonstrated demand and has been the fastest-growing sector of the commercial real estate industry for the past 30 years. In 2006, gross revenues for primary self storage facilities were $22.6 billion. This averages out to $441,208 per facility. Self storage is not only a stable industry, but a steadily growing one with demonstrated demand. In addition to consumers, businesses also require storage. They need storage for surplus office supplies as well as equipment while moving.
Chapter 1 - The Beginning of Self-Storage In The United States
11
A typical leveraged self-storage property has a break-even occupancy rate of between 60 percent and 72 percent. Compare this to leveraged multi-family, office, and retail properties with a break-even occupancy rate between 80 percent and 90 percent. It is apparent that self-storage property has more room to absorb market declines. Self-storage has a total development cost that is a third to a half that of multi-family, office, or retail properties. To the investor, this means a considerably lower investment or loan amount to be serviced with rents comparable to other real-estate investments. The cost of operating and managing this type of facility is another key element that is appealing to investors. Self-Storage operating costs range from $1.50 to $2.00 per net leaseable square footage. Compare this to operating costs for the other real-estate properties surveyed, which range from $2.50 to $3.50 per square foot. Apartments, office and retail properties have to continually maintain the grounds, appliances, plumbing, electrical fixtures and a variety of other maintenance concerns, which usually require full-time staff support. With apartments, you also need “make readies” and interior remodeling for new office and retail tenants. In comparison, selfstorage usually has one or two managers and very few of the maintenance “headaches” associated with “live-in” tenants. The “bottom line” in comparing self-storage and mini-storage to other real-estate investments is that the investor can realize a much higher ROI (return on investment) for the typical self-storage property than for other investments. Another huge point for consideration
12 Self-Storage • The Journey
is the initial investment is only a third or half the amount required by other real-estate investments. Due to the lower break-even occupancies, the investor should anticipate investment cash flow sooner, and a much lower element of risk in relation to economic declines and their impact on lower occupancies and rents. The investor does not have to worry about additional capital requirements relating to tenant improvements or continual maintenance. Additionally, operating a selfstorage facility is much less labor intensive to operate and maintain. Also less heating, electrical, plumbing and HVAC maintenance is required. Further, the capital expenditures for renting units and tenant turnover are less (according to the Mini-Storage Messenger) since there is no real estate commissions to pay. When a tenant vacates, it is usually just a matter of sweeping out a unit.
Don’t Overlook Small Towns
Small towns can have big potential. So many “mom & pop” self-storage facilities have done well in nonmetropolitan communities. As these smaller towns begin to grow, these facilities grow right along with them. After all, the price of the land is more reasonable in these areas than in larger cities. I also noticed that the farmer/land owner who had property just outside of town began getting into this industry because a major startup cost (land) was already covered. Instead of crops, the farmer saw that he could have a year round crop (income) with much less work.
Chapter 1 - The Beginning of Self-Storage In The United States
13
He recognized that owning his own land was a huge plus in his endeavor. As his city grew, his exposure did also. With 80 percent of Americans living in metropolitan areas, they are beginning to get fed up with the things that go along with that type of environment. Many people are relocating to rural and suburban areas. A lot of them are making the move into and around smaller towns. Let’s face it, they want less crime, less noise, lower prices and dislike the traffic. Big business is even following this trend. Regulations may be limited and the costs of doing business in these larger metropolitan areas are lower. A good example is Wal-Mart which has long recognized the opportunity to establish themselves in smaller cities. Another key trend is that smaller communities are experiencing a shift from manufacturing and farming towards more service-based economics. This movement brings dynamic thinking. For example, some entrepreneurs have even begun to build self-storage facilities in several small communities within a state or 150 mile radius of a major city. They have no offices, but only closed connection phones that ring to a central location (usually in their home). Once they take the information from the customer’s credit card, they give them a code for the gate. Then the owner/operator mails out a contract and the customer sends it back with a signature. It doesn’t take long to locate any competing facilities if any exist, because there is less competition in these markets. Visit with local developers to locate the good
14
Self-Storage • The Journey
neighborhoods and growth areas. Don’t forget, do your homework.
The Forecast for Self-storage
The self-storage industry continues to do well during times of market fluctuations. The term supply and demand is extremely relevant as the demand for selfstorage remains very steady. Volatility peaks and valleys do happen, but the demand is still way ahead of supply, especially for RVs storage. For a long time, we were in a market where shorterterm money was priced as much as three percent higher than long-term loans and if you were able to convert that to a fixed rate loan at stabilization, you could obtain a loan closer to six percent. Short-term money has decreased, but longterm money has increased making these loans more advantageous. Storage owners in the market who choose to refinance or acquire a property have to decide on a fixed rate for 5 to 10 years or float their loan on a shorter-term basis. Variable rates provide the flexibility to prepay, and then you can ride the market to see if rates decline any further. Use this time and opportunity to grow income through expansion or continued operations like rent increases. You can then refinance or sell the business at a later date.
Chapter 1 - The Beginning of Self-Storage In The United States
15
16
Self-Storage • The Journey
Chapter Two
Should You Buy, Or Build?
Some self-storage owners choose to sell their selfstorage facilities for a variety of reasons. Some are fearful of market expansion, while some simply want to liquidate their properties while the market is peaking. Buyers are eager to own self-storage facilities because they hear so many good things about ownership. Ease of management, flexibility in raising rents, and lower building costs are among the main reasons buyers seek these facilities. Self-storage facilities are different from residential properties because you need to analyze the many details that are specific to this industry. The self-storage business is a little more complicated than most businesses, so you need to do your homework and become familiar with the industry. Today’s properties are different because so many of them include ancillary income. If you are looking to buy a facility, there are many reasons to develop a large understanding of the industry. This is important because you need to verify every aspect of the information that you have gathered, before entering into contract to purchase. Include in your investigation of a particular facility a visit to the local police departments where the facility is located. Ask them about the number and types of calls made to the facility for the previous three or so years. A
Chapter 2 - Should You Buy, Or Build? 17
history of thefts and break-ins can indicate this facility would be difficult to market. Examine the physical condition of the building(s). Look at the version of the lease used. Make certain the document includes all the correct information needed to bind the tenants. While checking the current leases, see if the delinquency rate is high or low. If the delinquencies are high, you (as the new owner) will be responsible for collecting on past due accounts. Further, it is vital to make certain the leases follow and comply with state statutes. If so, this will keep you out of legal problems. Sellers have been known to intentionally avoid having auctions as this helps to maintain higher occupancy rates. This is why handling the files and using documentation procedures is so important to check. You don’t want to inherit all the legal problems that go along with previous poor management. While examining the financial records, look at the profit and loss statements for at least the past three years. The same goes for balance sheets, payment histories and tax returns. What kind of insurance policies do the current owners have? Look at the loan documents, title policy, deeds of trust and notes. Make certain they are all sufficient and in order, and consult a realtor or attorney, if needed. Verify the existence of every customer and that the spaces are actually rented. You don’t want to inherit the wrong information about the existing customers and wind up selling their property.
18
Self-Storage • The Journey
Look at the facility’s competitors and find out about the reputation of the business that interests you. What is being said about the facility and the current owner?
Building a Self-Storage Facility
The cost to build a self-storage facility is considerably less than it is to build office or retail space, hotels, or multifamily dwellings. In most cases, the cost of construction, including land, and soft costs (commissions, financing, and costs for various consultants or professionals) is about one-third of the price for other real estate types. Compared to buildings apartments, there is limited plumbing and electrical to install at a self-storage facility. The interior space is rather uniform, with specific unit sizes as opposed to residential floor plans. There is little dry walled and finishing required. There is a customization factor to consider, since oftentimes individual tenants require that the offices they lease be reconfigured to suit their needs. But, in general, these factors make self-storage easier to develop. Once a self-storage is built, it is much less labor intensive to operate and maintain. The staff is usually limited to you and an employee or two, or a manager or couple. You might also consider a part-time assistant manager. There are no real estate commissions to pay, and when a tenant vacates, it is usually just a matter of sweeping out the unit.
Chapter 2 - Should You Buy, Or Build?
19
The good news is the facility will generate the same rent per square foot as apartments. Specialty storage can bring in even higher rates. Self-storage facilities also have a lower rate of delinquency and rents can be pushed harder. When you initiate a 5 percent rate increase, the tenant would rather just pay the extra than move. When you look to the future of self-storage, its primary use by residential customers will always be popular. Not only that, but the facilities continue to draw an increasing number of commercial tenants. It is cheaper for them to rent a storage space at a facility rather than more office space. This opportunity is only going to get more appealing. People are always buying more “things” as well as commercial goods, expanding operations with more equipment or inventory, starting a new home-based business, or just need extra storage space. These folks will continue turning to self-storage to fulfill their requirements. With this information, you can now consider the type of facility you want to build or purchase. Or you can build any combination of the following. Look at Chapter 3 for information on the facility options: • Basic Dry Storage Only • Climate Control • Basic RV and Boat • Condominium Style RV and Boat • Conversion • Mobile Self-Storage
20 Self-Storage • The Journey
• Multi-Story Self-Storage • Private Storage in Multi Family Buildings • Records Storage • Wine Storage • Combination Retail and Self-Storage
Consider Your Exit Strategy
If you decide to become involved in buying or building a self-storage facility, consider your exit strategy. Your strategy may change through time, but this thinking is necessary to be well prepared.
Should I Sell, or Refinance?
Refinancing is good in this competitive lending market so you might want to re-finance at a more attractive rate. Take advantage of the competitive acquisition market and sell your property at a time when the buying market’s demand for self-storage real estate currently is outpacing supply. For example, you don’t have to achieve a near 100 percent occupancy to consider selling your facility. This is a misconception. The facility does, however, need about 60 percent occupancy before you list the property. These last three years or so have shown an advantage for those who have turned their investments because it is one of the most attractive markets this industry has ever seen. There are simply more investors going after self-storage than ever before, because the advantages are so clear. There is more supply (self-storage facilities) than demand. There are around 78 potential purchasers and usually 6 to 10 operators competing for the same facility.
Chapter 2 - Should You Buy, Or Build? 21
Still, do your homework to maximize your return and obtain a real estate advisor in tune with the market. They should understand the disposition and refinance markets. Also, it is essential to hire one without a vested interest in your decision. Always have a plan to run your facility as if you want it to grow and would never contemplate selling. This way, you have a better than average chance that a company or individual who meets your asking price will surface. Run your facility in the most efficient manner to create value and then identify prospective buyers. It might be a family member, a good employee, or a thirdparty. This third-party will give you the most dollars, of course. When you build a facility, you are going to attract institutional money. You have to have a good amount of added value (see Chapter 17) to be attractive. A welllocated, quality product with a good unit mix is required for an institutional sale. Another exit strategy is the tax-deferred 1031 Exchange. According to the Internal Revenue Code Section 1031, neither gain nor loss is recognized if property held for investment or for productive use in a trade or business is exchanged for “like in kind” property. This means that if you trade cash equity for equity, then you can delay paying taxes. Recognize that capital gains rates are as low as they have been in years, however, this means you may be better off paying the 15 percent tax on your profit and moving on.
22
Self-Storage • The Journey
In deciding whether to sell for cash, pay the taxes and completely exit, or agree to stock options and hope the shares appreciate on Wall Street, remember that the primary benefit of selling to a public company is the tax deferment. Keep in mind you need to present effective financial controls to convince a buyer that financial statements accurately reflect the company’s financial condition. To get the most for your self-storage property from the abundant, eager investors, you need to do your homework and understand whether selling your property is the right thing to do. Remember that every market is not the same in self-storage. Assess the local economy and make decisions that reflect long-term growth opportunities. Understand the local picture and trends in your city or market. When you’re at that point ask; does selling your property actually makes sense for cash flow, your financial environment, and the local market structure? If so, then begin to spruce up your facility. Repair and clean up all the areas of need. Then you can begin to target your buyers. For example, if you are building your property for the sole purpose of selling it, build to a broader market rather than a more confined one. Technology sells. Depending on your buyer, you’ll need to understand the aspects of technology that sustain modern self-storage facilities—and whether or not your potential buyer even has a desire for sophisticated technology. Prepare detailed reports because investors will want to see at least three years worth of your accounting records. Your files must include income statements,
Chapter 2 - Should You Buy, Or Build? 23
occupancy and rent rates, as well as expenses. You will also need to show a reasonable revenue projection for your property over the next three years.
The Importance of Building Value
The idea behind your strategy is to build enough value in your facility while you own it. This enables you to bring an attractive investment to the market, and one that generates high value when you sell it. Once you have completed all your homework and are prepared to meet your investors’ expectations favorably, you will be well on your way to getting the highest sales price for your self-storage facility. But as stated previously start thinking about an exit strategy as you go in so you won’t miss the opportunity when it knocks.
24
Self-Storage • The Journey
Chapter Three
Types of Facilities
Basic Dry Storage Only
This type of self-storage facility is just what the name implies. It normally contains buildings filled with various sizes of units, ranging from 5 feet by 5 feet, 5 feet by 10 feet, 10 feet by 10 feet, and 10 feet by 20 feet. A typical 2,000 square foot dry self-storage building should run around $9.13 per square foot to $9.63 per square foot to build. This includes building construction, insulation, labor and doors, according to Darren Newberry, General Manager of American Steel Buildings, Inc.
Conversions
Conversions involve transforming existing buildings into a self-storage facility. Warehouses, office buildings, factories, automobile dealerships, parking garages as well as other larger retail structures are good considerations for conversion. Keep in mind that, if it is large enough, it can be converted into a self-storage facility. Just look around for a vacant building that has either been vacant for a long time, or one that no longer has a use. This particular arena has really increased in the last five years and the considered size has even grown. In the past, the average size of the buildings being converted
Chapter 3 - Types of Facilities
25
to self-storage was 15,000 to 45,000 square-feet. Today, many are 100,000 square-feet or more. Many potential conversions are located downtown where entire communities of businesses are located. Most of them are already heated and air conditioned, and offer elevators and many other considerations. Plus, it doesn’t take near as long to finish and occupy a converted structure as it takes to build from ground up. The best thing about these conversions is that the building already lends itself to installing high security. If you are going to offer storage for niche items such as paintings and wine, the entry design must be equal to an upscale hotel lobby. Your building’s exterior already lends itself to advertising with its size. A highly visible finish can really promote the business. Another plus is you can actually rent out one section while working to finish out another area for the future. Location is still the name of the game. Look for favorable traffic patterns and easy access to the facility. Zoning is generally not a problem as more owners and developers have opted for conversions instead of groundup developments on raw land. In many instances, municipalities will do everything they can to accommodate self-storage developers who want to convert an older building, even if there is a pre-existing zoning issue. They want these abandoned buildings filled, functioning, and owners paying taxes, rather than having an eye-sore. It is better all around for everyone.
26 Self-Storage • The Journey
Another advantage to converting an existing building to a self-storage facility is that normally a building that is already zoned means considerably less time is spent dealing with building departments and zoning boards. This often results in a project being completed in 70 percent less time than normal. Another factor to watch for is the elevators. They must be large enough and sturdy enough to carry both passengers and their goods. The elevator’s door size needs to be appropriate. These elevators need to be situated within 150 feet from the farthest storage unit. Cost is to be considered as an elevator can run from $30 to $100,000 not including the shaft or installation. A less expensive way is a Vertical Reciprocating Conveyor or VRCs. Also known as storage lifts, material lifts, freight lifts, or even cargo lifts, they can be placed virtually into any type of building at any time, and they are very reliable with an established safety record. VRCs are about half the cost of elevators. However, if there is an American with Disabilities Act requirement to fulfill, or if the facility has four or more levels to service, a passenger elevator is advised. Keep customer convenience in mind at all times. The HVAC system must be repaired or expanded. This is especially true if you are offering climate control storage. When you find your building, consult with an experienced architect before you move forward. There are dollars to be made with this conversion process.
Chapter 3 - Types of Facilities
27
Private Storage in Multi Family Buildings
This form of storage benefits families who need storage because there is no place in their dwelling to put their toys and extra items. It can be centrally located in a basement or another area convenient to the apartments. This need became more recognizable when so many apartment complexes were being built in the late 1960s. With this influx of residents came the requirement for storage. This is what gave birth to the in-house storage units built mostly in the basements of multi-family buildings. In cities such as New York City where space is so limited, this trend is definitely on the rise. Convenience and the cost of outside storage is the driving force. Even building developers are beginning to include these storage areas in their planning. Approaches may vary from wire-mesh storage to fully enclosed storage units.
Multi-Story Self-Storage
While they can be a challenge to complete, multistory buildings have become a more solid consideration because of land costs and availability. This process can offset the higher cost of land, but you need to consider all of the extra costs to determine if the investment is prudent. This option is where your feasibility study comes in handy. The cost of a larger piece of land versus a smaller piece of land can often save you enough to put the savings into a multi-story building. So, after you have decided to go up, just how many levels should you consider? The main consideration is that of two stories versus three
28
Self-Storage • The Journey
or more. Strive to get as much value for your rentable square footage as possible on a particular site. Foundations are, of course different for a multistory building in that they must include full footings. Additionally, concrete costs increase when second or third floor slabs are included. Next, you need to decide on whether to build an elevator or two, or a material lift, or both. Codes, including fire exits and emergency alarms, must be considered. This is where the advice of a good engineer and architect will be beneficial. You need these professionals who are familiar with all the local and state codes. They also need to be very familiar with the ADA (Americans with Disabilities Act) codes and statutes. Keep in mind that these costs can be considerable depending on state requirements. Electrical costs increase dramatically, however, especially when elevators are provided.
Mobile Storage
This part of self-storage involves the delivery and pick up of special containers at businesses and homes for storage at your facility or for moving. The self-storage industry is still trying to decide if mobile storage is a good idea to incorporate into their self-storage business. It is happening more and more, so many are viewing this as a strategic method for adding value to their business. It does set your facility apart from competitors. This has been gaining in popularity since 2001. Eventually, this approach will really cut into the moving industry and the use of rental trucks. Of course you do need to have more acreage to apply mobile storage which does increase your overhead. To pursue this area of storage, you really
Chapter 3 - Types of Facilities 29
need to do your homework. Plus, you need to have good management skills to handle this type of operation. Mobile storage does provide a convenience. The difference is while self-storage is recognized as more of a real estate venture, mobile storage is more of a service business. For example, it takes longer to rent a mobile storage unit than a standard on-site unit. Further, consumer education and marketing is important, but it will expand your radius of operation. Normally this service requires a larger self-storage operation to work smoothly. You don’t have to start out too large to begin with which means that you can grow into this arena. But, if this idea of mobile storage looks good to you, don’t wait too long or your competitors might move into this area. As your mobile storage service grows, you will need to hire a full-time delivery and pick-up person. Oversight of this area will take a good manager who is detailoriented and will carefully track the inventory. The good news is there is software programs designed to run your entire mobile storage business. Many operators are requiring a minimum rental period for these units. Your delivery distance needs to come in around $5 per mile and you must plan to adjust this rate with the increase in fuel cost. This estimate should cover your employee’s time, gas and other details. Folks want to use these units to move and you will need to figure two men for the job. The most important component in this area is the lift system. Your lift system must be able to deliver these containers safely, efficiently, and repeatedly,
30 Self-Storage • The Journey
with minimal maintenance and in any weather. Your customer expects the unit to be delivered and picked up in a professional and timely manner. Research each of the many types and brands of lift systems before making your choice. The next important component is the box, or container. You are probably wondering which type is best? It’s important to develop a strategy for selecting the kind and size. How many options are needed? As you fill 20 or so containers, order more. A company called Kontane has no minimum purchase requirements, but does discount for larger orders. Keep in mind you will eventually need 100-plus containers in order to show a good profit. There are metal containers which are more expensive than wood or plastic, but are also more durable. Some can even be disassembled and stacked flat when you don’t need them. Storing these containers will take some planning. If you are going to stack them, you will need the appropriate forklift capable of lifting 10,000 pounds more than 15 feet. The size for the industry standard is 8 feet by 5 feet by 7 feet, but there are many sizes available. Make a choice that is practical for your space and economically sound. Do your homework. Search the internet and you will find many links to companies that offer mobile offices, trailers, and overseas shipping containers. As this idea is fairly new, you need to remain aware of changing legal issues. You are housing customers’ personal property and must uphold that responsibility.
Chapter 3 - Types of Facilities
31
While the self-storage business is engaged in real estate transactions, mobile storage is engaged in the rental and transportation of personal property. Sooner or later, the mobile storage industry will have true definition of just who and what this new business sector is and how it operates. Become familiar with your local transportation and storage of household goods laws. Some states have few regulations while others have many. A self-storage operator may require a license as a warehouseman to transport customer’s goods. Certain regulations may need to be upheld. Do your homework in this area because knowledge is paramount. Keep the right coverage with your insurance. The customer is responsible for insuring their goods while they are stored inside your facility, as long as the selfstorage facility is not shown to be negligent. To protect yourself, consider a rental agreement which states that a customer may not store more than $5,000 worth of goods in their container.
Climate Control
Although this type of storage is called Climate Control, you will learn that this is not always the case. It should be called Temperature Control. First let’s look at the value of climate control. This is a growing trend which is increasing as potential customers search for a facility where they can have their personal property stored and protected from extreme heat and cold. They will even drive a little further to find a facility that has these units available.
32 Self-Storage • The Journey
People are looking for ways to store possessions that need to remain within a certain temperature and humidity range. These items need to be protected from wide temperature changes, mold, mildew, bugs and rodents. Many considerations need to be addressed here. This consumer requirement began to take frontstage in the mid to late 1990s. Facilities began to offer at least one or two climate controlled units in their mix. As these types of storage units began to quickly fill up, more attention was placed on offering entire buildings housing only climate controlled units. Climate controlled units/buildings requires you to keep the temperature below ninety degrees in the summer and above forty degrees in the winter. Humidity is very important and needs to be kept below sixty-five percent in order to control/stop mildew and mold. This is where a good dehumidifying system is critical. Remember that when you choose to build a climate control building your cost is greater than dry storage. These costs will come with both new and retrofitted buildings and will include energy considerations and HVAC systems stability. Dehumidification systems are a necessity. To be safe, design the air-conditioning loads at 1500 square feet per ton (which is much less than a home or apartment). Under sizing your HVAC will make it more effective at humidity control. You may need to start out at a lower rate to introduce the benefit, but as your customers see the value of these types of units, then you can increase rates. Larger units
Chapter 3 - Types of Facilities
33
are more popular, therefore you should charge more here than for the smaller units. Consider discounting the units farthest from the entrance while keeping the more convenient locations at a higher rate. As demand grows, adjust your rates to improve profitability. Control is the key word in orchestrating the heat, cooling and humidity levels. A back-up generator is a fantastic solution to ensure the system will work. Continually check (or have alarms that notify you if limits are breached) the temperature as well as the humidity levels. This benefit needs to be worded properly in your rental agreement/lease. If someone brings wet items into a self-storage unit, all bets are off. Include a disclosure about mold, the possibility of mold and ways to avoid mold during storage. Your lease should have language to cover the possibilities that can occur if systems providing the temperature or climate control fail. Blackouts, tornadoes and other disasters may occur that are out of your control. The only state that has a statute concerning the advertising of climate control for storage of personal property is Nevada. A recap is provided here: 1. The owner of a facility for the storage of personal property or a person acting on his behalf shall not advertise that the facility is “climate controlled” unless the advertisement specifies the range of the minimum and maximum temperature and humidity within which the facility is maintained.
34 Self-Storage • The Journey
2. If an owner or a person acting on his behalf fails to indicate the range of temperature and humidity of a facility in the advertisement that refers to it as being “climate controlled” or fails to maintain the temperature and humidity of the facility within the advertised range, the owner is guilty of a misdemeanor and is liable to the occupant for any damages that are caused to the occupant’s personal property as a result of the extremes in temperature or humidity not withstanding any contract provision in the rental agreement. These statutes have caused other states to take a more serious look at advertising climate control. Some are even considering legislation concerning the actual range of temperature and humidity. This means that you must advertise what you offer with honesty. If you just have heating, say so. If you just have cooling, say so. If you just have heating and cooling (Climate-Control), say so. But if you have HVAC and a controlled dehumidification system controlled at the proper range, you can really promote these values. As there is a large movement in the U.S. to include dehumidification systems, what is the cost? Relative humidity is the highest during the nighttime because your temperature is cooler. Conversely, the relative humidity is lower during the daytime. Therefore your air conditioner doesn’t need to run early in the morning while it is cooler. The unit pulls some moisture out during the day, but builds up during the evening. The air conditioner and dehumidifier compliment one another.
Chapter 3 - Types of Facilities
35
Your air conditioner will waste around 50 percent of its efficiency taking out water but, if you reduce the humidity to five percent, the air conditioner doesn’t need to remove the water so it runs more effectively. The air conditioner is most efficient when you are cooling dry air. Likewise, when you are drying cool air, the dehumidifier is more efficient. A professional can help you to calculate the best efficient HVAC and dehumidification system for your particular building(s). As far as ducting goes, use large single-duct lines. Run them down hallways with vents situated along the sides of the ducts. The hallways and unit partitions are kept to a minimum of six inches. This allows for air flow without compromising security. Position duct lines to flow directly into the storage units. Make certain the building is tall enough to accommodate the height consideration for the air unit hanging in the hallway as well as the ductwork. As far as marketing climate control goes, advertise the design, reliability and other benefits these units provide. Some customers (especially customers such as pharmaceutical representatives) may require certification of how these units are maintained. Keep charts and install alarms to warn when limits are breached.
36
Self-Storage • The Journey
When designing your buildings, keep in mind that if you try to save money, this can end up costing you even more in the long run. Higher operating costs and other problems can occur if poor design choices are made. This type of storage is gaining in popularity. In fact, some developers are building facilities which only contain climate control with dehumidification systems. Beyond just the wine and cigar storage, a growing number of consumer types are looking for climate control. You need to offer climate controlled units to be marketable.
RV & Boat Storage Facilities
You need to decide what type of storage space will work best for your project. There are five types of RV and boat storage facilities. You may want to include one of these facilities, in your overall site.
Open Space
Sizes for open space storage range from 10 feet by 20 feet to 12 feet by 50 feet. This is strictly outdoor parking where individual spaces can be allocated on blacktop or by utilizing a marking system which offers basic parking only with no protection from the elements. The storage area must be kept orderly to lesson the accident factor. Spaces should be numbered and assigned, with extra spaces allowed for overflow parking. This option also can be used where the facility is being developed in phases.
Chapter 3 - Types of Facilities
37
Covered Space
These are open spaces with a roof. This carport style is the most-profitable of the two. You can use both of these styles (open and covered) which offer the customer a choice depending on what they desire/want. The covered space is much more expensive to build, but you can charge a considerable amount for the benefit and the protection it offers.
Covered Canopy with Walls
This option includes a two-sided storage which has canopy storage with end walls. A Three-sided storage will work to your advantage in climates with high wind and snow levels. This type can be constructed in long rows within the facility, or placed along the facility’s perimeter wall or fence. It may be a long row of canopy storage with somewhat covered parking by enclosing the back and both ends. This works best when you can back the RVs into the space, and offers protection from the sun.
Indoor Space
This is a fully enclosed space, but it is the least efficient use of land. You could build a few of these for the more expensive RVs. It is more expensive to build, but commands a high rent. You could also include some extra amenities such as climate control, automatic doors with remote openers, and furnish electricity.
38
Self-Storage • The Journey
Condo Style
Now this option is where the RV storage industry is headed. These units are offered for sale, and you charge for different levels of service. These normally have 14’ wide bays. This style of RV and boat storage normally includes many amenities such as an upscale clubhouse, specialty café, RV washes, valet, and make-ready services which add to your bottom line. No matter which type of RV and boat storage you favor (Condominium Style RV and Boat Storage), there are some key considerations. According to a 2006 news release from the RVIA (Recreational Vehicle Industry Association), RV shipments surged in 2005, setting a 27 year record. The point is this market is extremely strong and all indications are it will continue to grow. RV storage is usually calculated at 30 to 50 units per acre. A 60-degree parking angle works best. This design allows for smaller driveways. Instead of a 60 -foot driveway, you can get by with a 30 to 50 foot driveway. The only concern is getting the doors to work properly at an angle. Another space saving innovation is the use of RV covers which are similar to carports. They are a popular amenity because you can charge twice as much as open designs and you don’t have to use concrete. Gravel or asphalt has been popular in certain areas of the country. The cost in building with these materials is about half the cost of the enclosed units. Also, they can be built right
Chapter 3 - Types of Facilities 39
on the property line with steel fencing which hides the RV from the street. This gives the look of a fully enclosed building instead of a cover. Examine the economics and see if the proposed project will make financial sense. Will the rents be high enough to support the land and construction costs? Look at the market and consider whether the market is overbuilt or is there room for one more RV and boat storage facility, focus attention on any zoning challenges as well as topography. Does the site lend itself to storage? When it comes to boats, the costs involved in wet storage (boats in slips on lake) seem to be out of line with the convenience aspect. Dry storage is less expensive and especially at a well selected location. A great use of land is the stacking of boats, especially the smaller ones. Older fork lifts (with their long forks) just took up so much range that innovation produced a new more efficient design. Now this new lift system (designed by Harold Leslie of Leslie industries in Florida) allows for storage of six to seven boats high in the same amount of space (land wise) of one boat.
Land Costs and How Big
It isn’t easy to build a multi-story facility for the condominium-style RV and boat storage. You must look for good land at a good price and obtain, minimally, about seven acres. You must extract efficiency out of the land you purchase to ensure project profitability.
40
Self-Storage • The Journey
In other words, if your land is expensive you must carefully consider market potential. Look for land values close to $5 per square foot or $218,000 per acre. If you find land for less, this will show up in your profits. The new and improved zoning ordinances actually encourage RV and boat storage. They have finally figured out that these facilities solve the “parking at my house or in my neighborhood” dilemma. Further RV and boat storage provides value to the overall community.
How Is The Parcel of Land Shaped?
The shape of the land will dictate the efficiency of the layout. Generally, the rectangle works better than a square lot. The site is more efficient if the driver can drive straight through with ingress and egress on both sides. The focus must be on RVs, and/or vehicles pulling boats. Another consideration is circulation which dictates the site size. How much circulation space is needed for a truck and a boat? How long is the rig? Do your homework in the area of construction and soft costs. Be certain the contractor you hire has the appropriate level of experience.
Good Security Is a Must
Prevention is better than capture. A variety of security equipment is available including fences, lighting, computerized gate access, surveillance cameras, and individual alarms for boats and RVs. You will want to install motion detectors and can charge customer about $10 extra per month for this feature. Additionally, it is wise to have door alarms for enclosed
Chapter 3 - Types of Facilities 41
units. Place digital video cameras that begin recording when motion is detected at all exits and entrances. Equipment must have sufficient quality to capture automobile license plates as well as clear faces. Don’t hide the cameras. Making them large and visible can be a deterrent in itself. Photoelectric beams running along the fences will detect intrusions. Be careful though with the use of the word “surveillance” in your advertising and your discussion with customers. Some states have ordinances against using this type of language unless you have someone continually patrolling the premises. One very large advantage is that these photoelectric beams are used to deter would-be criminals who become tenants in order to gain access to the property. Put into force (include in your lease/rental contract) a policy whereby a tenant exiting after the facility is closed will have to call the police in order to exit. This helps to develop a good relationship with the police department. When the potential thief posing as a tenant knows this, he won’t be so quick to stay after hours. Do your rounds on all parts of the property just after closing. Use key access dumpsters and locate them next to the office. If possible, eliminate them entirely as this will stop the thieves from storing stolen property in them for later retrieval. Have good lighting, because thieves love to work in the dark. Individual door alarms also work well to deter criminal activity.
42 Self-Storage • The Journey
Fire protection is a must, so you need to have good up-to-date fire extinguishers handy as well as water access.
Insurance For Rv/Boat Storage
Not all insurance is appropriate for facilities that provide vehicle storage. It is essential to obtain a sufficient level and the correct forms, of insurance. A business owner’s policy is a good policy to consider as it combines protection in the event of property loss or damage. Liability (bodily injury and property damage) and loss of income due to a loss or damage is a necessity. You also want to have another two types of specialty coverage: • Customers’ Goods Legal Liability • Sale and Disposal Legal Liability Your standard self-storage rental agreement should be amended for this type of specialty storage. If you are offering a Condominium Style RV and Boat Storage style facility, you will need to shop and discuss this option with your insurance agent.
Lease/Rental Agreements
Tailor your rental provisions and lease requirements for RV, boat, and other vehicle storage. Having the accurate information on the vehicle (year, make and model, license plate, and VIN number) is essential to dispose of an abandoned boat or RV. Obtain a copy of the registration and a physical description of exactly what is being stored.
Chapter 3 - Types of Facilities 43
Make certain the name on the registration is the same as the person who is signing the rental agreement. Obtain a copy of the tenant’s insurance policy and ensure it has the proper property and liability coverage. If an RV catches on fire, it could easily spread to the other RVs.
Rental Agreements Need to Be Geared to Boats and Rvs With Addendums Which Include The Following Items
1. Have specific identification of the item to be stored on hand. 2. Clearly state that only the item identified can be parked in the space. 3. Maintain a copy of the registration and title for the facility records. 4. Acquire proof of insurance for the vehicle must be provided by the tenant.
Gas tank rules must be shown and followed. Stress that no changing of oil or repairs are allowed on property. Determine your process for dealing with hazardous materials such as gas and oil. Recognize the danger and come up with rules for the tenants that include the tank being low, instead of toped off. Customers need to park in the correct spaces. In the past, there was/is a loophole for the tenant’s attorney to pursue. This included something such as your customer said that someone was parked in their space, so in essence, the lease is void. Have your attorney rectify this issue. Provide overflow parking slots and have a fine for tenants who miss-park.
44
Self-Storage • The Journey
Addressing The Parking Issue
Chip Cordes of U.S. Door & Building Components explains, “The problem is, with the units on an angle, the piers separating the doors need to be wide enough to allow for the required backroom for the rollup doors. Usually 24” wide piers between the units are all that is required. A great deal depends on the degree of angle. Usually we see no more than 30 percent from the driveway.” “Another method is to saw-tooth the building, but this is more costly to build.” Doors are a big consideration for RV and boat storage. Sectional doors cannot be used for angled storage. That leaves chain-hoisted doors or motorized doors. With chain-hoisted doors, the tenant has to push the roll-up door open and go inside to reach the chain hoist. This has resulted in many facility operators now including a pedestrian door next to the roll-up door. U.S. Boor & Building Components has designed the EZ-Access Roll-up Door, which includes a walk-through pedestrian door as a part of the roll-up door. This qualifies for the fire code egress requirements while maintaining the roll-up door functionality. This allows the roll-up door to be raised so the full opening can be used to get the RV in and out. This also adds to the perception of security for the tenant. No one can see his unit until he opens the big one. This is good during poor weather also. Another option is the motorized doors for large RV units. The problem with this type of door has been where to locate the motor. To solve this challenge, the Janus International’s “Gliderol Operator Drive Unit” has built
Chapter 3 - Types of Facilities 45
an orbiting drive motor that is fully housed within the door coil. The Glidermatic opener is specially designed for continuous sheet curtain doors, and is ideal for RV and boat storage. U.S. Door has also been involved in a solution. They have been working with LiftMaster to develop a small motor operator that can be mounted inside the unit. They now manufacture a small bracket that allows motor mounting in front of the door inside the unit. It comes with a radio control remote transmitter to open the door. You can also mount a keypad on the outside. The cost is around $600, plus an electrician for installation.
Angled Parking
What kind of solution does angled parking address? Any kind of an angle beats a 90 degree turn for access. A 60 degree angle works so much better when entering and exiting. And backing is especially made simpler with a 60 degree angle. Angled parking does require wider doors. Normally a 14-foot wide door space is good, but is more expensive. Can RV storage be built on an angle? Yes, but it is more expensive and it is limited to a chain-hoisted, commercial roll-up door rather than sectional doors. The cost to build angled structures is higher, but the payoff comes in the need for less land per unit and a more satisfied customer. This approach isn’t as land-intensive as straight in designs. Traditional parking sites with straight-in parking do need wider driveways of 60 to 90 feet to give customers turning room. Now when you build an angled parking
46 Self-Storage • The Journey
situation, using the standard 60 degree angle, the driveway can be reduced to 35 feet. With these dynamics come the increases in land and construction costs. Will it become cost-effective? Determine this through your research. The same holds true for covered parking structures. Take into consideration the land cost reduction when you reduce that width to 35 feet. You will be able to get more rentable square footage. While the cost of constructing buildings with angled parking is more expensive in the beginning, that cost is offset by the fact you can build more accessible parking on the same pieces of land with angled parking than you can with straight-in parking. The number of units that can fit on a given piece of property is huge when building RV and boat storage. For example, you can plan for 50 spaces per acre, which is a much more profitable use of your land than 30 spaces per acre.
Condominium Style RV and Boat Storage
This is the latest industry trend and it presents a true profit center. The most popular form of specialty storage is condominium-style RV and boat storage. The emphasis is on RVs. Today’s RV ownership has surged to record levels with Baby Boomers leading the way. One in 12 vehicle-owning families owns an RV. Boat ownership has always been steady, while owning an RV continues to gain momentum year after year. Is this a real market, or just a trend? With more municipal and ordinance restrictions on parking in
Chapter 3 - Types of Facilities
47
neighborhoods and driveways, the need for storage is rapidly expanding. Currently, the demand far outweighs the available storage capacity and opens up the market for this type of storage facility more than ever before in the past. Vehicle storage feasibility does offer certain challenges. Land cost, zoning and location are the largest challenges. Planned communities may provide storage alternatives for RV and boat owners, but this is rare. This lends to the idea that you can sell these owners on a lifestyle of owning an extension of their homes. As these individuals are social and like to hang with their own kind, a condominium-style facility will attract their attention. When you build a condo-style storage facility, the expenses will be much higher, but people do seem willing to pay more for this convenience.
These Facilities Can Include One or All These
There are numerous options to consider offering: • Clubhouse • Lighting • Garage door openers • Complimentary motion detectors • Restrooms/showers • Dump stations (tap into the city’s storm sewer or an on-site waste tank depending on the city’s requirements)
48 Self-Storage • The Journey
• Dog run • Lap pool • Weight room • Shelving in units • Playground • Wash bay • RV repair/tool rentals • Marina delivery • One huge room for indoor RV and boat storage • Winterization service • Seasonable RV parking, • Lounge area with a computer for the seasonable RV owner • A unique café (even non customers frequent these types of eating establishments) • Ice machines • Electricity in units • Propane • Air compressor • Pre-trip make ready (you can offer different levels of service) The options are limited only by your educated imagination. In choosing which features to build, ensure that your insurance policy keeps up with these additional amenities.
Chapter 3 - Types of Facilities 49
Levels of Service
As these facilities may resemble a plush golf club and have a large array of amenities, you need to offer both baseline services as well as advanced services. For instance, a platinum card might entitle the tenant/owner to all services including filling all fuel tanks, pulling boats out to an area of easy hook up, fill ice chests plus all the regular prep services such as battery charging. Additionally, if you are close to a lake, you could also deliver or pick up the customer’s boat to a dock ready for the day. Some of the other services you could provide include RV washing, valet service, individual door alarms as well as video surveillance, and access to the facilities web site so they can see inside their unit. While the above services could be offered to all customers, most of the above options generally come with tenant ownership. Most customers want this type of security and convenience with ownership. Further you must provide 24/7 access. Monthly fees for all the extras should range from $40 to $70 per month. Just ask your customers (when you first open your facility) what the different levels of service would be worth to them. These levels of service also encourage a long-term relationship with your customers.
50
Self-Storage • The Journey
Devising a Unique Marketing Strategy
Encourage RV and boat owners’ attention by defining your unique services before you promote to the marketplace. If you are depending on word-of-mouth advertising, you want promotion to be accurate by giving the right information about location, amenities, and pricing. You need to motivate people to lease with you. Define why your storage facility is filling the need for a specific buyer and what your facility does best. Underscore that what you offer is high value indoor and covered RV and boat storage solutions. Use all the selling points such as air conditioning, lighting, cleanliness, affordable prices, computerized gates, the best security, and monthly pest control to explain your benefits. Visit RV dealerships in the general area, and ask them about the needs of RV owners. Leave some flyers with them and, wine and dine the salespeople, managers and owners. • Offer some coupons for a free tour and RV wash, as well as lunch at your specialty café. • Visit RV shows and/or pay some multimedia company to really do it up right. The big question is the appropriate price to charge for this kind of storage unit. RV storage doesn’t have a standard industry model, for this area. Fees depend on your market and what it will yield. Size, type and extras must be in the equation. Climate control, open,
Chapter 3 - Types of Facilities 51
canopy covered, indoor, self-park, valet, electricity are all considerations when establishing your price. Strategies you can use include offering a few different rates as well as “unit selling purchase prices” to see what the market will bear. The geographical location is the number-one influence on demand. Florida will run higher and Arizona less. Educate yourself by visiting RV and boat storage facilities. Checking out their waiting list, and what they charge for which services. Supply and demand is the key factor. You could also increase your prices as you build occupancy. How many RV/boat owners are there in your area? How many facilities accommodate these owners? How conveniently located are they? The self-storage facility used to offer RV & boat storage as an ancillary form of income. Now however this area is being rapidly developed into a large real estate investment solution. Ownership is being offered in these facilities much like a regular condominium. Entrepreneurial individuals are really becoming enthusiastic about this trend. During these last three or so years this area of the industry has taken on a real momentum of its own. This idea of owning instead of leasing a boat or RV unit is attracting a great many folks, mainly because these units can be quickly turned as a real estate investment. Developers like the fact that they are building to sell. As soon as a unit sells, they can build another one. So if you are considering this area of storage, keep this service area in mind when
52 Self-Storage • The Journey
shopping for land. The unit owner also can keep his for a time, and then customize it and sell for a good profit. Some operators are even getting involved in financing these units which turns into another area of profit for their business. The only downside for a facility owner selling these units is that there is no residual income. Customers, who buy these units, consider them as an extension of their home and/or business. They always have a place to store everything from an RV to a custom automobile. With thousands of RV owners looking for a place to store their “pride and joys” this is a trend worth seriously reviewing. You might remember that location is not as important as a secure place to keep their investment. These tenants will find your facility. These types of facilities are great, but can take some time from conception to completion. You have to sell the concept to the city which can be difficult because the idea is still new. Keep in mind that the city would rather have a facility as a solution rather than RV owners parking in neighborhoods. Convince the renting tenant that he or she should consider the buying option. This takes planning and an ingenious way to approach the tenant with this concept. Before initiating the discussion, ask yourself the same questions the renter will be asking: • Why should I buy? • What is the advantage? • What would I be willing to pay?
Chapter 3 - Types of Facilities
53
Know Your Target Client
You need to determine a clear understanding and plan of what you are going to offer for this specialty storage. These “big ticket toy” owners tend to be communal, very social, and most of them have very impressive financial statements. Some of these RVs like a Prevost which can run a million dollars or more and the owner wants a nononsense secure place to store their investment. The choice might as well be your facility. Cater to this population as word will get around on where to go and who provides the best options. All of these factors are an integral part of feasibility because your location, amenities, business plan, and rate structure will be dependent on your ability to meet these needs. The facility doesn’t necessarily have to be community located but it must have quick access to interstates. All offerings such as a wide base of amenities and security must be first class. RV owners also want paved surfaces instead of gravel, wider driveways and enclosed storage. Bottom-line, they want ease and convenience and are willing to pay for it. When it comes to the actual location of a facility, safety of the asset is sometimes secondary to the convenient freeway/interstate access of the site. Access (ingress/egress) is more important than visibility. The facility doesn’t have to be on a prime corner, however, as these customers will find you.
54 Self-Storage • The Journey
Financing For This Emerging Market
Because of its unique nature and the fact that it is still a new concept, this type of financing is not business as usual. You really need to do your research. After you have done your homework, you will begin to realize that a loan for this type of project is different than a loan for a regular self-storage facility. It is best if you have a good relationship with your bank/banker as well as a long history in order to become successful with your financing. Look around for other condominium-style RV and boat storage. Even if you have to travel to another state, you need to educate yourself on their story, obtain pictures and make it a part of your lending presentation package to your bank. Sell them on the fact that this is the time and you are the person who can make this happen in this chosen area. More of the development in this area has been going on for a few years, so your banker might be familiar with this type of facility. Keep in mind that your land cost can be much less, because the facility doesn’t need to be on a prime corner. As stated previously, your potential customers will find you. Take a look at your project versus the economics and make certain that your rent amounts will be high enough to support the land and construction costs. Does the area seem overbuilt or is there room for your RV and boat storage facility? Is the zoning going to present too large a challenge, or does your city realize this is a solution for parking these large vehicles?
Chapter 3 - Types of Facilities
55
Remember that banks make loans based on two important criterions, economics and the market. Consider opportunities thoroughly as the lender will want a full site review.
56
Self-Storage • The Journey
Chapter Four
Strategies
Although changes in the self-storage industry have been slow and easy to identify, it has been a definite evolution. Many of these changes have come due to competition and overbuilding in some areas. This leads back to the old do your homework thing. You need to have a strategy if you are to see your dream of owning a selfstorage facility come to life.
Some Decisions For Your Strategy Include
Do I build a large facility? Do I build a smaller facility and enlarge in phases? Do I include retail, or specialize in some areas? You need to know the market where you want to build, do your homework and become familiar with the competition. When planning the design of your facility, consider resisting the temptation of staying with the design of narrow aisles and row after row of doors. The trend is larger buildings with as many units as feasible.
How Do You Know When to Expand?
Enlarge your facility not when you are full, but when stabilized occupancy is achieved. Start, or have a plan for expanding before you reach 80 percent occupancy. When you reach 65 percent, it is time.
Chapter 4 - Strategies 57
If your facility is filling up faster than expected, consider expanding when you are at 50 percent. And, keep in mind that if a particular unit size is more popular, this type of unit size offers great opportunity for expansion. Hopefully you are not landlocked and over restricted from expansion. If so, consider adding value by adding services such as mailboxes and shipment (FedEx) drop offs and mail outs. The good thing about adding value is that it can be done in the planning stages of your facility as well as after the facility is complete and fully occupied. Another thought is that if possible build space that can be modified so unit sizes can be changed to meet market needs. If you are full of one smaller size unit, build walls and add doors if the design allows for this. Or (if the design allows) consider adding insulation to an area and also heating, air conditioning and a dehumidification system. This will allow you to rent out climate-controlled units at a higher rate. When designing and building a new facility keep in mind that you might have competition move in down the road. This is why you need to keep adding value. Remember, facilities with climate control will probably stay ahead of the older facilities that don’t offer this benefit. Don’t neglect your property, and invest in sprucing it up annually. A property that is maintained and constantly shows value is being watched by potential buyers and renters. Someday you might have an offer you can’t refuse.
58
Self-Storage • The Journey
Trends
As the self-storage industry goes through changes, we are seeing trends which raise the level of design in sophistication and modernization. These improvements are becoming more the norm with value-added services. Some of these include: • Multi-story buildings • Conversions • Multi-family buildings • Condominium-style RV • Boat storage offering ownership There is greater profit potential when offering ancillary retail products and secondary services for residential and commercial customers. Services include truck rentals and packaging needs, which may be in high demand. More than 60 percent of self-storage facilities now offer some type of ancillary services. This is up by more than 50 percent from the year 2001. This type of facility needs to be heavily marketed initially to build walk-in traffic, and fostered through, word-of-mouth and high occupancy. The Army and Air Force Exchange Service (AAFES) are looking at plans to develop on-base self-storage or portable storage facilities at strategic locations across the United States. This isn’t the first time they have visited this possibility. Consider this possibility if you want to locate a storage facility near a military base.
Chapter 4 - Strategies 59
Some Dos and Don’ts on How to Avoid Some Mistakes
The self-storage business requires a personal touch. Trying to handle everything from a remote location is challenging, but perhaps the biggest stumbling block is overbuilding by uneducated or rash competition. Being too aggressive and not taking enough time to do your homework is a big mistake that reduces pro-fitability and re-sale potential. Another mistake that people make is not growing. When you have the opportunity and it’s time to expand, take action. Some of the key ingredients for success are: • Accurately determining demand • Taking a realistic approach to financing • Creating a viable proforma • Building the right structure • Pre-marketing with care • Hiring the right people • Focusing on an exit strategy up front During your feasibility study, pay attention to owned land in an area where counties are bordered. This is important as after you have purchased your land and begun construction, a mile down the road in another county someone else is building a facility.
60
Self-Storage • The Journey
As for funding, choosing the wrong equity partner can be a critical mistake. Smaller self-storage investors often use friends and family, while larger ones use institutions or individuals with high net worth. You must share the same values and philosophies with any equity partner. Don’t focus too much effort on getting the most use out of the land and not enough attention to customer convenience. Remember to establish an exit strategy going in. Don’t over market your facility with big claims that you can’t back up. Sending fliers out beyond a range of five miles is a waste unless you are building a condominium style RV and boat storage facility. Don’t forget to include special offers in your mailers and ads which will allow you to track what is working and what isn’t. Immediately respond to tenant complaints. Not doing so is very poor word-of-mouth advertising and contributes to a poor reputation. Don’t be defensive or make up excuses. Just deal with. Perform routine, daily maintenance. Don’t let things slide. Set aside money for annual capital improvements annually. Don’t wait until the last minute to send out bids for things such as snow removal, lawn maintenance, and other services. Perform background investigations on all bidders.
Chapter 4 - Strategies
61
62
Self-Storage • The Journey
Chapter Five
Feasibility Study and Site Selection
Going from the dream to reality is definitely a detailed process. Building your first self-storage facility is an exciting venture. Learning about the industry, researching the market, finding financing, and mapping your dream for your new business is very rewarding. Yet, while self-storage is a simple product, building a good storage facility takes planning, research, and oftentimes, experience. When you are ready to purchase a site, you need to move quickly.
Should I Hire a Consultant in The Beginning?
A good consultant, can save you a great many headaches and money in the end. Get references and go review their experience and market knowledge. There are consulting specialists for different phases of the business cycle. First, recognize the challenge and then look for help. Some may also provide feasibility work, or other forms of consulting. Most consulting is at the beginning stages of the project. Probably about half of those who want to build a self-storage facility don’t know where to begin. Keep in mind that consultants charge in different ways. Some have an hourly or a flat rate for the entire job. Hourly rates can run between $200 and $300, depending on
Chapter 5 - Feasibility Study and Site Selection 63
the consultant and the type of project. A full consulting package can run $8,000 or more. You must be comfortable with your consultant. Sit down and have a comprehensive conversation about the process. If you feel comfortable with their communication skills and confident with their knowledge, it could be a good fit. If they are going to help you with the city council, he/she need to be articulate and skillful. Government interaction requires specific skills. Avoid exhausting and confusing contracts. The document should state fees, when they are due, what is provided, and the timeframe. Consultants may be located through national publications, the internet, trade associations and trade shows. Most come through referrals. Have a serious conversation with one or more of those references to ensure the consultant will properly support your needs.
Feasibility Study
This type of study may be used to determine if the self-storage business is something appropriate for your investment. The process will help you down the path to success, or serve as an independent warning that this business just isn’t for you. Key question that may arise include: • Will this site work? • Will it be too much work turning it into a good self-storage site?
64 Self-Storage • The Journey
• What kind of obstacles are in the way of converting this property into a money maker? Another consideration is that your facility needs to fit into the community as an asset. This means not just aiming for curb-appeal, but for neighborhood appeal. For example, if the area if full of condos, you want to look like a condo. This industry required less homework 8 or 10 years ago. It seems that there were so many successful sites because of the great demand. If you do your due diligence, however, you can be successful.
Several Key Areas of The Feasibility Study
Some of the most important components of a feasibility study are the proposed site, the market, demographics, your nearest competition, the design, and demand for the facility, zoning, financial workings and then the largest decision. This information helps you determine if you should build, or walk away. Consider the ongoing level of demand. For example, the self-storage renters in the Eastern part of the United States require less storage space than those in the West. During this process, don’t forget to maintain your perspective. Feasibility studies are good, but they are limited to their scope. Stay involved and ask questions. Push for the answers needed to support your decision. There is the 2/3 rule. You average the rental rates per square foot of a 10’x15’ and a 10’x10’ space annualized. Then multiply that number by two-thirds. This rule is
Chapter 5 - Feasibility Study and Site Selection
65
a good base for determining the most you should pay for the land on a square foot basis. It is critical to locate opportunities in an area with a good population base and one showing signs of growth. Look at all the self-storage facilities within this area and check them out personally. The owners will think you are a prospective renter or a mystery shopper (one hired by the owner or manager of a facility to pose as a prospective renter). Investigate these properties out as if you were a spy and they are the enemy. Be very courteous and look for strategic improvements. Look at their security and whether climate control is available. Where they are vulnerable and how full are they? Check out the streets and or highways close to the proposed property. Obtain a traffic count. You want high traffic with around 20,000 cars in a 24-hour period. The state highway and city-planning departments will help in acquiring these statistics. How is the access and is it easy? While you must meet the building code requirements, the facility should have an average unit size of 105 to 125 square feet. Sixty percent of the building should be 10’x10’ units and smaller. You need to maximize space while also considering landscaping, functionality and curb appeal. This feasibility study should be your guide, and not prepared to make the lender happy. The financial viability should be demonstrated in a conservative and very realistic way by a disinterested third party. If the proposed site can withstand conservative analysis,
66 Self-Storage • The Journey
projections, and lease-up rates, then your site has greater capacity for success.
Some of The Markets We Can Look At Are:
• Rural – This market has a lower than average self-storage demand. These individually generally have enough property for a shed or barn because there are fewer zoning requirements for these homeowners. • Urban - These are the bulk of self-storage renters. They love easy access and the facility becomes an extension of their house. They also like value in the form of free move-in trucks, convenience and close (3-5 miles) proximity to their home. • Metropolitan - This place has heavy traffic patterns and other traffic impediments to easy travel. These renters don’t really care about location, tight drives and other inconveniences as long as the facility is within three miles. • Downtown Markets - These are mainly business renters who live in, or close to downtown. Generally, they don’t mind smaller than average size units, as they really require storage. Don’t be blind to demographic trends. Do your homework and find out what is going on in your immediate market area. Check with the local chamber of commerce, real estate firms, local magazines and newspapers. A good site for information is Claritas at www.sitereports.com
Chapter 5 - Feasibility Study and Site Selection 67
There is a mathematical formula that provides a range of anticipated square-footage demand. Take the population of a five mile radius and multiply that number by the demand factor. Use 3.5 square feet per capita. The answer will give you a range of squarefootage demand. Use your commons sense and don’t put too much faith in this formula. Some folks swear by this approach How is the prospective piece of property zoned? Don’t go by what the seller tells you; go to city hall. If a rezoning is necessary, you will have to judge if it is worth the challenge of using, attorneys, architects and engineers and all the associated stress. Even if the property is zoned correctly, it is important to investigate the neighbors. Let them know what you are planning. Speak at community meetings or an open house at a hotel. They must hear your plans directly from you. Communicate clearly and have your facts well organized. Conduct a Phase 1 Environmental Assessment of the site. You can negotiate this cost with the seller. If he pays, the results won’t be made public because assessment belongs to the seller. If the seller refuses negotiations, let them know you will pay for the report but it will be made public when complete. Keep in mind that this could harm their selling plans if the results are poor. As about 98 percent of tenants have a month-tomonth lease. This means the market is more favorable to the landlord and makes it easy to consistently raise their rent, rather than having to wait for the lease to expire.
68
Self-Storage • The Journey
Month-to-month tenants stay on average for around 14 months which makes it easier still to react to market conditions. This enables the landlord to continue to constantly adjust rental rates for new tenants and twiceyearly raise rents to existing tenants.
Self-Storage Land Use Entitlements
You need to have a good understanding of the land development permit process before you are too far into the land purchase contract. It is important to know whether the land use policies of the local governmental agency will allow a self-storage facility to be built on this chosen site.
Understanding Entitlements
The land use entitlement gives the land developer the right to develop a property according to the plans submitted. All municipalities have land use policies dictating how a community will be developed. Most land available for private development falls into one of three categories. 1. Residential 2. Commercial 3. Industrial. These components define a community’s “general plan.” Individual parcels of land are further categorized into “zones” with the intent to describe exactly what types of land uses are permissible on a particular site. It is essential to determine if a proposed self-storage facility fits into the general plan and zoning designations.
Chapter 5 - Feasibility Study and Site Selection
69
The development team’s architect and civil engineer must prepare a full design for the project. This is the first step in initiating a land use submission.
Permitted Use No Discretionary Review
Compliance with the jurisdiction’s zoning ordinance in terms of site specific development standards will be required. This section discussion covers the development standards which specify the following overall requirements: 1. 2. 3. 4. 5. 6. 7. Maximum allowable building size Maximum allowable lot coverage by buildings Building setbacks from property lines Maximum building heights Parking required Driveway widths Landscape site coverage
These seven items largely determine the design of a project. Review of the project’s design drawings is normally done at the staff level in an informal process. This means the political process is totally bypassed, greatly simplifying approvals. Self-storage projects are occasionally permitted in less desirable industrial zones or second rate commercial zones without the requirement of a discretionary review.
Permitted Use With Discretionary Review
Here self-storage is also permitted by right however, obtaining a project entitlement requires discretionary review of the project’s design.
70 Self-Storage • The Journey
The agency will look at what is known as a “site plan review” or “design reviews”. This process gives the agency the right to add or change the design appearance, colors, shapes and details. The process can complicate the approval process. This process may be completed by one or more individuals in an informal manner, or by a board in a formal public hearing process. The intention is to allow the jurisdiction more control over a project’s design. Approval is almost certain but the process can take two to four months to complete. Many self-storage projects fall into this category.
Conditional Use
Although more complicated, self-storage is no longer permitted by right. The burden of proof falls on the development team to show that the self-storage use is appropriate for the proposed property. This conditional use permit process is a more detailed review of a project’s design. Here the required quality of design is substantially higher. Final approval comes in the form of a public hearing. Chances for approval are good if the project is designed in a manner that satisfies three main criteria: 1. Conformance to the zone’s development standards per the zoning ordinance 2. Sensible integration into the surrounding community, especially if residential properties are adjacent 3. Quality aesthetics in the building design and landscaping This is where the majority of self-storage projects fall and it normally takes three to six months for approval.
Chapter 5 - Feasibility Study and Site Selection 71
Rezone Or Zone Change
If not permitted in a particular zone, the zoning of the parcel may have to be changed. This “re-zoning” of a parcel is a complicated process where once again the burden of proof falls on the development team, and involves a high level of scrutiny by the jurisdiction. Ultimate approval involves a public hearing, and can take up to nine months.
General Plan Amendment
In some cases the property may be located in a general plan designation that doesn’t allow for self-storage facilities. Such an area may be planned for residential development, commercial development, or open space, thereby excluding storage as a land use. With self-storage frequently misclassified as an industrial land use, a general plan amendment may be the only way to obtain approvals, but this can take up to a year.
Understanding Building Codes
The lack of uniformity in building codes across America has long frustrated developers and other building industry professionals. This lack of uniformity results in differing requirements for the design and construction of self-storage projects from place to place throughout the country. Improvements in code uniformity are finally taking place.
72
Self-Storage • The Journey
These codes are: • The national building code which was developed by the Building Official and Code Administrators (BOCA Code) • The standard building code developed by the Southern Building Code Congress International (SBCCI Code) • The uniform building code developed by the International Conference of Building Officials (ICB) Code) These three codes, along with the National Fire Protection Association (NFPA Fire Code) and the Americans with Disabilities Act have long been the foundation of building codes nationwide. In 1993, a movement began to standardize the codes. As a result of the movement, there came the formation of the International Code Council (ICC). This group was comprised of members of BOCA, SBCCI and ICBO. This organization has been working on a new code intended to be the single, consolidated code in the United States. It is known as the International Building Code (IBC). It was completed in 1997 and is now in the process of becoming adopted by most of the states. Adoption of this new national code should eliminate discrepancies for self-storage design and construction. The challenge is that the local codes in some larger cities are not included. The local people have the ability to modify the basic building code standards, which creates a large area of considerations.
Chapter 5 - Feasibility Study and Site Selection
73
The IBC puts forth the requirements for all buildings, including self-storage facilities.
Occupancy Definition and Classification
Self-storage code designation are now known as “self-storage facility” and defined as “real property designed and used for the purpose of renting or leasing individual storage spaces to customers for the purpose of storing and removing personal property on a selfservice basis.” This self-storage classification is known as “Storage Group S.” • Group S-1 is intended for moderate hazard storage. • Group S-2 is intended for low hazard storage. This S-2 designation is used by architects. The final decision is up to the local building officials.
Construction Type Classification
Five types of construction are designated based on the type of building material used: 1. Type 1: Non-combustible materials, which is used normally for the larger structures over four stories in height. 2. Type II: Non-combustible materials. Normally concrete masonry and steel this is used for smaller buildings of four stories or less. Type II is less restrictive than Type I. This category is includes many larger self-storage projects. 3. Type III: Non-combustible or fire resistant exterior materials with non-fire-rated interior materials. Concrete masonry and steel are in this class. Mid-size and smaller self74 Self-Storage • The Journey
storage projects fall into this category. 4. Type IV: Non-combustible exterior materials with heavy timber interior materials. Type IV is seldom used for self-storage buildings. 5. Type V: All materials allowed by the code are permitted. Smaller wood-framed buildings are allowed, but not for the storage buildings. Construction Types I, II, III, and V are further classified as sub-type ‘A’ or ‘B’ with sub-type ‘A’ requiring a higher degree of fire resistance. The IBC mandated the following general guidelines under those circumstances, with the maximum number of stories being: • Five stories for II-A construction • Four stories for II-B construction • Four stories for III-A & III-B construction The number of stories may be increased in some cases where automatic fire sprinkles systems are provided. The maximum allowable floor areas are: • 39,000 square feet basic area for II-A construction • 26,000 square feet basic area for II-B construction • 39,000 square feet basic area for III-A construction • 26,000 square feet basic area for III-B construction.
Chapter 5 - Feasibility Study and Site Selection
75
The occupant load will establish the number of occupants normally in the building and calls for safe exits. The IBC states that an occupant load of one occupant per 500 gross square feet of building area for “warehouses.” Once this has been established, emergency exits need to be designed to provide an orderly exit from the area that is threatened by fire. After the exits are established, there must be a path of travel to provide safe passage to those areas. Hallways carrying more than 30 occupants must be one-hour firerated which makes them corridors. If you have sprinklers, the 30 occupant or more fire rating is not required.
Exits
Exit requirements include: • Minimum hallway widths • Heights • Exit door sizes • Door swing direction • Stair tread width • Stair riser height • Stair landing sizes. The IBC establishes specifications for fire rating of corridors and sets forth requirements for the fire rating of individual building components. Exterior walls have fire rating requirements based on the overall construction type of the building and how far they are from property lines. Exterior walls closer than
76 Self-Storage • The Journey
10 feet from the property line are required to be one-hour fire rated. In some circumstances, corridors and stairwell walls may be required to be fire rated (two-hour fire rating for four stories or more and one-hour fire rating for three stories or less). Floor construction and ceilings below the floor are required to be fire rated similar to interior walls. In order to reduce the risk of fire spreading from floor to floor vertical shafts between floors are required to be firerated at one or two hours. Mechanical room walls are required to be one-hour fire-rated construction. The IBC also has construction requirements concerning accessibility for physically challenged persons. Requirements for engineering-related items are set forth by the IBC. These items include wind resistance, earthquake resistance, weight (load) resistance, and building material performance standards. Twenty-nine states have adopted the IBC. This shows that many advances have been made to adopt this new code across the nation.
Site Selection and Unit Mix
One of your most important decisions is determining the site layout and unit mix of a self-storage project. This decision will effect the initial lease-up of a facility which impacts the bottom line. This is crucial to your long-term occupancy and your overall success. Keep your objective of designing a unit mix that will maximize income and will also lease up quickly.
Chapter 5 - Feasibility Study and Site Selection 77
Some facilities have opted to make all of their storage units one size. For instance one facility in New Jersey with 500-plus units has built all 5’x10’s; another in Texas has built all their 400 units 10’x20’s. Both of them have since modified their mixes by expansion. This has come as a result of many requests from potential customers requesting a different size. As you can see it is not strategically wise to have all units one size. First analyze your area’s demographics. You can do this by calling on many facilities and finding out just what the storage size demand appears to be. • A good guide is to build 20 percent 5’x10’s; 10 percent 10’x20’s; 25 percent 10’x15’s; 40 percent 10’x20’s; and 5 percent 10’x25’s. • Use some of your 5’x5’s for leaders at a low cost. • On average, your unit size should range from 90 and 130 square feet. • Don’t load your facility with too many large units as this is a mistake. It may take a little longer to rent smaller units, but your income on the same square footage is more than double than on a single large one. This mix will also work well for any climate controlled units. And yes, you should have some climate controlled units. If you construct your project in phases, you have the advantage of building the most popular size. Further, you can design the unfinished part of your project accordingly.
78
Self-Storage • The Journey
Planning Your Site Layout
There are many factors that will affect the site layout of a facility
• The size and shape of the land • The terrain of the land • Any up front challenges with the land • Zoning for the site • Any setbacks or Easements the city may require like landscape buffers Other initial considerations are sanitary sewers, drain fields, and storm drains to consider. There might be a requirement for retention ponds or swales. Look at whether the site is close to environmentally protected areas such as a river, creek, or designated wetlands. You don’t want to build on parcels where there is an environmental corridor that cannot be built on and must be maintained according to dictated guidelines. This is why a qualified architect and engineer are needed during this developmental phase. Consulting with a professional who is educated in the development of self-storage will save you from making mistakes. He or she can help with showing how much of the site can actually be built on, and the portion that is rentable square footage. These decisions also depend on whether your facility is or includes single, multi-story, climate controlled units and any other specialty storage you may want to build.
Chapter 5 - Feasibility Study and Site Selection 79
You want maximum usable space without limiting its function ability. Other site layout considerations include building design, the type of buildings to be erected and where they will be located. Will the units have interior or exterior access? Will they have doors on one side, or both sides? This can depend on property lines. Decide where the facility’s entry and exit points will work best for your design. Most self-storage owners prefer one access gate. Some use both and entry and a second gate as an exit. But, both the ingress and the egress must be in a position where the manager can see who enters and who exits from his/her office. The important issue here is that you do your homework and consult a professional. You can do a little searching to find out what size units are the most popular and also if climate controlled units are in demand. If you are going to market to businesses, you will want a number of larger units. You can also install what is called “flex space technology”, which allows for resizing of units as needed. There are a few very good architects that specialize in designing self-storage facilities, yet most developers must make critical design decisions on their own. Many of these design decisions are the result of attending conventions and seminars, visiting other self-storage facilities and speaking with seasoned self-storage developers that are willing to share and talk about their mistakes.
80
Self-Storage • The Journey
Site selection and a feasibility study go hand in hand. The feasibility study is actually you or a professional firm, carrying out due diligence in finding a good site for your facility. Another consideration to make before deciding to move forward with a specific site is your exit strategy. If you think about a plan to get out of the business before you get in, it will help you to make sound business judgments about the project you seek to develop. For example, if your goal is to simply sell the site after it has been re-zoned for self-storage, you will have a different mindset than if you are building a project to be placed into a trust for your children to operate. A highly visible site in the midst of a population center will usually perform well and can sustain a higher value over the life of the project. It is always better to pay a little more for the land (within a population center) if you gain visibility. This will also sustain a higher value over the life of the self-storage property. The best site is one zoned for self-storage as a “use by right.” According to the Mini-Storage Messenger, “Choosing the site for a new self-storage facility is perhaps the most difficult development decision to make filled with both advantages and disadvantages. The site needs to be one that fits the typical profile of land price, demographics, zoning, development potential, population density, and visibility. Therefore, feasibility must exist and support the addition of new self-storage rental space. The ideal site is one that is located on a major arterial or travel corridor of 20-30 thousand cars per day.”
Chapter 5 - Feasibility Study and Site Selection
81
Mini-Storage Messenger says that these sites tend to fall into four categories: 1. Highly visible-contiguous: Highly visible to the population center they serve and are easily seen from highways and/or surface streets. This site is most preferred. 2. Marginally visible-contiguous: Narrow presence on the street but the majority of the site is nestled behind another retail/development use. 3. Contiguous, but not readily visible: This destination site is contiguous to the population center, yet often located in a cul-de-sac, warehouse development, or other use-area where the drive-by visibility is virtually non-existent unless you are specifically looking for the site. 4. Non-contiguous: This site is located away from the population center and may, or may not be, visible from travel corridors. Factor all of these considerations into your decision. Obviously some of the less contiguous sites will be less expensive, but you will need to spend more money on marketing. Two and a half to three and a half acres are the best target. You might though consider satellite sites close to one another with a central office. Zoning is critical in determining a good site. The best site is one zoned for self-storage as a “use by right.” Special use permits and zoning variances are risky, time consuming, and expensive. You can get much further and faster, if you know and understand the local politics, then investing in the entitlement process may be appropriate.
82 Self-Storage • The Journey
Some sites are more trouble than they are worth and even can’t be developed for self-storage use. This can be due to easement, soil problems, retention requirements, wetlands, toxic waste, contamination, impact fees, improvement districts, traffic mitigation fees, or assessments. Weigh the costs and challenges after you have done your homework. Then you will be able to consider any site – even those with challenges.
More Site Selection Considerations:
• Parcel shape and soil conditions • Demographics of the area • Zoning • Population density • Potential for other self-storage developers to build nearby at a later date • Site’s easements, retention requirements, and impact fees • Wetland areas, toxic waste • Traffic mitigation fees. Remember: look for a piece of property that is located on a major arterial or travel corridor. You are seeking a minimum traffic count of 2,500 cars per day.
Chapter 5 - Feasibility Study and Site Selection
83
84
Self-Storage • The Journey
Chapter Six
The Loan Process
You have found a prime location to build a new selfstorage site. Demand is excellent and growth is rapid. You’ve done your homework: attended seminars and some trade shows, researched building designs and layouts, scoped out the competition, and finally landed the proper zoning and approvals. You’re almost ready to go. Now you need to find a lender who will believe in you and your project as much as you do. The first question most lenders ask when approached about financing the development of a self-storage facility is: Does the market support the proposed development? Being completely prepared to answer this question is paramount on getting the loan. A good lender needs to be confident in your assessment. He or she must fully understand what you are proposing. Study and become the expert. Be the professional and ask questions. For instance, you can ask how many self-storage applications have they looked at in the last six months, how much capital has your firm allocated to loan to the self-storage industry, what makes your firm qualified to fund my project, and what is the timeline to gain approval and move towards closing? You also need to have a check list completed before pursuing this loan like:
Chapter 6 - The Loan Process 85
• A business plan • Resume • Personal tax returns for the last 3 years • Business tax returns for the last 3 years • Balance sheet/financial statement • Interim statements • Site plans • Itemized budget • Feasibility/market study • Environmental survey • Zoning and permits • Third party contracts • Lender application
When presented to the lender, it should include the following items:
• Construction financing request • Project overview and attributes • Investor and developer qualifications • Management qualifications • Feasibility study • Construction budget/timeline • Income and expense proformas Supplemental information should include: • Architectural drawings
86 Self-Storage • The Journey
• Environmental study • Zoning and building information • Construction firm resume • Management firm resume • Supporting exhibits Keep your lender involved throughout the entire process. They don’t like surprises any more than you do and having your lender on the same page with you will prevent a lot of headaches. Understanding the evaluation process and reasons behind a lender’s analysis of a potential loan on a selfstorage facility will allow you to more realistically assess the financing possibilities for an acquisition or a refinance. A lender looks at self-storage property much the same as the owner does. Both look to the cash flow available from the operations of the facility to pay them a return on their invested funds. The lender seeks to be repaid for the amount of the loan, plus the interest earned on the loan. Then interest rate on the loan is the lender’s rate of return or yield for their investment in your self-storage facility. First there are some significant differences in how the cash flows are calculated and projected by financial institutions and by owners. In the standard self-storage owner’s income and expense/cash flow projection needs to look like this: • Potential rental income
Chapter 6 - The Loan Process 87
• Vacancy and credit loss • Gross collected rental income • Plus other income (late fees, box sales etc) • Gross operating income • Operating expenses • Net operating income (NOI) Of course the above list doesn’t include any allowance for depreciation, but only includes the actual operating expenses of the facility. Lenders look at things differently when they create a projection. This helps them estimate a value on your selfstorage facility. Lenders will actually include an additional expense category for professional management. The difference in perspectives (owner/lender) result in a very different calculation of the facility’s Net Operating Income (NOI). This helps both to understand one another’s positions for seeking the value of a project in order to come to an agreement on the proper loan amount. After projecting the adjusted NOI of the property, the lender’s approaches for determining value are applied based on the first year’s operating expenses, including management costs. The majority of commercial real estate lenders base their credit decisions on the comfort level they have about a property’s ability to consistently generate future cash flow in excess of the required debt payments.
88
Self-Storage • The Journey
Because most of these lenders have been used to dealing with properties that have longer tenant leases than self-storage, such as retail and office properties, work with a lender who understands the unique, monthto-month nature of the self-storage industry. Lenders lean towards making loans on projects with which they are familiar. You may need to further educate your lender about the viability of this type of project and provide examples of self-storage projects across the country. Even though many institutions are becoming more and more familiar with the industry, some are still lagging behind. Capital is more readily available in more creative forms. This is especially true at the permanent financing stage which occurs after the construction or bridge loan term ends.
The Construction Loan Package
A developer must present a compelling construction loan request to a lender—one that is so attractive, that the lender will believe the project will be successful and that it is a good credit risk for them to take. Keep in mind that a construction financing request should include everything about the project. It should be scrutinized from beginning to end and be just as carefully prepared. Because few constructions lenders market themselves directly to the self-storage industry, commercial mortgage brokers have assumed a much larger role in helping self-storage developers, buyers and owners to obtain financing.
Chapter 6 - The Loan Process
89
90
Self-Storage • The Journey
Chapter Seven
Planning and Construction
Another key consideration is facility lighting. It needs to be attractively lit during the evening hours, but toned down to a gentle lighting overnight. As far at the units, a good rule of thumb is to install lighting in every unit larger than a 5X10. Keep in mind, that fires have been started by customers who had cardboard boxes too close to incandescent bulbs. For this reason, fluorescent fixtures work best. As far as switching goes, you will want to install motion sensors that automatically energize lighting circuits when the customer enters the service area. This is energy efficient; as long as the customer is in the area, the light stays on. Another way to light is the high-tech option. This system will switch on lights in various areas of the facility based on the tenant’s access code at the gate. When it comes to hallways, fluorescent lighting is preferred and energy efficient and does not produce heat. Exterior lighting is important as well. The industry standard tends to be high-pressure, sodium (HPS) wallpack units that are surface mounted on the building. Very energy efficient and casts a pleasing light. Most exterior lighting circuits are on photo cell controls that automatically turn lights on at dusk and off at dawn.
Chapter 7 - Planning and Construction 91
Gate Access Systems
Most self-storage facilities use horizontal sliding gates controlled by entry/exit keypads. Vendors offer a great many options to this. These entry and exit points should be well lit. Your customers should not have to get out of their vehicle to use the gate system. If you cater to RVs, you can install a high and low key pad for ease of use.
Hose Bibs
Remember to install water access during the construction phase. You will need these outlets/hose bibs in different areas to clean and wash down driveways and roll-up doors (once per year) and for general cleaning chores.
Heating and Air Conditioning
Your office and/or apartment must be heated and air conditioned for comfort. The most common mistake made in the two-story office/apartment design is not installing a split system where the temperature in the office can be maintained separately from the apartment. In two-story office/apartment designs, the upstairs apartment can be warm in the summer. Also, if the thermostat is located in the apartment, the office will become uncomfortably cold for customers. Ceiling fans are a great way to add ambiance to your offices and apartments while maximizing cooling and heating efficiencies.
92
Self-Storage • The Journey
Climate controlled storage spaces present several design challenges. A common mistake made in the self-storage design is to climate control the upstairs of a two-story building to make it more marketable. This is inefficient. If you have a choice, chose to cool the downstairs of a building. In climate controlled buildings, insulation is very important to energy efficiency. This is especially true for heated spaces in very cold climates. Another challenge is condensation created by cooling humid air. Condensation must be piped outside the building and dispersed. One way to handle condensation is to install heated condensate drains. This device collects the condensation from the HVAC unit, heats it until it evaporates, and thereby eliminating the need to pipe condensation outside the building. If possible, install air curtains between the door to an exterior or a staging area. This air curtain is a series of heavy duty plastic sheets that help hold the heated or cooled air in the building, but allows the customer to easily pass through it. There are several industry vendors that produce outstanding inexpensive and tension adjustable roll-up doors with excellent hardware. Partitions are another design consideration. One good design technique is to attach partitions tracks from the front to the back of the building first, then cut the tracks that fit inside the building at the rear of the spaces. This allows for changes in the future if the unit mix is incorrect.
Chapter 7 - Planning and Construction
93
Recently, developers have begun to abandon the 5’x10’ storage space configuration in favor of 10’x5’ storage spaces. This makes the space much more marketable as there is a wide, eight-foot-roll-up door. This is especially true if the unit is located on a five-foot interior corridor. It is much easier to load a sofa into a 10’x5’ rather than a 5’x10’ space. Roll-up doors are typically better than swing doors. The price difference between roll-up doors and swing doors is not that great, and roll-up doors do not swing into the corridors.
Office Design
In today’s market, facility operators have begun to plan for a very attractive foyer or reception area. A good idea is to think in terms of an upscale hotel lobby. Bright decor, specialty lighting, treated concrete floors and wider hallways attract interest. Further, large storefront windows give the customer a sense of security. The right use of tile, carpeting, and wall finishes will make your office a showplace. Install granite counter tops in your offices. Granite wears indefinitely, never loses its style, and is much more professional than Formica. Track lighting and recessed can-light fixtures add an air of professionalism and design to the office environment. Avoid the boring look of fluorescent fixtures in your business office. Customers can see quality and professionalism in the beautiful area and feel comfortable about leasing with you. Look to complete the image that you have worked so hard to create.
94 Self-Storage • The Journey
Use glass, fine wood, and metal to define the sophisticated style you are looking to achieve. Use your imagination and consider a decorator to refine the presentation. Your office should have two customer contact areas. A high counter (40 to 42 inches) for a customer to quickly and conveniently make payments, and a low counter (30 to 32 inches) for the customer to sit at while initially renting the space. Your office design should allow the employees to maintain a clean, sterile office environment. Copiers, fax machines, and stackable trays should be located in a back office out of sight of the customer. Consider a lounge that contains an internet connection, fax machine, phone, and conference table. Have a mop sink and service sink close to the office so this area can be routinely cleaned. Also an area with a sink, refrigerator and microwave is a must. This provides the employee with a place to eat away from customers. Technology is advancing rapidly and the leading industry vendors offer high-tech solutions for camera monitoring, access control, and the alarming of doors. Buildings with metal sidings have changed to upscale exterior walls such as brick or concrete masonry. They are staying away from the industrial look using block, glazing and glass. If you are considering converting a multi-story building into self-storage, you need to take a look at what differences there are in doing this kind of construction versus a “build from the ground up” self-storage. Much
Chapter 7 - Planning and Construction 95
of this is discussed in chapter 3, but this area is growing in importance these days. I will say that this type of building needs to have a non-block look. Like variation in horizontal planes, materials and just a lot of proportion differences. Colors are another way to break up the block view. On the whole, today’s self-storage facilities are becoming much more upscale than a decade ago. Keep in mind that the majority of renters are female. Remember to take a long hard look at the security of a facility. They must feel safe and comfortable while on your premises.
Community Planning Committee Considerations
Now, one of the first things you will have to deal with and satisfy is the community planning committee. This is standard procedure. They have the power to approve, demand changes to fit in, or deny your project. In some urban areas, these departments no longer allow metal siding. Instead, they want a more finished look with concrete and masonry or stucco. Again, this is blending into the neighborhood. Local review boards have created oversight boards that are forcing architecture and landscape design requirements. These committees (as well as architectural review boards) all result in another challenge for the selfstorage developer. While the industry has experienced evolution in design and construction, no major transformation has occurred with construction materials. There may have been some facilities built using wood frame and drywall
96 Self-Storage • The Journey
in the past, today it’s all about pre-engineered steel systems. In addition, the vast majority of all self-storage buildings built today are type II (IBC) rated, which means they’re constructed with non-combustible materials. Wood is rarely used except for framing, as steel and concrete are better suited for self-storage buildings because of their durability and the sense of security they convey. The three basic materials for selfstorage construction continue to be steel, concrete, and masonry.
Green Building
Green Building is a term used when building a structure that is designed to reduce a project’s impact on the environment with emphasis on the health of its inhabitants and its environmental impact and resource conservation over its lifecycle. This approach reduces human exposure to noxious materials, conserves nonrenewable energy and scarce materials, and considers the life cycle ecological impact of the energy and materials used. Renewable energy and materials that are sustainable are used and the project protects and restores local air, water, soils, flora, and fauna. The bottom line is influencing many self-storage owners to check out the benefit of an eco-friendly development and also in the tax area. A few of the following websites are beneficial if you want to lean green. • www.buildinggreen.com – This site features resources for builders.
Chapter 7 - Planning and Construction 97
• www.smartcommunities.ncat.org/buildings From the U.S. Department of Energy featuring background information on green buildings, cast studies, articles, and other resources. • www.edcmag.com – for Environmental Design + Construction Magazine includes searchable archive of articles covering all aspects of green buildings, product reviews, and case studies.
Security
Customers should find your self-storage property easy to use and should think highly of your property protection efforts. The time to discover requirements and property security as well as making provisions for the systems you plan to install is while your plan is still on paper. You can change things as your construction progresses, but unplanned additions can be quite expensive. The key is to plan early for the electrical supply wiring for all your low-voltage security systems, conduit and raceways for camera and alarm connections, concrete standards and pylons for gates and gate operators, and equipment closets and cabinets to house the electronics that drive your security package. While your security vendor will supply the specifications, be certain to pass along any requirements you become aware of to your vendor. Also mention your ideas on how you want each tenant to use and access different parts of your property. Those ideas translate directly to your construction and security plan.
98
Self-Storage • The Journey
It may help you to visualize the construction requirements for your entire security and onsite communications system by breaking them into separate subsystems. Each will need consideration for: • Power • Data flow • Physical installation. Self-storage starts with the physical protection of the site. This includes items such as: • Fences • Walls • Lights • Landscaping. Many law enforcement agencies advocate Crime Prevention through Environmental Design (CPTED). This approach integrates proper design and the effective use of environment to reduce crime by creating a perception of risk. A key component of CPTED is architectural design and landscaping that makes intruders easily observable and maximizes the visibility of people on site. It also utilizes thorny plants such bougainvillea and Natal plum along fence lines and walls. Perimeter fencing at self-storage facilities should be at least eight feet high. Tubular steel is often recommended as it is stronger. After fences and walls, access control systems are the next line of defense at a self-storage facility. Facility access is restricted allowing only authorized tenants and personnel to gain entry. It also restricts and logs the time of day and specific areas
Chapter 7 - Planning and Construction 99
for which access is granted. Self-storage operators may also restrict access to the facility for delinquent tenants as long as it is done in accordance with the tenant’s contract and the state’s lien law. Access is usually gained to the facility using a numeric keypad, but some devices include a magnetic card reader or a combined keypad and magnetic reader. The system is normally integrated with an electronic gate, management software, and, if present, individual door alarms. Inside the facility, high security locks are a must. In fact, law enforcement professionals say disc locks should be mandatory. Cylinder locks are an option as they are embedded in a specifically designed latch, can’t be cut like a traditional lock, and have a seven-pin barrel keyway that allows for over 10,000 key differs. Another popular and growing trend is individual door alarms. With this option, all you have to do is change the code when a customer vacates.
Fingerprinting
After fingerprinting was introduced at a facility in California, there were concerns about privacy. But, after a survey they found that very few even cared one way or another if it was a lease requirement. No one should be excused.
Identity Theft
The widespread criminal activity of identity theft now impacts self-storage. The law has now stated that there are now strict restrictions on how personal identifiers
100 Self-Storage • The Journey
must be stored, utilized, and disposed. It is just good business to protect your customers’ information and also a legal requirement. This is especially pertinent if you have to do a lien sale.
Access Control
Access control will play a large part in your day-today operations. You need to know you have control over property access. Additionally you want easy traffic flow that protects your improvements. Properly planned, you will have plenty of room for access at a gate area, ample turn areas, and driveways that accommodate easy entry and exit. Some pieces of property lend themselves to easy access with a single gate and a straight shot in and out. Some sites must be configured for one-way traffic and multiple gates. Each gate operator requires power and a wire for data to vend the gate signal. Each keypad or other entry device will need conduit to the gate operator location or the main office, and its own concrete pad as a foundation. Roll-up doors at loading dock or drive-through areas will greatly enhance your appeal for some prospects, especially commercial customers. How the doors are controlled by code or card-entry systems, how long they remain open, and whether or not they have alarm notification, should be part of the construction plan.
Remote Management
An approach known as remote management is coming back. When the self-storage industry was in the early stages, all you did was call a number and someone
Chapter 7 - Planning and Construction 101
met you at the facility, got your money and signature and let you in. In rural communities, this might be a good option as full-time employees and automatic access expenses can be avoided.
Choosing a Kiosk for Your SelfStorage Business
A kiosk might be a good way to increase profitability. More and more self-storage owners are turning to self-service kiosks. Many large names in the industry including Public Storage, Shugard, Storage Solutions, and SecurCare have already installed kiosks on their properties. This new technology might help your facility. These units enable prospective customers to rent units 24/7 through a machine. That’s right; there is no facility manager to go through. Virtual tours provide the unit options, and then customer select the unit, purchase a lock, pay for unit, insurance and print out a rental agreement. Existing customers can use this service to make changes to their accounts and also make payments. Plus most kiosks have a speakerphone to you can be connected to a live customer service agent to answer any questions. This helps to reduce staffing cost as it provides convenience. You have a permanent “open” sign. This really has the potential to improve your bottom line. And the security factor is handled by the kiosk with fingerprint scanner, license reader, signature pad, and check reader. Plus the kiosk has a digital camera to positively identify
102 Self-Storage • The Journey
new tenants and discourage potential customer’s intent on wrongdoing. You can also integrate kiosks with SSA Counter Measures, providing real-time customer ID verification, credit scoring, bankruptcy screening, and criminal background checks. This kiosk really becomes the manager’s assistant and allows more flexibility for the manager to do some other things, or scale back on the number of hours worked. This is a good option for a semi-retired person who wants maximum convenience for themselves and their customers. These kiosks are basically outdoor computers and can include the following automated services (functions): 1. A digital camera which takes and stores a photo of the potential new tenant 2. A speaker phone programmed to call the manager or a call center if assistance is needed 3. Fingerprint scanner that takes and validates an actual fingerprint suitable for law enforcement. 4. Background screening on prospects using county-lever criminal records from all 50 states. 5. Digital signature pad that records a prospect’s legal signature on the lease 6. Driver’s license scanner that takes and stores a photo of the driver’s license 7. Real-time credit card and check processing
Chapter 7 - Planning and Construction
103
Alarm Systems
Alarms may very well be the feature that helps your property stand above your competition. Individual unit door alarms may be hard-wired or wireless. Either way, you’ll be looking at similar requirements. You’ll need power and data connections, as well as a convenient place to locate the components of the alarm control and communication system. You may choose to use your unit alarm components to double as lighting controls for each unit. Manufacturers of the contact switches now provide the capability, but that choice must be planned so that the security vendor and electrician can coordinate the wiring and dedicated circuits for the lighting contractors. Your AHJ (Authority Having Jurisdiction) may require termination of your alarm notifications at a monitoring facility or the local police station. They may not allow an external siren because of community or neighborhood considerations. These determinations will have an effect on your security plan, and translates into your construction plans.
Video Surveillance
Closed circuit television is a proven theft and vandalism deterrent. The sophistication, reliability, and functionality of the current generation of digital video recorders, and video surveillance can be a powerful weapon in your battle to protect your property and provide outstanding customer service.
104
Self-Storage • The Journey
Each camera must be powered from a plug-in power supply within a few yards of the location or from a central power supply in the equipment room. For long distance runs over about 800 feet, a larger coaxial cable may be required, chewing up more conduit space. For even longer runs, some owners are opting for other technologies such as twisted pair wiring or more expensive fiber optic backbones through the property. Inside structures, your requirement may call for plenum-rated wire. Camera locations should be selected carefully to help provide evidence that limits liability. As the owner, you want to know you have protection for your investment. Be certain to cover traffic areas where vehicles will be entering, turning, and parking. Having an electronic eye on building entrances, elevator lobbies, and loading areas will help you secure your property.
It’s Up to You
When it comes to security components there are multiple solutions with many features. Keep in mind that, especially when your wallet comes out, everyone becomes an expert. The security industry has many quality providers that have engineered their products specifically for self-storage. Choosing the right provider is an important decision. A wrong choice can be both expensive and frustrating. Choose a supplier with tenure in the industry. Don’t be afraid to ask about the history of the company and for references in your area. Remember that the company you choose to supple your security components needs to be there for you for years to come.
Chapter 7 - Planning and Construction 105
Sound Systems and Intercoms
All those walls in a self-storage facility seem to intimidate some customers. Piped in music soothes and calms this anxiety. Plus you can use this system as a public address (PA) which makes the effort and planning worth it, but you do have to pre-plan for this. Generally speaking, that is a free run without conduit, but may require pre-planned transit locations through firewalls. Your customers will appreciate this. Your staff needs all the assistance possible and twoway communications helps. From a keypad or card reader location, from each elevator lobby, and from well-located call stations throughout your property, customers like to know they can press an intercom call button and speak to someone. Wire connections make the communication possible. The wiring needs to show on your construction prints along with all your other planned amenities.
Parking and Traffic Flow Planning
Most zoning ordinances have not kept pace with the self-storage industry. One of the major misgivings of communities about self-storage is parking for customers. An understanding of parking and traffic flow is crucial for the maximization the property/building use, because you don’t want to show an empty parking lot. In many communities, zoning is worded “one space per 1,700 gross square feet of building plus one per employee”. For a large facility, the inaccurate estimation
106 Self-Storage • The Journey
of parking needs could lead to almost half an acre of land wasted. This land is most likely taxed and requires storm water management, as it is required but most likely will not be needed for parking. During the first year in the life of a self-storage facility, you obviously need more parking spaces. But after initial lease-up, very little is needed. A recommended parking ordinance should read one parking space per employee working at the busiest time, plus five customer spaces at the front office and one temporary space per 75 rental units for a period of two years from opening.
If Multi-Story, Lifts Or Elevators
Consider these during pre-construction. They break down, create code violations, and seem to take forever to get to your floor—not to mention the hefty cost of service contracts. In the self-storage business, elevators are essential to moving people, their goods, and customer satisfaction to higher levels. Today, as many as half of the self-storage facilities are multistory, and this requirement has evolved because of land cost.
Do You Need Elevators or lifts?
Vertical lifts move items—not people. Although they’re used less frequently than elevators in self-storage applications, lifts can work well when cost is a factor. They can be added as a back-up for breakdowns, or where existing elevators don’t cover customers’ needs during busy periods. A lift cost about two-thirds less than an elevator. As elevators transport people, they involve much stricter safety codes, which mean costly added features. However, vertical lifts require a nearby
Chapter 7 - Planning and Construction 107
set of stairs so people can meet their loads on upper levels. While you save money on a lift, it’s important to remember that the extra set of stairs on two floors costs you a couple of 10’x10’s or 10’x20’s, which means you’ve lost income. Still, in some applications, a vertical lift is the best option. Determining what type, what size, and how many elevators or lifts will meet your facility’s needs can be challenging. The best option is a 5,000-pound freight or hospital-type elevator because it comes with a large cab. You will want the cab to be higher than normal maybe at least a 10-foot clearance so that large items can be stood on end. Hydraulic elevators are best for applications up to four stories. For high-rise applications, it’s necessary to use a traction elevator (the kind with motors at the top and cables) because hydraulic mechanisms are too slow. Hydraulic elevators are considerably cheaper, and are adequate for most high-rise applications. Lifts, or VRCs (vertical reciprocating conveyors), use hydraulics for two-story applications but require a mechanical motor (which adds about 30 percent to the cost) for anything higher. Interior and exterior elevators cost about the same, so make your selection based solely on the application. A good idea is locating the elevator inside the building but having it accessible to a loading area outside. An elevator can be recessed 10 to 15 feet into a building sot that it has a covered vestibule but is open to an outdoor loading area. The advantage is that, while
108 Self-Storage • The Journey
much of the elevator is protected inside the building, it is accessible from outside and can have large openings. Remember, convenience, ease, security and access is what the customer is looking for in your self-storage facility. Strive to provide these requirements to remain competitive. You need one elevator for every 45,000 square feet. On average, you don’t want your customers walking over 175 feet to their unit. Check with your state and city for to help you determine what to do in this area. Some states require you to have permits in hand before ordering your elevator. It’s important to check the power supplied to the conversion. Some older buildings don’t have the needed three-phase power and this can add extra cost. Maintenance contracts are a requirement. You will likely find that quarterly contracts are the most cost effective. Remote monitoring can be added for around $50. Elevator lobbies are important. They must be roomy, convenient, bright, and located out of the rain.
Snow Guards
Snow guards are a good idea, but you need to consider the following: • Check your roof warranty because you don’t want to do anything that would invalidate its warranty. • Make certain the retention system you choose comes with its own warranty.
Chapter 7 - Planning and Construction
109
• Check your local building code because every municipality has its own codes regarding snow retention. • Do your homework on the company you’re buying from, to select a reliable vendor.
Facts About Construction Pricing
It’s been said that what goes up, must come down. That seems true in almost every instance—except, perhaps, construction costs. Metal buildings are still the least expensive to build. You can construct these with a standing seam roof and the finest materials for around $9 per square foot. While you may be able to locate a less expensive product, remember that quality is essential to preserve your investment.
Increased Costs
Overall construction costs have continued to increase while the engineering process strives to deliver quality projects for less money. Sometimes, this means incorporating alternative materials such as composites, metal panels, sidings, and stucco. Various electrical options and needs are also under scrutiny. When it comes to roofing, the prevalent system for self-storage continues to be the standing-seam metal roof. No radical change from this standard is expected in the near future. While the skyrocketing cost of steel catches everyone’s attention, concrete, drywall, paint, and almost everything else in between the outer and inner walls has dramatically increased as well. Insulation has
110 Self-Storage • The Journey
also been short in supply and high in price. This has impacted new facilities with climate control. Despite the enormous increase in materials, the self storage industry is booming. Remember, though, if you want to leverage your investment plan to build a quality facility.
Choosing a Contractor
There are two options for construction of your project: 1. Choose a qualified contractor. 2. Act as your own general contractor working through your own sub-contractors, such as suppliers and erectors. Becoming your own contractor is also time consuming and involves a great deal of stress. You can hire a general contractor who will handle the entire project, but, of, course this is a much more expensive route. This is where a good supplier comes in handy. I think the major difference between a Steel Building Manufacturer and a Steel Building Supplier/Broker, is that the Supplier/Broker is more customer sensitive. In the area of self-storage, price isn’t the largest difference. American Steel Buildings, Inc., for instance, does a large volume with several manufacturers thereby getting lower prices than the end user can get directly from the manufacturer. A good supplier uses construction crews who specialize in assembling self-storage buildings. These suppliers have much confidence in the crews they use and this can save you a considerable amount.
Chapter 7 - Planning and Construction 111
You will still have to get your own concrete poured, but the supplier will supply you with the plans for this which lay out in detail the way the concrete is handled. Simply give this requirement to your concrete people and let them handle it. Be careful about the suppliers you use. Many may claim they manufacture buildings and can save you money. To be honest, a good amount of them are simply not telling the truth. The way they get by with this claim is by the use of a phrase which means that they represent the manufacturer. Check out suppliers with the Better Business Bureau in their state. It doesn’t matter how large they are and what their rank is, as the credible ones have the BBB logo on their site and you can click on it to check them out. Use a national supplier who does a high volume of business with the major manufacturers. This enables them to get you the best pricing. The high volume these good suppliers do with the different manufacturers puts them in the position of looking out for your interests. Further, a good supplier stays with you throughout the entire project. Some manufacturers will, but most of them don’t regard a smaller project as important as the supplier. As the owner or developer you will need to work closely with the general contractor for an extended period of time. It is imperative, therefore, to do a thorough interview.
112
Self-Storage • The Journey
There are two key points to keep in mind when making your hiring decision. You and the general contractor need to be comfortable working with each other and the general contractor must be able to provide the needed services. The supplier/broker also does a huge volume of business with door manufacturers and insulation manufacturers and can save you money. The advantage for the customer is that you would receive a greater value both in price and service.
Phasing a Self-Storage Project
Should you build your facility all at once, or in phases? If you choose to build your project in phases, you need to design your project in a way so that there is enough of a unit mix to enable high occupancy at the time when the facility opens. After your feasibility study is complete and you have selected your site, you will be able to decide if you want to do the whole project at once, or in phases. Much of this will depend on your financing. This also depends on how much you have borrowed up front which reduces your interest. The overall project size may dictate how you approach your decision. Some lenders want to see this done in phases. These choices also help in deciding on unit mix. As you begin to fill up, you may want to add more units of a certain popular size.
The ADA (Americans with Disabilities Act)
The Americans with Disabilities Act became law in 1990. This caused big changes for the building industry. Many new regulations and requirements were designed
Chapter 7 - Planning and Construction 113
to make accessing buildings easier for the physically challenged. The federal definition of a disability includes any physical or mental handicap person that is substantially limited in one or more of life’s major activities. This law applies to new construction as well as any major renovations, as a high population qualifies under the Act. Twenty percent of non-institutionalized Americans over the age of 15 report suffering from some handicap that falls into this category. You must use professional architects and engineers that are well educated on ADA regulations to determine design requirements. Take this area seriously as penalties for non-compliance can add up to thousands per day, in some cases. Although some of these regulations are left to interpretation by the state, you need to make every effort to comply with the code from the beginning. For example, requirements include a five-foot circle where a wheelchair can roll in and turn around and be able to access the toilet, handles, pulls, latches, locks, and other operating devices on accessible doors. Door handles must have a shape that is easy to grasp with one hand and that does not require tight grasping, tight pinching, or twisting of the wrist to operate. The handles must also be mounted no higher than 48 inches above the finished floor. Further, the force required to open swinging doors can be no more than six pounds, which is about the weight of a liquid gallon.
114 Self-Storage • The Journey
Additionally, sidewalks leading up to the facility office can present a challenge. The appropriate slope for asphalt or concrete is about one quarter inch per foot. Most experts will tell you to proactively work with the building inspectors. This enables you to come to an agreement on ADA issues and the best way to ensure compliance with the city’s interpretation of the code.
Chapter 7 - Planning and Construction
115
116
Self-Storage • The Journey
Chapter Eight
Marketing And Advertising
Marketing Prior to Opening
At the onset of construction, be certain to post a “Coming Soon” sign at the site with the telephone number for more information, and the facility opening date. Include the name of the new facility, telephone number, and an appeal to reserve their space now. This, exposure and a flier left in the construction office will help you generate a list of potential customers that need storage in your market area. You can then pursue pre-lease agreements, which will help with cash flow. Hire your manager before your site is ready to open. This enables you to begin a working relationship, set up the office, get systems in order and take reservations. Your manager can also be asked to visit other sites in order to conduct a competitive review and bring back facility improvement ideas. Obtain your Certificate of Occupancy for the office and manager’s apartment ahead of the units. This will allow you to be well prepared and to focus on leases. Managers can also investigate which companies are best to hire for on-site needs such as grounds, electrical and plumbing services
Chapter 8 - Marketing And Advertising
117
Grand Opening Preparations
You can now begin planning for your grand opening and begin some advertising. Order business cards, brochures, fliers and other promotional items. Get your web site (which should be able to take reservations) in order. These things should be accomplished a month ahead of opening. Your signage package should be ready well in advance of the grand opening. Remember that drive-by traffic accounts for almost half of a facility’s business. Visit different retail outlets in the immediate area, and ask to leave some brochures in their lobby. The grand opening is a very important part of the marketing process. As it sets the tone and establishes a good first impression. Even if the attendees don’t all use the facility, they will mention your name when someone is looking for a place to store some items. The grand opening needs to be about two months before the actual opening. This enables you to take leases while working out the bugs in the system. You will need a couple of months to plan for this event. A ribbon cutting coordinated with the Chamber of Commerce, along with invitations to the local dignitaries, can go a long way in generating interest. Your opening may even hit the five o’clock news and help set the tone for your operation. You can make the event fun for families and their kids. Offer food with a familiar connection to the site’s name and create a theme.
118 Self-Storage • The Journey
Chapter Nine
Operations, Maintenance & Upkeep
This section offers valuable pointers to run your facility effectively. Create a binder with contact numbers, site plans, bank information, file locations, several hard copies of all your forms, and operational information. Establishing a daily checklist is critical. It helps if your manager is good at multi-tasking. The reason for the binder is two-fold. 1. It serves as a central location for operations 2. If you need to hire a relief manager, it serves as a vital reference tool Set up a vendor binder containing information regarding all of your regular vendors’ information. Keep their invoices, proposals and invoices. Create a contact list on your computer and maintain customer information. Organize your computer and paper files with care. Keep most of your information on the computer so that it can be immediately printed out at any time. Make certain to back up your files often. Walk-through unit status checks should be completed at every 3 to 4 days. Take notes on any problems and don’t let them go without some immediate attention. While doing this walk-through or ride-through, you can immediately fix or clean up many issues. Each walkChapter 9 - Operations, Maintenance & Upkeep 119
through needs to be followed by a short report of what you saw and what was done to resolve any issues. Purchasing postage online through www.usps.com a dds to your efficiency. Print the receipt, order forms, labels and envelopes.Get as much information as possible from your telephone reservations. This makes it easier when the customers arrive to move items into their unit. Go with your customer the first time they park their RV or boat to make certain they know what they are doing. You want them to be comfortable with the experience. The HVAC checks need to be done monthly to change any filters that require service.
Holding an Auction/Lien Sale
As part of operations, there will come a time when you need to go through the auction process. This occurs when a customer has defaulted on their lease and you have followed all of your state regulations to reach the tenant. Keep in mind that to call this an auction, some states require you to have a licensed auctioneer. As a lien sale, you normally handle the liquidation like a garage sale. Rules have to be followed because this area of management is so prone to litigation. They are, however, a necessity. There are professional buyers out there who love to attend these auctions. They turn around and sell these items on Ebay, flea markets and many other outlets.
120
Self-Storage • The Journey
You need a way to figure out how to attract these professional buyers and yes, even reward them. Donuts and other refreshments could be offered. Plan these auctions in advance and let these buyers know when it is going to be held. Maintain a mailing list so that you can keep them informed. You could also allow them to use your move-in truck for free. Another good thought is to coordinate the auctions with other self-storage facilities in your area so that the buyers can visit them all in one trip. On auction day, stay organized and hand out your rules to all the potential buyers. Be courteous and friendly, plus offer them a flashlight to more easily inspect items and units’. These buyers are an asset to your business and need to be treated as such. You want to be viewed as a professional operation, so being well organized is a great benefit and will draw greater attendance at future auctions.
Pest Control
Implement an effective program for pest control. As you can guess, this is an important item that needs to be watched carefully. Have consistent, on-site inspections so needed deterrents can be applied as often as needed. Even if no bugs or varmints are spotted, systematic applications are advised. Make certain your customers understand your facility’s storage guidelines regarding pest control and procedures. They should know (in their paperwork) not to leave cardboard or paper on the floor of their unit.
Chapter 9 - Operations, Maintenance & Upkeep 121
Critter control is another one of the reasons why you need to keep your property clean inside and out. Vacant units need to be swept out from top to bottom, including the inside of roll-up doors. After you sweep and clean, spray with an insecticide and leave a small plastic bag of rodent poison in the unit. Remove cobwebs from corners, light fixtures, ceiling fans, perimeter light fixtures (interior and exterior), and anywhere they might be spotted. Sweeping and moping in all customer access areas is vital. Keep dumpsters checked and make certain the lid is closed and the area is clean. Some facility owners prefer the natural way of dealing with the pest challenge like Cedar Oil. This prevents moths from hanging around as well as controls other certain insects. It works best in confined spaces, plus it doesn’t take a permit or any other type of license. Keep in mind though, this approach repels, but doesn’t kill, pests. There are other natural products which are good for eliminating mice and other rodents. Another good thing about natural repellants is they make a good alternative to what the bug man uses and you don’t have to be concerned with anyone’s health and any ecological problems.
Mold
Rain leaks, plumbing leaks, condensation, floods, faulty sprinkler systems, and excessive humidity can cause mold to develop.
122
Self-Storage • The Journey
First of all, good insurance is important. This area of mold isn’t specifically available for coverage, but can be covered under “sudden and accidental events” such as flooding or pipe breakage. The insurance company is left to determine what is incremental at additional costs and probably will have a cap. If you find mold, call a good team of professionals. They will test it and if it is caught in time, it can be cleaned up with bleach and water before it can become hazardous. Think prevention by inspecting for leaks. Don’t procrastinate. Unit ventilation is a must.
Operational Expense
Your insurance doesn’t change based on occupancy. It is fixed while other expenses vary. Reduce expense costs wherever possible this translates into significant benefits such as borrowing power and sales proceeds. Insurance becomes a good area to watch as you consider the possibility of a sale down the road. Develop a cash flow budget and stick with it. You need to anticipate downturns and be able to forecast your cash flow crunch by recognizing your business cycles. Do your budget at the beginning of the year to estimate the month-to-month cash flow.
Analyzing Cash Flow
Self-storage is a profitable endeavor for many businesses; however, cash crunches are inevitable. How you navigate through these obstacles is a key to smooth sailing. The key to managing cash flow is the ability to
Chapter 9 - Operations, Maintenance & Upkeep 123
forecast the precarious elements that comprise the funds that come into a business. This cash flow budget is a good way to predict your business’s cash flow for the next month, six months, or even the next year. Computer programs offer forecasting models for the self-storage businesses. You could also use a consultant or there are many web sites such as www.entrepreneur.com and www.allbusiness.com that can help. This approach will help you in the event that you discover another facility is being built near your business. Further, it will help you to plan rental increases to counter these cash flow challenges. Another tip is that if a payment is due in 30 days; don’t pay it in 15 days. Use electronic funds transfer to make payments on the last day they are due. This will allow you to remain current with suppliers while retaining use of your funds as long as possible. Don’t select suppliers on price alone. Check out their payment terms. Consider leasing instead of purchasing for items such as computers and other office equipment and furniture.
Maintenance
Roofs
Plan a seasonal maintenance for the roof. Inspect it every few months and check the seals. Look for any signs of leakage and clear the roof of all items that don’t belong there. Watch for pooling around any object on a roof. While there, tighten screws that need tightening and check the guttering system.
124 Self-Storage • The Journey
Look for anything that either needs repair, adjusting, or just plain attention. Manufacturers might have a say in how you deal with your roofs, so familiarize yourself with any requirements.
Walls
At the beginning of each of the hot and cold seasons, check your insulation in your climate controlled buildings. You can test by hand to see if the temperature is consistent over the plane of the wall. If the insulation is uniform, the wall temperature should be uniform as well.
Interior Hallways
Tracking in mud and other seasonal objects will impact your interior hallways. Install mats and other shoe cleaning items outside of the entrances. Halls will need to be swept more often if your facility is located in a windy area.
Checking your Pipes
Hard freezing can create a problem with pipes. Have your landscaping company blow the water out of the sprinkler system. Turn off the water to everything on the property that doesn’t need water during the cold months. Wrap and insulate exposed pipes. Turn your water on in the spring and reset the timers.
HVAC
The HVAC system should be checked regularly. Most of the time, the utility companies will handle this at a very reasonable rate.
Chapter 9 - Operations, Maintenance & Upkeep 125
An efficient air conditioning system is your main defense against mold and mildew. It is important to clean air conditioner drains along with each drip pan at the beginning of summer. This will help to avoid algae growth.
Gates and Lighting
Problems with gates and lighting aren’t necessarily visible. Perform routine maintenance on your gate(s). Tracking, chains, and especially joints need to be cleaned and lubricated as needed, especially at the beginning and end of nasty weather. Remember to reset automatic light timers with the seasonal changes.
Pavement and Landscaping and Snowy Control
Do routine inspection on all your concrete and asphalt. Look for cracks and potholes. Weather can definitely damage or age pavement and you need to repair any sign of decay or cracking sooner than later. Landscaping maintenance speaks for itself. Remove fallen leaves, replace dead flowers and scrubs, spray for weeds and fertilize the lawn. During the hot season, set your lawn sprinklers to cycle in the early morning, or evening. This gives the water more time to go to the roots before evaporation takes place.
126
Self-Storage • The Journey
Advancing Technology and the Tools needed to keep up
It’s not a matter of being cool, but being efficient. The self-storage industry is catching up with major businesses in that it realizes that this use of technology saves time and money while helping to increase sales and productivity. Hosted applications are accessed off-site. Instead of investing a ton of cash in software, many operators have chosen this alternative. Accounting applications are a good example of the popular hosted applications. Some of these packages are offering entire hosted suites which provide 24/7 monitoring. Google “hosted applications for self-storage” and begin collecting information on this subject. Using e-mail as a business tool enables you to track communication. This will allow you to communicate with your entire mailing list at once. Keep in mind that e-mails are legally binding, and are much faster than regular mail. Payment reminders can also reduce delinquencies. Removable Metal Partition Walls provide a new way for self-storage facilities to become more flexible. They allow operators to change the size of units to meet the market demand and are known as Flex-Space Technology. If you are going to use this technology, it is a good idea to incorporate it at the design level. This way you are certain to have door access and meet fire code requirements.
Chapter 9 - Operations, Maintenance & Upkeep
127
Enabled Intercom Systems play piped music and allow for two-way communication. They come equipped with a remote dialer in case there is no answer on the manager’s end. The system will then dial the manager’s cell phone or PDA. Wireless Unit Door Alarms are very reliable and provide a good security and marketing message. Consider one of those new and powerful notebook PCs. This will enable you to stay mobile so you can visit other facilities and do some field spotting, especially with WI-FI Networks where customers can access the internet from your PC. Plasma Displays give you the competitive edge. They can also display your security features and are an impressive use for customer presentations. Logi-Tech is now offering 24/7 monitoring for temperature and relative humidity through a telephone modem linked to the system. This remote system records the readings, trouble-shoots, and also makes adjustments. If you find the need, you can have a lock system installed which can be controlled from a remote location. Partner with a local technology company. Track-it, Inc. has patented a multifunctional switch that can be programmed to simultaneously activate and deactivate the unit alarm, turn lights on and off, and turn AC off when the door is open. Self-Service Kiosks with Video Conferencing works when no manager is on site. These units also have twoway video conferencing with a manager at a central
128 Self-Storage • The Journey
location which can add a human touch to these kiosks transactions. Since 9/11, this has become a real asset at most self-storage facilities as they help to reduce criminal activities and delinquencies. Today’s internet tools provide quick and reliable ways to come to a decision to rent or not to rent to this person, plus it is convenient. Digitech International has a system that automatically integrates video surveillance and access control. Access log activities automatically become part of the time and date stamp on the video. In the past, tailgating had become a real problem. This is when one vehicle follows another while the automatic gate is still open. Preventing tailgating can make break-ins by non-customers much less likely. With new Anti-Tailgating Systems devices, the gate opens approximately 13 feet and then, when an electronic sensor determines that a vehicle has passed through, the gate begins to close. Be certain and post signs on both sides of the gate accordingly. Technology is constantly changing and it’s difficult for business owners to keep up. Strive to stay abreast of what is available and explore how technology can streamline your processes, enhance your service level and generate new customers. The bottom line, however, is to incorporate only what makes sense for your business.
Auditing
Conduct timely audits at least twice a year to operate successfully. Audits maintain certain standards and procedures. They also clear up any miscommunications, identify discrepancies, and help devise ways to improve policy, procedures, and increase income.
Chapter 9 - Operations, Maintenance & Upkeep 129
Scheduled Audits Are Unannounced
The manager is given minimal notice during unannounced audits, depending on the size and vacancy. This enables all vacant units to be opened for inspection. The audit is three fold: 1. The space audit in which every space is accounted for and compared to the rental agreements and computer information for accuracy. 2. The site audit which includes curb appeal and maintenance. 3. The office audit which covers procedures, rental agreements, delinquencies, auctions and reports.
The Space Audit
Space audits are a physical inspection of every unit and must agree with the computer print out as to the lock status and vacant unit status. All self-storage management software programs will provide a Tenants’ Unit Report to compare with what is actually on site.
Here Is a Sample Checklist For a Space Audit:
The Site Audit
Because customers want a clean and neat look at the facility where they store their goods, site audits cover all outside items and those things that a customer will notice. Always look at the property through the eye of the customer. • Curbs clean • Golf cart clean and maintained
130 Self-Storage • The Journey
• Door and store front signs • Welcome/hours • Payment drop box • Credit card logos • Open neon sign • Manager on property sign • Signs and banners • Main logo sign’s light working • Gate sign with access hours • Keypad instruction signs • Welcome sign at entry • Thank you sign at exit • Reader board changed weekly • Promotion signs/banners not faded • Customer rest room sign • Fire extinguishers with up to date annual inspection • Clean HVAC filters • Thermostat settings • Perimeter fence in good conditionclean of vines and weeds • Gates lubricated and adjusted to operate properly • Ant infestations treated
Chapter 9 - Operations, Maintenance & Upkeep 131
• Dumpster area clean • Property lighting check after dark • Landscaping clean, mowed, trimmed • Outside areas free of safety hazards • Public restroom clean and well stocked • Corridors, hallways, and stairwells clean and lights working • Gutters and roofs free of debris • Abandoned items removed from site • Graffiti removed • Sand urn at office entrance clean • Windows and store front clean • Gate codes working for management team.
Office Audit
This audit covers general procedures, policies, delinquents, auction processing, and reports. Every property should have a workbook that will assist a relief manager and anyone running the store during an emergency. This workbook includes the location of the bank, the post office, the golf cart, the model bay, the shop, and the box storage area. Also included are directions to the store from several well known roads, a map, and location of the electrical box and water cutoffs. There are blank pages for notes between the office manager and relief managers to keep each other informed.
132 Self-Storage • The Journey
Here is a sample checklist for the office audit:
• Review the store info workbook • Count the cash drawer and reconcile with the day’s business • Count the petty cash and reconcile with receipts • Check bank deposits timeliness • Phone settings – day message, night message • Workman’s comp notice posted • Business license posted • Prepackaged rental agreements • Rental agreements • All lines filled out on every customer • Customer’s signature – one name only—and manager’s signature • Change of address attached to rental agreement • Minimum of three telephone numbers • Readability • Good until date on specials • Rent amount compared to computer amount • Lien holder’s information completed • Vehicle VIN numbers and picture of customer with vehicle • Picture of all other customers on file with valid ID • Computer records up to date
Chapter 9 - Operations, Maintenance & Upkeep 133
• Customer service clean and free of clutter • Merchandise inventory records accurate • Merchandise is displayed with pricing • Auction schedule displayed • Current auction ad displayed • Company manuals – check for updates • Operations manual • Auction workbook • Marketing manual • Comparable survey book • Computer check • Free of games, videos, and CDs • Notes in computer on all collection calls • Late fees and auction fees added to delinquents • Exceptions Activity Report with notes completed for all variances • Manage Summary Report to compare previous month’s figures • Standard Rents Report to analyze free rents and below market rents • Market Summary Report • HVAC filters changed • Polaroid camera and film on hand.
134
Self-Storage • The Journey
The Action Plan
The final step of an audit is to devise a written action plan that includes what needs to be done, by whom, a timeline for completion, and a one-month follow-up date for the new audit. Give a copy of this action plan to the store manager, the area manager and any other appropriate office personnel. Make certain assignments to correct findings are clear to those responsible. Then set a date to come back and check those items to see what action was taken. Audits are the key to provide owners and customers with quality service. No manager is perfect, so reward your manager for diligent work. This process also helps you to make a decision to terminate non-productive employees. These audits can be very time consuming, but are very beneficial. Here are some good companies that serve as providers for this need: • Syrasoft Management Software www.syrasoft.com • SiteLink www.smdsoftware.com - Space Control www.spacecontrol.com • StoreMan www.storman.com - DOMICO www.domico.com • eMove, Inc. www.emove.com - Digitech www.digitech-intl.com • Quayle Computer Concepts www.quayles.
Chapter 9 - Operations, Maintenance & Upkeep 135
136
Self-Storage • The Journey
Chapter Ten
Additional Security Measures
While Armed Robberies are Rare,You Still Need To Have A Plan Of Action
The number-one priority during a crime is the safety of all the employees and customers. Make certain you have an alarm system in the office and the manager’s apartment. In addition to cameras in the office, you need a Web cam that can monitor both audio and video via the internet. It is always a good idea to have a sign on the counter saying that you don’t accept cash. Let the robber take whatever he wants. Don’t argue or resist, as this will only serve to escalate the situation. Hold a meeting with employees about how to handle a robbery. Discuss the demeanor of both the robber and the employees. Determine in advance of an emergency, who will activate the alarm? It should be the closest one to the alarm without drawing any attention. The alarm should be an unmarked, wireless, silent signaling device which alerts your alarm company. Potential robbers are usually walk-ups and need to be treated with caution and calmness. When they come into the office, immediately call someone over a walkietalkie or intercom. Even if you don’t have anybody out there to respond, this gives the impression that you are
Chapter 10 - Additional Security Measures
137
not alone. Use a pre-agreed upon coding word or number for this potential scenario while on walkie-talkie. If a weapon is seen, do your best to move slowly and remain calm. The robber may be more nervous than you are and won’t respond well to quick movements. Immediately tell them to take what they want as they generally just want quick cash and a quick exit. When they leave, call police immediately and don’t touch anything. Take this time to immediately start writing down everything that happened as well as the robber’s description. Have your employees do this same thing while the incident is fresh on their mind. This will help the police to react and get the perpetrator’s description out to the field so there is a better chance of capture. Secure videotapes for the police and review it for details. Digital video recording devices are very handy here as you can get a second by second playback from different angles and make copies for police. There is an overall decrease in this type of crime and the self-storage industry doesn’t suffer from this as much as other businesses do. But you need to be prepared for obvious reasons. For example, you should be concerned about the public reaction. Is your facility safe and did you act properly. Remember, customers need to believe that your facility is secure.
138
Self-Storage • The Journey
The facilities that have individual door alarms and plenty of cameras don’t seem to have many problems. Facilities with few security measures are, however, starting to see increased break-ins. The after hours perpetrator violates the perimeter of the property usually cutting a hole in the fence to look for small items to sell at pawnshops and other outlets. There is one scam to be in the alert for, as paying tenants may rent a small unit in order to gain access. They will usually loiter around to see who is storing what and where. Then after writing down their unit numbers, they return for a massive break-in of the different units and quickly exit. The latest trend is the perpetrator who cuts a lock and begins to tunnel his way through to other units all the way down the hallway. They break through the drywall and exit through the last unit they burglarize. The facility and tenants both suffer loss. Another vulnerability is the individual involved with counterfeit money, money orders, and bogus receipts. The receipt is taken by the customer and he runs it through a scanner, converts it to a text file or replicates it on their own computer. With a simple date change they have a receipt saying they are paid up for months. You can combat this with the facility’s watermark on your printed receipts. The installation of expensive high-tech equipment at self-storage facilities is also drawing criminals. They will try to steal your cameras (which don’t have serial numbers) by climbing up on the roof and taking them.
Chapter 10 - Additional Security Measures 139
Computer Viruses are on the rise and have the potential to really hurt any business. You need to stay current with anti-virus software and install a firewall. Do not allow employees to use the company’s computers for personal emails etc. Self-storage operators are getting serious about security measures in an environment of potential terrorism. This is where background checks and other initiatives designed to discourage terrorists from using self-storage as a place to hide their bomb-making materials and other supplies is vital. Until these new security methods became standard in the self-storage industry, these facilities were the most logical place for terrorists to hide their bomb-making items and weapons. As far as background checks go, terrorists typically don’t have a credit history or residency referrals. They also know that there are some smaller self-storage facilities in out-of-the-way towns that don’t conduct checks. It is up to the managers to be able to tell if the potential customer is legitimate or not. Maintain high standards in your applicant screening as this will weed out most all potential terrorists. Also be a nosey manager, your environment this will run most of the disreputable customers off. Employees must watch for prohibited materials on the premises, including gunpowder, PVC or metal piping, and dismantled kitchen timers. Maintenance crews should be trained to look for odd behavior on the property. This includes smells, sounds, erratic schedules,
140 Self-Storage • The Journey
heavy foot traffic, or anything else that seems out of order. Self-storage managers should conduct routine lock checks and invite the police department to use the property as a training facility. Don’t forget to have a check-off list when closing up. This ensures the safety of the facility. Don’t oversell you security as this can have legal repercussions. Don’t allow police officers to intimidate you into opening a tenant’s unit without the proper paperwork such as a court order/search warrant. If you cut a lock for any reason, you automatically become responsible for the contents of that unit and may be violating tenant rights. Check your state’s laws.
Chapter 10 - Additional Security Measures
141
142
Self-Storage • The Journey
Chapter Eleven
Employees
Staffing, Training and managing a self-storage facility
As soon as you decide to go forward with your facility, begin looking for your team. Consider where you will recruit folks and how you are going to train them. Another early decision is for you to decide who is going to be involved in the day-to-day management of the facility. Your options are a manager, yourself or a management company. Bringing in a management company will mean they will be responsible for hiring and supervising the staff. If you are building a large facility, this may be a better approach than trying to do this yourself unless you are experienced. A management company can also be responsible for handling the grand opening and reservations. Prior to obtaining your “Certificate of Occupancy,” a two-person team (if you have the average size facility of less than 40,000 square feet) will be needed. They will handle things such as sales, leasing, marketing, maintenance, audits and landscaping.
Chapter 11 - Employees
143
If you are building a large facility consider having a team of three or four. These facilities are generally open from 9a.m. to 9p.m., Monday through Saturday and 1p.m. to 5p.m. on Sundays. If you build an apartment on site, hiring a couple is a good idea. If not, two unrelated people can cover your workload. This enables them to overlap three days of the week and one of them can handle the other four days. Your manager needs to have the ability to market in your community. He or she should attend regular meetings with any local business groups including the Chamber of Commerce. The manager can also help during the construction phase with duties including numbering the units and hiring landscape personnel. They can also take telephone reservations during this time. Remember, train for skill and hire for attitude. The ideal self-storage manager has some customer service skills, sales, marketing, some computer and accounting including budgets and marketing. In other words, they need to be able to wear many hats. This manager must be able to take possession and handle the store as if it were his/her own. And remember, you need to be on the lookout for a relief (part-time) manager. Every employee you hire must agree on their application to a background check. Examine their honesty, integrity and abilities. Also make certain they agree to a 90-day probationary period.
144 Self-Storage • The Journey
This application should be finalized by your attorney to ensure clarity on points such as when the employee agrees to your right to terminate, and to have the apartment vacated within a specific time. Three things that are also important are the employee handbook, operations manual and the employee agreement. Consult your state self-storage association for help in this area. Make certain your manager has a working knowledge of your state’s lien foreclosure process as prescribed by the state statute. Things to seek when hiring include: • A great attitude • Maturity to handle difficult people • Flexibility • Customer service orientation • Good telephone and sales skills • Pride of appearance (how they look personally is usually an indicator of how they will maintain the store) • Self-starter • Sincerity • Management attitude (non clock watcher - will they lease to someone who pulls up at closing) • Organizational skills • One who sees the big picture, and watches the details.
Chapter 11 - Employees 145
What do you pay your Managers?
You get what you pay for here, but stay within your budget. Salary depends on their hours, the facility size, and whether they live on-site. Some states have very stringent overtime pay schedules. It is wise to calculate the hours necessary to complete the assigned tasks and provide an adequate salary and bonus structure that provides just compensation. The average across the U.S. is $25,000 to $35,000 with a stated percent lease bonus in place.
Training Managers for a New Site
Explain to employees that they provide the first impression for the facility. This is crucial in that your potential customers must feel important, safe, courteously treated and leave the property knowing that they have just had a good experience with customer service. This training should be a pre-scheduled class or seminar. Use a well organized hand out so everyone can follow along. Also go through all procedures from the time the customer walks in to the time he or she walks out with a smile.
Mystery Shopping
This is the practice used by independent facility owners to gage how their managers and other employees are doing the job you hired them to do. This “mystery shopper” goes to a facility or calls and doesn’t say he is interested in leasing a storage unit, but acts interested in a way that one would come to that conclusion.
146 Self-Storage • The Journey
He asks a great many questions about why he should choose your facility for his storage needs and this is also good for checking the facility’s customer service as well as several other areas. This practice needs to be included in a section of the employment agreement that informs the employee that “tapes” or “mystery shoppers” will be used in recording calls or in-person visits. You as the owner have an obligation to disclose this practice during the hiring process. There are several industry vendors that provide these services and deliver these reports, tapes, or CDs to the owner and on-site manager.
Hiring and training for success
Profits are the goal of any self-storage operation and professional managers are the key. As such, employing great managers is the owner’s responsibility and goal. Newer stores are retailers in every sense of the word and understand the need for the best, most qualified marketing oriented managers they can afford.
Email in the Workplace
Minimize employer liability by realizing that neither common nor Federal law prohibits employers from monitoring employee e-mail and Internet use. If the computer or network is the employer’s property, then everything that’s transmitted through it belongs to the employer.
Chapter 11 - Employees
147
E-mail activity is a social activity between employees, but can be wasted time. Also, you as the employer can be held liable for things like sexual harassment, defamation of character and all kinds of things. Employers are also responsible when their employees violate the copyrights and trademarks of another party in the course of everyday business. It is wise to monitor employee e-mail simply because of the plausible liabilities faced by the employer for employee actions. But you have to inform them you are doing so. Another way to minimize liability is to use a disclaimer (can find at e-mail disclaimers.com) at the bottom of every e-mail sent from company systems. What type of disclaimer used is dependent upon which legal aspects are pertinent to a particular business.
Here Are Some Tips For Personal Safety in The Self-Storage Industry
• Always be alert to your surroundings • Photocopy drivers’ licenses before taking customers out on site • Trust YOU’RE instincts • Don’t walk inside units when showing to potential renters • Don’t show units after dark • Provide managers with cell phones • Provide managers with key bobs that tie into alarm system • If legal in the area, encourage managers to carry mace on keychain
148 Self-Storage • The Journey
• Install cameras at office front door to get picture of person’s face upon entry • Place keyhole cameras in keypads to get a full-face shot • Have a camera in the office with video display screen in the manager’s apartment • When inspecting the property, use a golf cart rather than walking • Keep hallways straight so there are no corners for criminals to hide behind • Install phone lines in display units • Have fake “dummy” videos on hand to give criminals who ask for a copy of the video tape • Install glass storefront windows at exits, giving passerby a view into store • If being robbed, back away from cash register • If being robbed, ask to be locked in a unit • Try to take note of the criminal’s height and physical characteristics. • If you see a crime, don’t confront. Take note of the person’s physical characteristics and license plate, and call 911 • Walk the site in pairs, if possible • Before opening a unit door, check for unexplained wires. (Renters operating meth lab out of storage units have been known to wire doors to explode when opened.)
Chapter 11 - Employees
149
• managers keep cell phones with them at all times • Always have two sources of communication • Build a relationship with your local police department. • Tell the management office before walking the site • Hold training sessions and practice for potential robberies • Walk in the middle of aisles away from unit doors • Create safety manuals and train employees to handle situations • Encourage managers to take self-defense classes • Vary times and days of cash deposits • After auctions, take the money to the bank immediately Employees can become your greatest asset. Treat them right and reward good work. However, don’t be taken advantage of; your business is an asset to them as well.
150
Self-Storage • The Journey
Chapter Twelve
Customer Relations
In today’s society, people want convenience and customer service. If they don’t receive it at your facility, they will move on down the road. You have to realize just what the potential customer’s wants and needs are and meet them with a smile. Your facility needs to be a clean, user-friendly and safe environment. Going the extra mile will help in this area also. There are also those customers who are hard to satisfy even with the best service, but you need to treat them just as you would that person who is cordial. Be prepared to ask questions so that you can meet their needs. Remember the majority of unsatisfied customers will not even voice their concerns and complaints. These folks are even more dangerous to your facility’s reputation in the community. Word-of-mouth advertising is your most important vulnerable asset. These people will not only go to another facility, but will tell others about their bad experience at yours. You want your employees (and whoever answers the telephone) to be able to answer all their questions when talking to a potential customer. You need to train for this service level.
Chapter 12 - Customer Relations 151
Arguing with customers who have paid their hard earned money does no good at all. If you are able, bend your policy in order to make your customer happy. Don’t do this constantly for them, because you will wind up doing this for everyone. If possible don’t pass the customer to another sales person. Do your best to satisfy their concern yourself and become a good listener by repeating it back to them telling them that you just want to make sure you understand them correctly. Customer relations includes scheduling a time (once every couple of weeks or so) to call your customers and share your appreciation for their business. Ask them if they have any questions or needs that you can support. Send your customers a thank you card from time to time. This builds long-term good customer relations. Greet each customer like a friend. Stand up from your chair, smile, shake their hand and introduce yourself. Treat them with respect and dignity. At the same time, you want to instill confidence that you are the one to solve their storage challenge. Strive to make them feel special and at ease. Stay focused on issues, not personalities. Don’t make it personal. But, set a boundary on what you will tolerate and stick to it. Do this by being polite but firm in your position at all times. Use straight talk and no analogies or figures of speech. Ask them, “What do you want and need from me.” The best thing is to work together to find a solution that you both can benefit from.
152 Self-Storage • The Journey
Remember, customer complaints are to your benefit. Feedback is the only measure of performance that helps you make improvements. After you have finished your conversation, show them the correct unit before they sign the lease. When they leave, document the conversation, especially their questions and your answers. And when they call, simply return their call. Customer conflicts will occur, but there is a right way to handle them. Keep an eye on your emotions and stay very professional. Don’t react, but respond. Like having to sell a customer’s goods because of them not paying their rent. This can be emotional for them even if they do owe you money. You do have leverage when it comes to liquidation, but there is a right way and a wrong way to approach it. Make certain you have gone the extra mile to contact them. Let the customer know that you understand their belongings are important to them and you are looking for a solution. Don’t just move toward selling their belongings after only one collection attempt. Keep it business, and never take it personally. Most conflicts can be handled with this mantra in mind. You need to clarify what is and what isn’t a problem. Simple, calm, and good questioning can uncover the true source of the conflict. For instance, say to the customer, “I know that you are concerned about losing your belongings, what can we do to work this out?” Knowing the answer to this inquiry will help you determine the real problem, and then you can create the right response.
Chapter 12 - Customer Relations 153
You need a strategy for resolving customer disputes. Thoughtful responses separate customer service professionals from non-professionals. Don’t ever try to resolve a conflict through people who are not involved. Choose a quiet, private environment for your discussions. Customers want to feel that you aren’t threatening, that you care about them and their issue. Don’t cross your arms or roll your eyes or look disgusted. If they start out angry this can be difficult to maintain but stay calm. Begin by being the listener and allowing them to be the speaker. Let them finish and don’t interrupt. If you become angry, deal with it in a non-threatening way by body language, smiling, and slowing down the conversation. Don’t blame others. Take responsibility as part of the facility’s staff. As far as customer satisfaction goes, fewer than 10 percent ever complain to the management. For instance, have you ever been to a restaurant and received horrible service from the person waiting on you? You may have thought, “Wouldn’t this be valuable information for the owner?” But you decide to leave and didn’t tell anyone but your friends. This is what I mean by most customers will just choose another restaurant/facility. A customer survey is a good way to stay on top of these things. Your might even use the restaurant analogy somewhere in your survey. You will want former, current and past customers to voluntarily participate. You need to know about their facility experiences. Begin the survey by stating that you are striving to make everyone’s experience with your facility the best it can be and you value their opinions. When developing
154 Self-Storage • The Journey
the survey questions, you need to know objectives you are trying to accomplish. Keep the survey short and to the point. Another good point with customer service is to wave late fees for the first late incident, if appropriate. This practice shows flexibility and customers will be appreciative. If late payments continue with a particular customer, you can tell them that the computer is set up to wave late fees once every three or so months and you can’t change this system.
Chapter 12 - Customer Relations
155
156
Self-Storage • The Journey
Chapter Thirteen
Insurance Concepts
Are You Properly Covered?
Premiums and insurance companies will vary from state to state. Risks are rated on the type of construction, location, square footage and limits selected for various liability coverages. New self-storage operators need professional consultation early in the construction process in order to evaluate potential exposure. Your agent will assist in determining the type of coverage and proper limits, plus he or she may provide recommendations which could save you from costly claims. Remember, claim activity will be factored into the determination of your future premium costs.
The basic types of insurance you will need
1. PROPERTY ExPOSURE —Offers coverage on tangible property on the premises and needs to be replacement cost. Replacement cost isn’t the same as your home replacement cost. You have to stay up to speed on rising construction costs and adjust your policy periodically for this. a. Fire b. Smoke damage c. Wind damage d. Hail damage e. Theft f. Vandalism
Chapter 13 - Insurance Concepts 157
g. Collapse of buildings 2. Business interruption—protects you against the interruption of business cash flow. a. If a hurricane damages your facility, for example, you will have cash flow interruption for a time. b. This is designed to give you a continuous uninterrupted flow of revenue to a length worked out beforehand by you and your agent. Mostly the time period is a year to a year and a half. General liability—Covers against lawsuits a. Provides protection whether or not it is your fault. b. It may be useful in situations such as slip and falls to an access gate damaging a vehicle. Crime Sale and Disposal—Protection against negligence from disposing of tenant property. a. This varies in different states. b. You need to follow proper state regulatory procedures in disposing of tenant’s property in a lien sale. c. It provides legal cost coverage if you do follow all the procedures and are still sued. d. This is based on an aggregate limit for a year’s time. Customer Goods Legal Liability—Covers the loss or damage to tenant’s property. a. It covers you if the loss was a consequence of the operator’s negligence. b. It will pay for the tenant’s property
Self-Storage • The Journey
3.
4. 5.
6.
158
on a per-occurrence basis. 7. Limited Pollution Removal—If a customer leaves things like a barrel of oil or other pollutant. a. Cleaning up and removing. 8. Automobile 9. Workers Compensation 10. Employer Practices Liability— Usually for larger facilities. a. Claims of wrongful termination b. Sexual harassment c. Discrimination. 11. Systems Breakdown—Equipment of all types covered. a. Machinery such as heating and air conditioning which is valuable to climate controlled units. b. Electronic security systems c. Electronic gates d. Computer systems. 12. Umbrella Policies—Provides many types of coverage under a single package policy. a. It can include most if not all of the above considerations. b. It is an extension of liability limits for your general liability, auto liability as well as a portion of your workers compensation. As far as trying to keep your premiums low, you could always increase the deductible, but be sure you can afford to pay the deductible if you have a claim.
Chapter 13 - Insurance Concepts
159
Many commercial insurance companies require a client/company to prove that it can actually afford to pay the deductible before binding the coverage. When looking for coverage, be sure to get several quotes with the available deductibles. There is a specific dollar limit that you must specify. Consult with your agent about what types of coverage and limit amounts are needed. In addition to having a total liability limit, most policies are written on a per-occurrence basis with an aggregate limit. Be certain aggregate limit is above your occurrence limit.
Pay With Rent Tenant Insurance
Facility operators use rent tenant insurance as additional income for their facility. Although it has been around for a long time, owners use this to lower their liability risks. This is mainly a risk management tool rather than a profit source. Coverage is offered at point of lease to the customer and is written on a group insurance policy. The customer pays this extra amount along with his rent. The facility may earn fees for simply offering (and protecting) the protection to their customers. This insurance is permitted for a facility that is non-licensed to handle or sell insurance. Of course this approach does reduce control of insurance activities to raise money through license fees and taxes, so regulators are beginning to take a second look at this. Be certain to check with your state statues.
160 Self-Storage • The Journey
A few states offer a special class of insurance licenses for self-storage facility permitting the company to be licensed with a minimum of paperwork and educational training. This will help facilities to reduce their damage liability for tenants’ property. These are the basic concepts that you as the selfstorage operator/owner need to consider. Given the complexity and constantly changing legal areas of risk management however, every self-storage business owner should definitely seek the advice and service of a qualified insurance professional who is familiar with exposures associated with self-storage businesses.
Chapter 13 - Insurance Concepts
161
162
Self-Storage • The Journey
Chapter Fourteen
Legally Thinking
The Premise Liability Law has experienced changes that are in favor of the plaintiff. You need to understand these modifications as this law implies negligence on the part of the property owner. The courts used to put the burden of proof on the plaintiff. They only needed to prove that the owner/ management failed to make a reasonable effort to take care of a problem before a person sustained an injury caused by this failure such as when someone was injured from a fall. It is even more important for the management to identify and fix potential liabilities and problems. All the plaintiff needs to do is show evidence that the condition had been there for a while. Questions like; “how often does the management require the employees to walk the property to clean up areas that could potentially cause an accident?” The argument that owners have the duty to conduct regular inspections where the public has normal access has been successful in some cases. Courts raise two notices called actual and constructive. Actual is when a customer or other individual notifies the management of a potential problem. Constructive is when the defect remains there for a long period of time.
Chapter 14 - Legally Thinking
163
If the facility has reasonable inspections/maintenance policies, these problems are addressed and barricades positioned as a warning of the problem until the issue has been fixed. Security gates must be routinely maintained to prevent personal injuries. Bodily and automobile damages from these security gates are most common because if the gate doesn’t work properly, it can close too quickly and injure a person or damage their vehicle. You must have signs on both sides of the gate saying “this gate opens and closes after each vehicle and does not allow pedestrian use”. Maintain a log of repairs and maintenance.
Property Damage and Loss
This is another area of liability risk. When a facility disposes of a tenant’s goods due to lease default, sometimes the tenant will file a claim against the facility for lost goods. This should be addressed during the leasing process. Also during the leasing process, tenants should be given a list of safety and security items.
Some Other Legal Suggestions
It is a good idea to own either the facility or the land, but not both under the same corporate structure. This will help protect you if you are ever involved in a major lawsuit. On a security level, it is a good idea if you install fake cameras on the property implying that you have extensive security and surveillance on the property.
164 Self-Storage • The Journey
This can only become an issue if you don’t inform (in the lease) that you have these. If the cameras you have are not monitored either part time or full-time, your customers need to be aware of this issue.
Environmental Claims
Mold damage has moved to what some are calling today’s asbestos. In some circumstances, exposures to mold can potentially damage property and people. Mold conditions are very favorable when the relative humidity is 60 percent or higher. You need to address the possibility of mold quickly. Leases and rental agreements should address this issue and have specific exclusions from liability to prevent such claims. Let your customers know that there are risks of mildew and mold when property is stored. Pay close attention to controlling the relative humidity in your climate controlled units. Water leaks are a main cause of this issue. Find and fix potential problems in the roof, eaves and foundations and fix them quickly. Humidifiers are effective if they fit the building’s needs and are correctly installed.
When a Customer has Caused Damage
If damage occurs because of a tenant, the key question is: Who is at fault and who is liable? The owner (depending of the size of the damage and the scenario) can either turn the damage over to the insurance company or pay for repairs themselves which may be more convenient.
Chapter 14 - Legally Thinking
165
Come to an agreement on who caused and is responsible for the damage. It is important to take the right steps for the person at fault to be held accountable. If it is beyond argument that a customer has caused some damage to the property, start with the lease. The language should be clear on just what is expected in these particular situations. You can either add the cost of the repair to the tenant’s rent (if it is small enough) or deny access to their property until it is settled. A good lease with the appropriate language will settle the matter. When the damage is discovered, immediately contact your insurance agent no matter what the deductible or damage level may be. This is generally required by your insurance company. Remember to inform the tenant (when leasing the unit) that it is prohibited to store anything that is dangerous (such as flammables and such) in either the facility, or other tenants property.
Limiting Value of Items Tenants are Allowed to Store
The lease should state a dollar amount (limit to $2,500 unless addendum agreement) that your tenant is allowed to put into storage at your facility. You are not agreeing to be liable, but this does set a limit. Give them an insurance brochure and tell them for a small premium, their items are protected to the agreed amount.
166 Self-Storage • The Journey
This type of provision should also contain language that prohibits the storage of irreplaceable items that have an unknown immediate market resale value or objects with a special or sentimental value. Tell the customer that the facility is rarely liable, but you would encourage them to get their own insurance for items valued over the dollar amount allowed in their lease clause. Limit your exposure. Cap the limit on what the customer can sue for. Actual cash value is the replacement cost less depreciation. This is how the insurance companies get to the ACV (actual cash value). The clause should state they cannot sue you for more than X amount, even if you are found to be liable. The idea is to put as many hurdles between you and your tenant as possible. There is no lease that completely protects you, but some of these insertions just make it harder for tenants to cause you legal problems.
Legal Trends in Self-Storage
The first terrorist to attack the United States at the World Trade Center used a self-storage unit to store bomb-making paraphernalia. Because of these types of scenarios, today every operator should focus attention on screening customers, hazardous materials and release of liability provisions. Background checks can be provided by many companies such as the Self-Storage Association in your state.
Chapter 14 - Legally Thinking
167
Notice the behavior of each individual you are considering renting to. You can obtain a “red flag” list from your local or state police department. You should have a clause in your lease/rental agreement that releases all claims by the customer. This is enforceable in almost all states if it is clearly worded and prominent in the contract.
Search Warrants and Subpoenas
It is a good idea for all of us to help the authorities when it comes to legal operations. The owner owns the property and has the right to its rent roll. You can give this information to the authorities because the tenant is renting a unit owned by you at your facility. This enables authorities to better support their subpoena or search warrant request. Don’t be under pressure to show the authorities a tenant’s property or unit without the appropriate paperwork. Officers should provide identification and, appropriate paperwork. Write down the officer’s name, badge number and document the visit. This will protect you if the inspection of the unit is ever questioned by the courts. A subpoena is a command that requires someone to appear (or for the authorities to see their personal property) at a certain date, time, and place to give testimony in a legal matter. Subpoenas don’t require immediate action. This gives managers time to contact the owner or management company as well as his attorney.
168
Self-Storage • The Journey
Search warrants require instant action and are issued by a judge. This allows the police to search a specific person or property for evidence of a crime. You need to have a plan with a checklist before it takes place at your facility. Managers should take some time to examine all the documents. Be helpful, calm and courteous. If the search warrant allows police to take business documents such as rental agreement or a customer’s personal information, remember to provide them with copies not originals. Be prepared to copy surveillance video from the computer or VCR to a CD or videotape. If you don’t have this capability, they can walk out with the originals which compromises your files. When they leave, make thorough notes about the event and what you gave them. If possible, photocopy the search warrant and write down the names and badge numbers of the officers. If they take things from the unit, ask police to inventory those items. The key is to be as thorough as possible when recording the incident. As far as lock cutting goes, the jury is still out on whether this is in order. If a methane laboratory is involved, however, it can be very dangerous. You need to be as helpful as possible; because the assumption is that the police are there to protect the public.
Chapter 14 - Legally Thinking
169
Should a Self-Storage Accept Packages?
With so much competition in the industry and pharmaceutical becoming very solid tenants, should selfstorage operators accept packages? This can be a risky practice and it puts you in the bailment business. As self-storage is defined as real property and used for the purpose of renting storage space to occupants, should you risk being designated as a bailment business? The business model in self-storage is the rental of real estate. While pharmaceutical representatives are very solid tenants, and with competition in the industry, more and more self-storage operators are asked to accept packages. This puts you in a position of being able to enter the customer’s storage unit and accept the responsibility for that property. As such, you have accepted the duty of providing for the ordinary care of the unit’s contents. After all, you normally have no reason to access an occupied unit unless you are made aware of a maintenance situation, police documentation, or an emergency. Even if you accept packages in your office, you have assumed care and responsibility for holding them in a safe place. You become responsible for the damages as well as the possible opening and even the theft of stolen items. The customer expects their packages to arrive and be taken care of in the same condition they were delivered. You have assumed a new duty and liability which goes beyond the duties of a self-storage operator.
170
Self-Storage • The Journey
Holding a key to a unit is a bad idea and can expose your facility to a new liability. One solution is an automated locker system. It is expensive, but if you are going to accept packages for your tenants, this can protect you from any bailment liability.
Cash Put in a Box
State in your lease agreement that cash needs to be paid in person with a receipt issued. This is where a self-storage kiosk is good as it doesn’t require a tenant to actually pay a person in cash and get a receipt. A kiosk tells you how the payment was made, and if cash was received.
Late Fees
Late fees can be regulated by the state, so check this out. A good way to alleviate this challenge is to state in your leasing agreement that taking a payment with a credit card authorizes you to charge the tenant if he forgets to make a payment. This eliminates the potential for a late fee.
Lien Sales
The self-storage operator generally has the right (in at least 46 states) to conduct a lien sale of a tenant’s property if the customer defaults on his lease. Check with your attorney about how to proceed with this limitation. You must give the tenant proper notice that a lien sale will take place in a certain number of days from the time of the default.
Chapter 14 - Legally Thinking
171
Different states have different statues related to this area. This needs to be clearly stated in your tenant lease. Make certain not to call the lien sale an “auction” unless a licensed auctioneer is being used.
When a Tenant Files Bankruptcy
You need to become aware of what to do when a tenant has filed bankruptcy. First you need to determine the type of bankruptcy the tenant has filed as a self-storage operator must know the automatic state provisions. Go to the court and seek relief from the automatic stay so that you can gain possession of the facility’s space back for rental.
172
Self-Storage • The Journey
Chapter Fifteen
Rental/Leasing Agreements
Your state self-storage association may have the most valuable document needed by new store owners, the state-specific rental agreement. Federal and state laws might require your facility to perform a pre-rental screen so that you remain in compliance with the statues. You need to go over your proposed lease agreement with your attorney who has experience in the self-storage industry. This document needs to be solid enough to protect both you and your tenant.
The Self-Storage Lease Should Address The Following
The term and renewal clause is an important issue. It should clearly state month to month, or longer and on what day of the month is it due. The termination date is important. Don’t use the term “anniversary” because this implies a once-yearly event and you don’t want to limit rent increases. • You should include a right to terminate and the amount of notice required as well as a renewal date.
Chapter 15 - Rental/Leasing Agreements
173
• Include the definition of storage unit use. It is intended for the sole purpose of the storage of personal or business property only and is not a warehouse. • You need to list what is prohibited in their storage unit. Examples are hazardous, flammable, and noxious-smelling items as well as irreplaceable items which have an unknown immediate resale or emotional value. This also prevents the use or manufacturing of items in a self-storage unit. • Include the exact language for the definition of “hazardous materials” from the Comprehensive Environmental Response Compensation & Liability Act (42 U.S.C. Section 9602, et seq.), also called “CERCLA.” This precision is often required to appear in the lease by the mortgage and/or the insurance carrier. • Include the dollar value limitation without the express written permission of the facility provision. • The lease must state the right of the operator to control access to the facility by either electronic gate or signing in and out during certain hours. These rights may be altered by the facility management during an emergency. • Specify the gate hours plus any exceptions in the event of emergencies or power failures. Also the facility has the right to deny access to the tenant for any default.
174
Self-Storage • The Journey
• Make certain the lease includes appropriate release language to release the facility from liability from both personal injuries and death to persons at the facility, and for property damage or loss from various elements, including, but not exclusively, fire, water, acts of God, theft, burglary, vandalism, malicious mischief, mysterious disappearance, and/or rodent damage. • There needs to be two entirely different and separate paragraphs including these releases to meet certain state requirements. • Although some states require a conspicuous statement at the beginning of the lease, make certain the customer is notified of the facility’s right to any lien. • The lease must state the facility operator has the right to enter a unit in the event of any emergency, governmental requirement and in other limited circumstances to perform inspections or repair. • The lease must contain a default clause outlining all of the instances that the facility would consider to be a default under the lease. This goes beyond non-payment of rent, including failures to perform the other requirements under the lease. A subletting provision is a good idea. Have an attorney establish a mediation or arbitration clause. This is simply an additional hurdle that the tenant must jump before committing to sue the facility.
Chapter 15 - Rental/Leasing Agreements 175
A clause must to state that the information provided in the lease and any other documents which have lead up to the rental are true and accurate. The rental agreement is often the only protection between the operator and its tenants and should be carefully drafted by an experienced attorney experienced in the area of self-storage law. This lease should explain the facility’s role as landlord, the tenant’s risk of loss and the need for insurance for the tenant’s stored property. It should outline the rights of the facility owner, the obligations of the tenant and what happens when the tenant doesn’t pay the rent. You need a statement in the self-storage lease specifying that the owner is not a bailee and does not take care, custody or control of the tenant’s goods. Include a statement which states that there is a limitation of value. It should explain that the value of the property stored cannot exceed a certain amount unless approved in writing by the facility owner, and that the customer may store more than the limited value if he/ she provides a proof of insurance for 100 percent of the estimated value and agrees not to store property with special or sentimental value unless waving the right to make claims for emotional attachment to these items. Include that in the event of a claim there should be a jury trial waiver provision which restricts the tenant’s rights, to bring its claim before a jury. This depends on the state so check this area out with your legal counsel. Have a section on the lease which specifically addresses the tenant’s release of liability against the landlord. In other words, the tenant is storing at the
176 Self-Storage • The Journey
“sole risk” of the tenant and the landlord is not liable for loss of or damage to his/her property due to burglary, mysterious disappearance, fire, water damage, rodents, and acts of god. Include a provision that states the landlord will not be held liable for such property loss or damage arising from the “active or passive acts or omissions or negligence of the owner, owner’s agents or employees.” Another important clause involves the issue of tenant insurance. The tenant is obligated to obtain their own insurance to protect the value of the stored property and they assume full risk for the loss or damage to its stored property. Include a provision which contains a waiver of subrogation which prevents the tenant’s insurance company from pursuing claims against the self-storage facility after it has paid its insured. With a kiosk or internet lease goes, you need to add a line that states that by pressing the “accept” button on the internet or on the kiosk, the customer is indicating that they have reviewed, found to be acceptable as written, and agree to abide by and be bound by the terms and conditions set forth in the lease agreement. Wording should also indicate that the customer is agreeing that payment of rent at this time and in the future constitutes their ongoing acceptance of the terms of the lease as well as any modification(s) of the lease of which they are notified at least 30 days in advance.
Chapter 15 - Rental/Leasing Agreements
177
178
Self-Storage • The Journey
Chapter Sixteen
Rental Rates and Increases
Establishing Rental Rates
Don’t make the mistake of not charging enough for your product. Many business owners seem to confuse customer service with giving away profits. Don’t confuse being competitive with offering your product at a price that is too low. Just concentrate on outstanding customer service and that you must have profit to survive. Establishment of rent rates should occur after you have completed the needed homework regarding whether or not you are relatively competitive and have recently added more value to your facility. Check out other facilities in your area to determine the need and the rates as well as the competitiveness of what you are offering. This has to coincide with your expense evaluation and how much you need to make for a good profit. It is based on the theory of supply and demand and can fluctuate depending on market conditions and the economic mindset of the local demographics. Keep in mind that if you don’t rent that unit today, you will never recover that lost rent. So you have to stay in touch with your competition. Market demands, not occupancy, are where your rental rates come in play.
Chapter 16 - Rental Rates and Increases
179
If your facility is 100 percent occupied, you are not taking advantage of your optimal income because you are turning away business. If you are full, you will be encouraging competition. Remain flexible in establishing rates as you remain aware of changing market conditions. Long-term rent trends need to be adjusted upward to be competitive and profitable. It is a good idea to stay somewhere between the highest rates being charged in your area and the lowest rates. The actual price depends on what you are offering. Better amenities can command higher rental rates, as can a more premier location. Pricing is just a starting point as you observe market conditions. This provides the ability to adjust your prices at any given time. You are just thirty days away from raising the rent on your existing customers. Choose a pricing strategy that will work for you and your market. You will do fine if you apply common sense. You can tap into extra income by enhancing your investment with amenities. If you have been either full or at a high percent of occupancy and have never raised your rent, you have unnecessarily decreased the value of your facility. People are accustomed to costs going up from time to time. You can post rate increases as you keep up with the market demand.
180
Self-Storage • The Journey
If you ever plan on selling your facility, you don’t want it to be worth less because you have never increased rental rates. This would allow potential buyers to offer less for your business. The bottom-line is that tenants will either eventually accept the new rates or move out. If you raise the rate a minimal percentage, they would rather just pay the different amount than to go to the expense and trouble of moving. Besides, if they do move out, others will quickly take their place at a higher rate. Don’t leave money on the table, especially for a potential buyer. Even if you leave the facility to your children, it is better to raise or keep the value higher than to not take advantage of this potential revenue. Watching the competition will help you understand changes in the market rates. Understand what you provide compared to your competition, and become prepared to market your advantages.
Ask Yourself These Important Questions
1. 2. 3. 4.
Are you the new guy in your area? Is your location better than your competitors? Is your management better at managing? Are you or your management better at marketing?
You can be the lowest priced facility in your area, but don’t give your value away. Most likely your competitors are waiting for you to raise your rents so they can do the same. This is a normal way of doing business.
Chapter 16 - Rental Rates and Increases
181
Come up with a plan for handling rent increases. Will all tenants receive an annual increase or smaller semiannual rates? Decide what percentage you are going with and at what times you will implement it. Stay with four to ten percent, but make the choice based on how it will affect your bottom line. Look over your tenants “length of stay” and look at how long they have been paying a certain rate without any increase. You may want to stay with the popular unit mixes and then raise the rates more often. If some do move, you will have more tenants move in at the newer rate. You could do it all at once or seasonally at the busiest time of year. Rent raises aren’t as painful to customers if they are only increased by a few dollars per month. Determine the difference in what they are currently paying compared to the new rate. Is it more appropriate to implement the change all at once or in several small steps? Train your staff on how to handle the increase. It is all about perception and good managers know the benefits of and the need for the increases. They need to use tact and be confident in their explanation. Provide your employees with incentives for handling this change. They can also provide you with a list of the tenants who are due for an increase. Demonstrate the value of the increase to customers by doing some conspicuous facility repairs and upgrades. This will make it easier for them to deal with and accept
182 Self-Storage • The Journey
the increase. If possible, start these improvements even before you notify the tenants of the increase. Evaluate the results after each rate increase. Track the complaints and move-outs as well as the occupancy levels. This approach enables you to adjust your next plan accordingly. There isn’t a “make everyone happy” way to do this, but it is beneficial to be consistent.
Chapter 16 - Rental Rates and Increases
183
184
Self-Storage • The Journey
Chapter Seventeen
Expanding Remodeling Adding Value
Another way to keep up or surpass your competition is to remodel or expand your facility. You could also add value to your self-storage facility with extra services. While some improvements do not raise your property’s value, some do. You don’t want to leave money on the table that you could be earning with a few improvements or expanded services. Sharpen your pencil and get to work on just what will be beneficial to your bottom line. With careful and calculated planning, you can raise the occupancy and have higher rental income. You don’t necessarily want to keep up with your competition, but you do want to offer the best facility you can. Check out your curb appeal and drive up to your facility with the eye of a potential customer. Access your first impression. Drive-by traffic is a big percentage of any self-storage business. Don’t leave out the second impression which involves your office, employees, the reception your customers receive, and how clean and bright your reception area appears.
Chapter 17 - Expanding Remodeling Adding Value 185
Consider the condition of your units and buildings. Remember that females do influence other folks with their interpretation of your facility, especially appearances and cleanliness. As far as expanding, make plans when you begin to push a 60 percent occupancy level.
Some Ways to Add Value to Your Facility
climate control
(See chapter 3 for a more complete section on climate control) Does your competition have climate control and if so, how full are they? This comparison can help you to decide how to market your climate controlled units. If you don’t have any, consider building at least a few and then decide (after the results) just how many you need to satisfy the demand. Tenants who intend to store electronics, furniture, art and many other valuable items are a more affluent market segment. Businesses need this for their items like furniture, fixtures, pharmaceuticals, cosmetics, and many retail items. These types of tenants normally stay longer and can be more stable. They seek climate-controlled units. The size of the unit mix is about the same averaging from ninety square feet to one hundred and thirty square feet. The larger is more common to rural areas. Climate control facilities normally run out of the larger units first.
186
Self-Storage • The Journey
If you are building a new facility, keep in mind that around 15 percent needs to be added to the basic building costs for climate control. You will benefit greatly from marketing these climate controlled units. Use fliers, mailers and e-mail to your area to educate your potential client base. Do this on a regular basis. You can call on or telephone the professionals in the business district telling them that due to the demands for such units, you have more units readily available. When marketing these buildings/units, don’t use the phrase “Climate Control” by itself. You need to let them know that the humidity is important in these units and call them “Temperature and Humidity Control.”
Combining Retail with Self-Storage
Have you ever had or been involved with Retail or does retail simply sounds like a good way to improve your bottom line with your self-storage facility? The answer depends on you and your business style and skills. While this type of inclusion is gaining in popularity, there are pros and cons. You might consider a strip mall in front with the selfstorage office at one end to the entrance which allows customers to shop, eat at your café, or rent a unit. This also helps in advertisement. People will spread the word about this business. Either way, you need good management. This skill will cover the requirements of both the retail and the selfstorage facility. If you choose to rent out some or all of
Chapter 17 - Expanding Remodeling Adding Value 187
the retail spaces, you can handle this from one central location. You could include a postal center, café, donut shop, nail salon and many other types of businesses. You could also have living quarters upstairs. First impressions and curb appeal is a true asset. All of the businesses will gain exposure from one another, and should reinforce the image you want to project. A strong financial benefit of this mixed-use retail facility is that you can use triple-net leases to offset expenses. Talk with your CPA about this, as it commonly includes things such as common area maintenance and property taxes.
Milti-Story
As land prices increase, more developers are turning to multistory buildings. These types of buildings are less expensive to heat and cool. This is a great form of expansion if you have room on your property to go up. Many practices have evolved in the area of records storage area. Most records are now digitally stored, but businesses still have a need to maintain secure hard copies off site. This is a niche area of expertise. Film must be kept cold and dry in airtight vaults. Marketing is best with word-of-mouth and referrals. You need to be able to deliver.
Records Storage
Film storage
188
Self-Storage • The Journey
Medical Records
Handling medical records does require special training for security measures. This is in accordance with the Health Insurance Portability and Accounting Act.
Wine Storage
Wine sales in the United States have been on the rise for the past decade, and approximately 10 percent of the wine purchased is being stored by consumers. As a result, the number of self-storage facilities offering wine storage is seeing an increase. The U.S. is expected to continue to expand. It is easy to see why many operators are considering this as an option although it is a niche market and not suitable for everyone. There are three major categories of wine storage issues: 1. Controlling the climate 2. Controlling the security 3. Understanding and complying with laws involving alcohol in the state in which the facility is located. One of the best sources of information about this specialty niche is your local wine merchant. This individual also happens to be a great referral source. The more storage a customer has available to them, the more bottles or cases the merchant can sell. This type of customer seldom defaults on their lease. If a client requests that your facility accept direct shipments, it is important to be aware of federal regulations. You must then arrange for appropriate legal advice.
Chapter 17 - Expanding Remodeling Adding Value 189
The problem with new entrants entering into the wine storage business at a self-storage facility is they will sometimes automatically assume they can add this specialty storage to their unit mix and that it will be successful. This is not always true. In fact, wine storage is perhaps the most niche-specific specialty that a selfstorage facility can offer. It takes a very specific target market for wine storage to work and it does not work in every market. In general, wine storage is best suited for affluent markets, such as resort areas where people tend to bring their own wine with them, or upscale neighborhoods where wine connoisseurs may not have the space to maintain their own wine cellars. In coastal areas with yacht marinas, wine storage is often a draw for those who have a wine cellar onboard and need storage. Essentially, wine needs to be stored in a clean, dark, damp place with good ventilation. It should be stored in a vibration-free environment at a constant optimum temperature of 50 to 55 degrees Fahrenheit. More important than the temperature range, however, is the rapid fluctuation of temperature. For instance, if wine is subject to a slow temperature change of 10 degrees between summer and winter it may not be an issue. A daily or weekly 10 degree jump will be a problem. Proper humidity is also essential when it comes to wine. While the acceptable range falls between 50 and 80 percent, the ideal humidity is 70 percent.
190
Self-Storage • The Journey
Because of wine’s sensitivity to temperature and humidity, facilities that incorporate wine storage have back-up methods for maintaining the proper temperature and humidity in the event of a power failure. Typically, wine storage areas are isolated from the rest of the facility. They have their own entrance with specialized security. In fact, most facilities that store wine incorporate individually alarmed units or lockers. Some state-of-the-art facilities are going a step further by incorporating biometric scanning for these high-security areas. Should you consider delivery and picking up containers at businesses and homes? The self-storage industry is still trying to decide if mobile storage is a good idea to incorporate. It is happening more and more though. Many are viewing this opportunity as a valuable way to do business as it sets your facility apart from competitors. More acreage is required which does increase your overhead. You, also need to have good management skills to properly handle this type of operation.
Mobile Storage
Truck Rental
Truck rental is becoming more and more normal at self-storage sites. Customers expect to at least be able to rent a truck (or use one free) to move their belongings into their storage unit. Offering this service will generate leads for your storage business. The general consensus is that it can potentially raise your occupancy up to 25 percent. Additionally, you will need to add extra things for sale
Chapter 17 - Expanding Remodeling Adding Value 191
like boxes and tape. This service generates around $1,500 per month per truck. You can also use the space on the side of the truck to advertise your facility. You might consider becoming a dealer for a truck leasing company. For example U-Haul offers an advertising program with its dealer trucks and with a minimal cash investment. Do your homework because while this offers profit, it does have its challenges. It can take a great amount of time to rent and receive trucks. Adequate personnel and some salesmanship are required.
Car Washes
In addition to an immediate cash flow, car washes offer an instant and steady return on the investment. Another benefit is that it is an all cash business. Very little labor is involved and it even makes cash while the offices are closed. They are also recession proof. Tax benefits are gained by depreciating the equipment. Plus if you decide to sell the self-storage facility, the car wash adds value. Plan the space for your car wash carefully. Remember expansion and turning radiuses. You will need approval from local governing bodies for drainage and access. The average cost of a self-serve car wash bay ranges from $25,000 to $30,000 per bay to construct and equip. Automatic car washes are much more expensive. However, most banks will finance a car wash with 20 to 30 percent down.
192
Self-Storage • The Journey
Telecommunication Towers and Billboards
The enormous increase in cell phone use has prompted a tremendous need for more towers. These are typically 100 to 200 feet in height, which thanks to improved technology, has been lowered recently. Leasing space for this tower has become a viable ancillary income option for many self-storage facilities. Most self-storage facilities are located where zoning is favorable for these towers. No shed is needed for equipment; they can just use a storage unit. The cell tower company will build out and maintain the normally 10’x20’ space. You could rent this space to a cell tower company for around $900 per month instead of the $100 per month of a normal rental for that unit. Obtaining approval for a traditional tower can take as long as a year. Disguised towers such as a pine tree look or a flag pole, takes a lot less time. Of course the different cell phone companies own their own towers, but many cell phone tower companies build towers and lease out slots (up to five) to the different cell phone companies. This is promising for you as a self-storage owner because each cell phone company that leases out a slot from the cell phone tower company needs a storage unit for their equipment. Also, during negotiations, you can build in annual increases in lease payments. The contract must specify that each company which rents out a slot must rent a minimum amount of storage space from you also.
Chapter 17 - Expanding Remodeling Adding Value
193
When a tower leaves, have it in the contract that they must pay to have the unit put back into original order, or take a good size deposit so they can just take their tower and walk away. Or the self-storage facility gets to keep the tower and rent out the slots to other cell phone companies. Be careful here, because the FCC regulations say that you have to have a carrier on that tower or the tower must come down. This means the cell companies think they have the upper hand on you. The only slight drawbacks it has are the after-hours access requirements of the wireless companies. There may be zoning and community restrictions for billboards. These play a large part in determining where the board can be placed. Educate yourself on the available options as you are likely to be approached with a development proposal.
Billboards
Safety Deposit Boxes
While this can be expensive to build, safety deposit boxes can bring in good profits. You need to have a safe with a good vault door. You can find out the need for safety deposit boxes by checking the waiting lists at local banks. Tell them what you are considering and ask about the need. Just do your homework on the companies that provide the best fireproof boxes and determine the most popular sizes in your location.
Storing Firearms
You have three choices: 1. Have the customer fill out and sign a standard lease.
194 Self-Storage • The Journey
2. Politely say, “No, thank you.” 3. Or you could find the middle ground and make extraordinary lease provisions for this specialty storage. There is no right or wrong answer, it’s just a matter of owner preference and risk tolerance. Storage is not illegal as long as they are legal firearms. Whether it is hunting equipment or part of a valuable collection, self-storage facilities offer gun owners a safe stowaway for their firearms, and gun owners offer selfstorage operators an additional niche market to pursue. Some people welcome the fact that they can store their firearms away from their home and children. This also keeps their firearms safe from loss if their home is ever burglarized. If your state or area is known for its hunting, firearm storage is worth marketing. Gun clubs and insurance agents are a good place to start the campaign. A key selling point is the fact that storing valuable guns in a high-security area outside the home allows homeowners to get a discount on their insurance. You absolutely don’t want illegal firearms stored in your facility. For example, sawed off shotguns, firearms with silencers that are not accompanied by a permit, and short-barrel firearms are illegal to store, along with brass knuckles and switchblade knives. If a hunter wants to store his dove shotgun for the off season, there’s nothing wrong with that. But you do need to recognize an illegal firearm when you see one. Your customer needs to have to walk by the employees (trained on what to look for) when storing their firearm.
Chapter 17 - Expanding Remodeling Adding Value 195
With terrorism at the top of everyone’s list, this is a good way to keep persons from storing a large quantity of arms. A special lease with a non bailment by the operator clause is important. This clause makes it clear that the landlord does not have custody and control of the tenant’s firearms and, therefore, is not responsible for those firearms. The tenant accepts all risk of loss to his firearms, including but not limited to the risks of fire, water, storm, mysterious disappearance, or theft. Another component for special leases is to place the responsibility for insurance on the tenant. Legal experts say this is especially important given the potential value of collectible guns and other valuable items. There should also be a provision for the separation of ammunition from guns, as well as a requirement that all guns be properly registered. If it ever came to selling the guns at a lien sale the law varies from state to state. Most local jurisdictions have procedures for verifying that a particular weapon is registered to a particular tenant. The manager can then remove the gun from the unit until the time of the lien sale. If the tenant comes back and pays, then the manager can return the weapon. Requirements vary from state to state. In Texas, for example, selling guns at a lien sale is not illegal. You don’t need a license if you only sell them this way and only on occasion.
196
Self-Storage • The Journey
And, if you are already planning on one or more of these options with a safe, you could also plan for a wine storage in the same area.
Executive Suites
Some self-storage facility owners are getting into office and suite leasing. They can have a common area kitchenette, restrooms, a conference room, and a reception area that is staffed with a receptionist to accept calls and greet business suite clients. Some facilities have included other things such as high speed internet access, secretarial services, copying, faxing, and mail services.
Postal Services
While postal services aren’t new, they are gaining in popularity among self-storage owners and the area is a good fit. Some are even going to the trouble of establishing an official U.S. Postal Office branch, which adds value to the facility. The traffic (normally over 500 per day) increases your facilities exposure for renting out more units, but you do need to have adequate parking as well as meeting the standards set forth by the government. This works especially if the government needs another facility in your area. There are companies (such as Plano in Texas) that can help with startup. You need to be able to handle the extra time and work with your employees. If new employees are added, they can get training from you local post office. Further, about 750 square feet is required to qualify. The process can take
Chapter 17 - Expanding Remodeling Adding Value 197
up to six months. The facility must meet the Americans with Disabilities act for parking and access. Some postal facilities bring in an extra $3,000 per month which includes retail elements as you see in any post office. The government pays you a percentage of the postage sales. Consider these ideas if you are looking for opportunities to expand, remodel or add substantial value to your facilities.
198
Self-Storage • The Journey
Summary
The self-storage industry offers many opportunities, but is it appropriate for you? During these last couple of years, we here at American Steel Buildings, Inc. have received hundreds of questions which have been used to formulate this book. This resource was designed to be a starting point as you explore the self-storage industry. There are many valuable options to explore. You could begin with a smaller group of buildings in a smaller town and keep this as a good retirement or even a very good business income. Or you could get out there and go for it by doing your homework and develop a large and very profitable business. Whatever your decision, I hope this information has been helpful in your decision making process. Some of the questions that have been asked of us are as follows: • What is this self-storage industry? • Where did it get its start? • Where is it going? • What are the pros and cons? • Do I need to take a more serious look? • Where do I get started? • How do I get started?
Summary
199
This book may not meet your every need in your particular situation, but it is a well organized overview to stimulate your thinking process. You will find the phrase do your homework in many places throughout this book. Some ways of conducting your research are attending self-storage seminars, trade shows, and also the web. The self-storage industry is a great business consideration. It is now up to you to determine what it has to offer.
200
Self-Storage • The Journey
Dean Brown
Copyright © 2008 by Dean Brown First Edition All rights reserved. No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means without written permission from the author. I have researched and prepared this book utilizing information received from owners and operators of self-storage businesses as well as from builders and developers. I have also researched thousands of articles on all of the subjects covered in this book. However, I cannot be responsible for your own profit or loss in this field. This book cannot be used as any type of warranty. Any similarity to the articles or published information is strictly coincidental as my research and experience has yielded so many like thinking minds from a vast variety of professionals and authorities. You should consult professionals in each area of question. This book is strictly a guide, and not the final authority. You are your best judge in your particular situation.
International Standard Book Number: 978-1-4276-3722-2 Library of Congress Control Number: 2008943878
ii
Self-Storage • The Journey
Table of Contents
Your Introduction To Some Exciting Information .................................................ix Acknowledgements ..................................................xi
Chapter One The Beginning of Self-Storage In The United States .....................................................1
Baby Boomers Gave Birth to the Self-Storage Industry .....2 Consumption Accelerated This Industry .............................4 Three Distinct Groups of Self-Storage Owners and Developers .......................................................6 Key Considerations .................................................................6 An Attractive Investment........................................................9 Self Storage Has a Good Chance of Success: .....................10 Where Are Things Headed in The Near Future? ..............10 It’s Not a Huge Initial Investment .......................................11 Don’t Overlook Small Towns ...............................................13 The Forecast for Self-storage ................................................15
Chapter Two Should You Buy, Or Build?........................................17
Building a Self-Storage Facility ............................................19 Consider Your Exit Strategy .................................................21 Should I Sell, or Refinance? ..................................................21 The Importance of Building Value ......................................24
Chapter Three Types of Facilities ........................................................25
Basic Dry Storage Only .........................................................25 Conversions ............................................................................25
Table of Contents iii
Private Storage in Multi Family Buildings .........................28 Multi-Story Self-Storage........................................................28 Mobile Storage........................................................................29 Climate Control ......................................................................32 RV & Boat Storage Facilities ................................................37 Open Space .............................................................................37 Covered Space ........................................................................38 Covered Canopy with Walls ................................................38 Indoor Space ...........................................................................38 Condo Style ............................................................................39 Land Costs and How Big .....................................................40 How Is The Parcel of Land Shaped? ..................................41 Good Security Is a Must ........................................................41 Insurance For Rv/Boat Storage ............................................43 Lease/Rental Agreements .....................................................43 Rental Agreements Need to Be Geared to Boats and Rvs With Addendums Which Include The Following Items ..............................................................44 Addressing The Parking Issue ............................................45 Angled Parking ......................................................................46 Condominium Style RV and Boat Storage .........................47 These Facilities Can Include One or All These ..................48 There are numerous options to consider offering: ............48 Levels of Service .....................................................................50 Devising a Unique Marketing Strategy ..............................51 Know Your Target Client ......................................................54 Financing For This Emerging Market .................................55
Chapter Four Strategies .......................................................................57
Some Decisions For Your Strategy Include ........................57 How Do You Know When to Expand? ...............................57 Trends ......................................................................................59
iv Self-Storage • The Journey
Some Dos and Don’ts on How to Avoid Some Mistakes .60
Chapter Five Feasibility Study and Site Selection ........................63
Should I Hire a Consultant in The Beginning?..................63 Feasibility Study.....................................................................64 Several Key Areas of The Feasibility Study .......................65 Some of The Markets We Can Look At Are:.......................67 Self-Storage Land Use Entitlements ....................................69 Understanding Entitlements ................................................69 Permitted Use No Discretionary Review ...........................70 Permitted Use With Discretionary Review ........................70 Conditional Use .....................................................................71 Rezone Or Zone Change .......................................................72 General Plan Amendment ....................................................72 Understanding Building Codes ...........................................72 Occupancy Definition and Classification ...........................74 Construction Type Classification ........................................74 Exits..........................................................................................76 Site Selection and Unit Mix ..................................................77 Planning Your Site Layout ....................................................79 More Site Selection Considerations:....................................83
Chapter Six The Loan Process .........................................................85
The Construction Loan Package ..........................................89
Chapter Seven
Planning and Construction ........................................91
Gate Access Systems ..............................................................92 Hose Bibs.................................................................................92 Heating and Air Conditioning .............................................92 Office Design ..........................................................................94
Table of Contents v
Community Planning Committee Considerations............96 Green Building .......................................................................97 Security ....................................................................................98 Fingerprinting ......................................................................100 Identity Theft ........................................................................100 Access Control ......................................................................101 Remote Management ..........................................................101 Choosing a Kiosk for Your Self-Storage Business ...........102 Alarm Systems .....................................................................104 Video Surveillance ...............................................................104 It’s Up to You ........................................................................105 Sound Systems and Intercoms ...........................................106 Parking and Traffic Flow Planning ...................................106 If Multi-Story, Lifts Or Elevators ......................................107 Snow Guards ........................................................................109 Facts About Construction Pricing .....................................110 Increased Costs.....................................................................110 Choosing a Contractor ........................................................111 Phasing a Self-Storage Project ............................................113 The ADA (Americans with Disabilities Act) ....................113
Chapter Eight Marketing And Advertising ....................................117
Marketing Prior to Opening ...............................................117 Grand Opening Preparations .............................................118
Chapter Nine Operations, Maintenance & Upkeep .....................119
Holding an Auction/Lien Sale ............................................120 Pest Control ..........................................................................121 Mold .......................................................................................122 Operational Expense ...........................................................123 Analyzing Cash Flow ..........................................................123
vi Self-Storage • The Journey
Maintenance .........................................................................124 Auditing ................................................................................129 Here Is a Sample Checklist For a Space Audit: ................130 The Action Plan ....................................................................135
Chapter Ten Additional Security Measures ................................137 Chapter Eleven Employees ...................................................................143
Staffing, Training and managing a self-storage facility .143 What do you pay your Managers? ....................................146 Training Managers for a New Site ....................................146 Mystery Shopping ...............................................................146 Hiring and training for success..........................................147 Email in the Workplace .......................................................147 Here Are Some Tips For Personal Safety in The SelfStorage Industry...................................................................148
Chapter Twelve Customer Relations ...................................................151 Chapter Thirteen Insurance Concepts ...................................................157
Are You Properly Covered? ...............................................157 The basic types of insurance you will need ....................157 Pay With Rent Tenant Insurance .......................................160
Chapter Fourteen Legally Thinking .......................................................163
Property Damage and Loss ................................................164 Some Other Legal Suggestions ..........................................164 Environmental Claims .......................................................165 When a Customer has Caused Damage ...........................165
Table of Contents vii
Limiting Value of Items Tenants are Allowed to Store...166 Legal Trends in Self-Storage ..............................................167 Search Warrants and Subpoenas .......................................168 Should a Self-Storage Accept Packages? ..........................170 Cash Put in a Box .................................................................171 Late Fees ................................................................................171 Lien Sales...............................................................................171 When a Tenant Files Bankruptcy .......................................172
Chapter Fifteen Rental/Leasing Agreements .....................................173
The Self-Storage Lease Should Address The Following 173
Chapter Sixteen Rental Rates and Increases ......................................179
Establishing Rental Rates....................................................179 Ask Yourself These Important Questions ........................181
Chapter Seventeen Expanding Remodeling Adding Value .................185
Some Ways to Add Value to Your Facility .......................186
Summary ...................................................................199
viii
Self-Storage • The Journey
Your Introduction To Some Exciting Information
In the last several years, we have received countless e-mails and telephone calls with so many questions regarding self-storage. 1. How do I get started in the self-storage business? 2. Where can I get more information on the self-storage industry? 3. What is this self-storage industry I hear so much about? There is a growing demand for information about this ever-changing industry. People want to know if it’s too late to get involved. With so many questions and with such limited consolidated information available to the public, the information contained in this book is invaluable. Certainly, you can find out about the different aspects of the industry on your own, but that process won’t guide you towards any educated decision as to whether or not you should get involved. My name is Dean Brown and I am president of American Steel Buildings, Inc. I developed this resource to provide you with a proper starting point. This is a journey into the history, and future, of the self-storage industry. I know this material will help you decide whether or
Your Introduction To Some Exciting Information ix
not self-storage is for you. This information can serve as your guide and foundation if you choose to pursue this dream and turn it into a reality. It was not designed to give you every detail about every aspect of the industry, but rather to provide an overview and to stimulate your thinking process, so you make decisions concerning your involvement. This resource is also for folks who are already in the selfstorage business and are looking for ways to expand, sell, or refinance. It is valuable for those who want to know more about the new Condominium Style RV and Boat Storage models which seems to be so successful for many. The self-storage industry is still a great business consideration. Darren Newberry, General Manager of American Steel Buildings, Inc., says it this way, “I really enjoy helping people overcome all of their obstacles and fears about going into the self-storage business and giving them information so I can see their dream become a reality.”
x
Self-Storage • The Journey
Acknowledgements
When I or my staff would receive a phone call or e-mail from someone asking us many questions about how to become involved with the self-storage business, we loved to help them. However, this person would represent one of hundreds who needed information pertaining to the self-storage business. We have constantly received inquiries from men and women of every age, ethnicity and situation who ask generally the same types of questions. One day last winter, I thought, why not address all of these questions in one book? By doing this, we could provide a way to help so many more men and women who have these self-storage business questions. Whether it is for the openly inquisitive or the more private, each person can be equipped with this informative book and still remain confident in their own ability to journey on into this self-storage business arena. I decided to move forward with my in depth research to create such a book. This involved speaking with my staff, reading thousands of articles and communicating with many developers and builders, as well as some great steel building erection crews. Darren Newberry, the General Manager of American Steel Buildings, Inc. was a wealth of information. He has helped a countless number of folks with his knowledge of the self-storage industry. Thank you Darren! A big thanks to Beverley Halsey as well. Beverley has
Acknowledgements xi
been a top estimator and a key person in our success. Her knowledge in the area of customer needs supplied tremendous insight for this project. I would also like to thank Rachel Jenkinson for her many hours of examining this book with her thoughts and view points. She is a real blessing in our offices as well as an influence in our lives. Also, I thank my sister Vicky Walters who put us in touch with our wonderful editor Dr. Gillian Silver-Rodis who makes her home in Las Vegas. Thank you Gillian for taking the time for this project. Thank you Sue for your sacrifices which included my late night scants to the office with new ideas to add and many weekends spent working on this project.
xii
Self-Storage • The Journey
Chapter One
The Beginning of Self-Storage In The United States
Self-Storage’s humble beginning started shortly after World War II ended. There was a substantial increase in military personnel needing to store their personal items. As they began to look for places to store their extras, they began to rely on their friends with extra garage space to help with this need. It was also during this time that the nation became much more mobile. Not only did Americans travel more mobile (because of so many highways being built and better paying jobs across the states), but income began to grow and folks began to buy more “things” than they actually needed. After a few years, this generation had acquired so many “things,” that the need really became evident that a solution was needed. This led to a shortage of room on, and in, their immediate property. Because of this booming time in America’s history, new homes - without basements and attic space - seemed to appear everywhere. And this, my friend, is what American ingenuity is all about. This is the legacy of this self-storage concept and its development into the business it is today. A few entrepreneurs began to build some simple concrete block buildings with roll-up doors. The problem with block buildings were they had to constantly deal
Chapter 1 - The Beginning of Self-Storage In The United States 1
with cracks and leaking. After some time, these buildings had to be sealed and painted so often that this led to the search for a better structure. In their search for a better building, someone built a metal building and found that this seemed to be the answer. During the early 1970s, metal buildings began to be constructed more and more. Still, they were a far cry from what we see today. But, it was during this time period that so many metal building companies got their start, as they were less expensive to build and maintain. The challenge was that these early buildings were constructed with heavier gage steel which was galvanized and therefore prone to rust. We have all seen the unsightly white powder-looking substance which began to appear on these buildings as they aged.
Baby Boomers Gave Birth to the Self-Storage Industry
For the past 40 or so years, American companies have eagerly pursued the Baby Boom generation. These folks began to spend large sums of money on homes, toys and just plain stuff. Boomers spent so much money on valuable things that safe storage became a real challenge. One would think they only needed so much stuff and this trend would slow down. Quite the opposite, as competition on who had the latest and best was greatly encouraged by savvy corporate marketing schemes for toys folks just couldn’t seem to live without.
2
Self-Storage • The Journey
The turn of the century saw these Baby Boomers begin to reach retirement age. However, a good portion of this segment isn’t spending their free time just puttering around the country in RVs or taking in 18 holes on the golf course. Rather, so many of them are starting their own businesses. A 2006 study by the Ewing Marion Kauffman Foundation showed that people between the ages of 55 and 64 are the most likely Americans to start up a new business. Why is this phenomenon taking root? Well, according to an article in U.S. News & World Report, it’s possible that the Baby Boomers are having a sort of existential crisis. After so many years spent working for other people, they want to work for themselves. And, unlike many young people, they actually have the money and experience to do so. Many of these aspiring entrepreneurs are considering the Self-Storage industry as promising a post-retirement career. It’s one of the few small business investments that provides relatively low-risk but high-reward.
Here’s why:
Many of these folks have built a huge network of contacts developed through their years in the corporate world. They reasoned they could use this information during their post-retirement years to enhance their own ideas and businesses. For Boomers with an entrepreneurial itch, getting started in the self-storage industry could be the perfect outlet.
Chapter 1 - The Beginning of Self-Storage In The United States
3
Consumption Accelerated This Industry
Self-storage businesses in the United States generated more than $20 billion in 2007. Just about 93 percent of that revenue came from rent and the rest was generated through the sale of products and services. Now the offspring of Baby Boomers (born between the late 1970s and the early 1990s) have picked up the same spending habits of their parents. They are spending more than $170 billion a year on the same types of things. This means they are now teenagers to late-20s and over 70 million strong, and they are beginning to catch up with the 80 million Baby Boomers. This new market also is beginning to create new surges in consumer behavior, attitudes, and society. A good portion of them are into apartment dwelling, which tremendously limits their storage space. Two high-use groups are the military and students. While the use of self-storage by students is increasing, the Iraq war has caused the military folks to start using self-storage at a higher than usual rate. The military use of self-storage facilities is about three percent of the industry. Sometimes for a year at a time, they find the need to store their belongings. They are always relocating as well as spending time overseas. Often they aren’t in control of their time and receive short notice on their orders. This puts a burden on getting their affairs in order. Most operators use extra courtesies to support these customers with the extended late payment notification.
4
Self-Storage • The Journey
Self-storage can be marketed to both of these segments by showing students the advantages during their college years and the convenience for the military service. The self-storage industry has evolved into what we see today. Drive-up, drive-through, climate-controlled, multi-story storage units with wine cellars, gun safes, vaults and so much more. These new generations of customers are now used to seeing these facilities and this is a good thing, as amenities generate longer income for operators. If you look around, you can most likely see a need for storage in your own community. Now storage facilities are even being built to blend into neighborhoods, some even after plush living quarters. You will learn things in this book about buildings that have become so beautiful and convenient. And, you will be left with this one question: How can business minded entrepreneurs pass up this opportunity? Perhaps you should join this phenomenon of some 40,000 facilities, and view this industry as a great income investment. Better yet, even though many larger companies have bought up many facilities, the “mom and pop facility” still dominates the industry. In 2002, Prudential Real Estate Investors listed the self-storage industry as the leading desirable class of business for investors. The self-storage industry has seen a number of changes during the last 10 years. Five self-storage companies have gone public, one has gone from being publicly traded to privately owned and another publicly traded company has become a part of the market force industry leader as the result of a buyout. While these transactions have totaled over $4 billion, it is important to note that they represent less
Chapter 1 - The Beginning of Self-Storage In The United States 5
than 10 percent of the industry nationwide. To put this in perspective, the top 15 operators in the country own less than 17 percent of the mainstream market. This lack of consolidation is one of the key reasons the self-storage industry has become one of the most sought after types of investments in American today. This comes down to the only reason investors look to self-storage is the quality of the product for investment purposes—to make money.
Three Distinct Groups of SelfStorage Owners and Developers
1. RIETs (Real Estate Investment Trusts) have really grown in the last few years. Now the larger investors (many non-self-storage investors) are, in a large part, turning away from other real estate sectors to the self-storage industry. Some are even going into partnership with smaller operations to pursue larger transactions and increase holdings. 2. New folks who are non self-storage investors are now looking to get into the industry as they become more aware of the outstanding returns. With experience in the office, industrial or retail real estate sectors, they are now adding self storage to their adventure. 3. Some are buying existing self-storage facilities to enter a new arena. Others chose to develop their first facility from the ground up.
Key Considerations
If you consider becoming a developer in this industry, you need to become diligent and do your homework in regards to new projects. Field knowledge is a must. Don’t
6 Self-Storage • The Journey
just concentrate on the specifics, but take a look at the industry as a whole and decide for yourself. • Every aspect of a new project must be well thought out. The potential customer base and specific market area of a new project must be examined, along with the existing competition and future competition as well. Next, consider location. • Investigate diverse opportunities and educate yourself about any area of consideration. The site selection process is very important and must be done with care. Make the choice to diligently do your feasibility and market studies. • Interest and capitalization rates are also important given the dynamics in today’s market. The financial institutions that developer’s turn to for their loans, should have a working knowledge of the industry in terms of cash flow, lease-up, and the overall process of building a facility from conception to completion. • Today’s developer must consider facility management and operations early on in the development process. Hiring experienced industry managers will help make your project a success.
Chapter 1 - The Beginning of Self-Storage In The United States
7
• If you plan to build a larger facility, your manager must be familiar with self-storage. They must be responsible for leasing space, marketing, as well as retail sales and ancillary services. Bring this person in early during the process so you can get a feel for him/her as a prospective manager. They may even have a few good ideas to help this process along. They can also help set up the office, reserve or lease space, and support your grand opening. All in all, the “build it and they will come” philosophy won’t cut it. Following that thinking mode has the potential to cause failure. The more you educate yourself during this process, the better prepared you will be to enjoy profitability. There are more than 40,000 facilities in the US. This is clearly an industry where continued strategizing and planning is just as important to newcomers as it is to top operators and self-storage REITs. Investing in self-storage doesn’t mean you will automatically become successful. You must become extremely diligent in regards to site feasibility and location, as discussed in Chapter 5. Self-storage is a wonderful investment. The rents are comparable to rents found in apartment ownership, yet the hassles of operations and management are far fewer. Not only has self-storage matured, but it is finally understood by lenders and Wall Street. The industry has abandoned its humble beginnings and is now sought after by sophisticated investors who realize the potential. For many years, few self-storage facilities were for sale because so many owners were very content with their
8
Self-Storage • The Journey
investments. But now, the expansion boom is opening up new opportunities. Are you in the market for a self-storage facility? This area was once considered a secondary real estate investment category, but today self-storage is moving to the forefront of the commercial real estate markets. Some buyers are purchasing these properties while some are choosing to consolidate their operations. This has begun to create what many are calling the most active selfstorage investment market ever. Self-Storage REITs (Real Estate Investment Trusts) account for only about 5 percent of the equity REIT market, yet have one of the second highest 10-year compound annual return rates. Favorable cap rates, especially compared with other sectors, are driving this interest. Cap rates for self-storage are higher than other asset classes which represent what Wall Street calls a “core asset”.
An Attractive Investment
What else makes the self-storage business a good investment? The failure rate is very low compared to so many other businesses. Your facility also will pay for itself in a very short period of time. Are you older? If so, this is an ideal area to consider. According to the 2006 Merrill Lynch New Retirement Study, the fastest growing groups of entrepreneurs in the U.S. are Baby Boomers seeking their ideal retirement. They are seeking a “retirement career” to help them stay mentally and physically active. Self-storage businesses are a quickly growing segment of this societal upswing.
Chapter 1 - The Beginning of Self-Storage In The United States 9
Self Storage Has a Good Chance of Success:
Any new business is risky, and those risks have to be accounted for before taking the plunge into entrepreneurship. However, self storage steel buildings have a better track record than other start-up commercial ventures. According to an in-depth study by National Development Services Inc. of the performance of multifamily, office, retail and self storage developments in Texas, Oklahoma, New Mexico, Colorado and Louisiana, self storage steel buildings have a failure rate of about 8 percent. Other real estate ventures have a failure rate nearly six times that amount 53 to 63 percent).
Where Are Things Headed in The Near Future?
What are the expectations for the near future? Good. As economic concerns grow a safe, long-term investment holds even more promise. According to the latest “Confidence Index” issued by the Mini-Storage Messenger, rental trends in 2008 show a slight increase and confidence in the self-storage industry is very good. This optimism supports the longstanding position that self-storage is insulated from broader economic pressures, and is more insulated than other businesses and real estate sectors. The Mini-Storage Messenger goes on to explain the occupancy levels have increased slightly, while capital expenditures remain unchanged. Declining interest rates make investment even more attractive.
10
Self-Storage • The Journey
It’s Not a Huge Initial Investment
Compared to other new businesses, industry investors also will experience at a smaller initial cost with self storage steel buildings. Based on a 75 to 80 percent occupancy rate and the land purchase, materials and construction, you could still have your loan paid off in about six years. That’s considerably less time than most other small businesses. If you own your own land, and put up self-storage buildings, you are ahead of the game. At the same occupancy rate, is would take you two and a half to three years to break even and be on your way to the greatest profit margin. This business doesn’t require a huge staff to maintain. Most likely you’ll be managing your own facility with a couple of employees for the day-to-day upkeep. After years of working in giant buildings amongst thousands of other people, who doesn’t want that kind of limited responsibility? You can become part of a growing industry with demonstrated demand and has been the fastest-growing sector of the commercial real estate industry for the past 30 years. In 2006, gross revenues for primary self storage facilities were $22.6 billion. This averages out to $441,208 per facility. Self storage is not only a stable industry, but a steadily growing one with demonstrated demand. In addition to consumers, businesses also require storage. They need storage for surplus office supplies as well as equipment while moving.
Chapter 1 - The Beginning of Self-Storage In The United States
11
A typical leveraged self-storage property has a break-even occupancy rate of between 60 percent and 72 percent. Compare this to leveraged multi-family, office, and retail properties with a break-even occupancy rate between 80 percent and 90 percent. It is apparent that self-storage property has more room to absorb market declines. Self-storage has a total development cost that is a third to a half that of multi-family, office, or retail properties. To the investor, this means a considerably lower investment or loan amount to be serviced with rents comparable to other real-estate investments. The cost of operating and managing this type of facility is another key element that is appealing to investors. Self-Storage operating costs range from $1.50 to $2.00 per net leaseable square footage. Compare this to operating costs for the other real-estate properties surveyed, which range from $2.50 to $3.50 per square foot. Apartments, office and retail properties have to continually maintain the grounds, appliances, plumbing, electrical fixtures and a variety of other maintenance concerns, which usually require full-time staff support. With apartments, you also need “make readies” and interior remodeling for new office and retail tenants. In comparison, selfstorage usually has one or two managers and very few of the maintenance “headaches” associated with “live-in” tenants. The “bottom line” in comparing self-storage and mini-storage to other real-estate investments is that the investor can realize a much higher ROI (return on investment) for the typical self-storage property than for other investments. Another huge point for consideration
12 Self-Storage • The Journey
is the initial investment is only a third or half the amount required by other real-estate investments. Due to the lower break-even occupancies, the investor should anticipate investment cash flow sooner, and a much lower element of risk in relation to economic declines and their impact on lower occupancies and rents. The investor does not have to worry about additional capital requirements relating to tenant improvements or continual maintenance. Additionally, operating a selfstorage facility is much less labor intensive to operate and maintain. Also less heating, electrical, plumbing and HVAC maintenance is required. Further, the capital expenditures for renting units and tenant turnover are less (according to the Mini-Storage Messenger) since there is no real estate commissions to pay. When a tenant vacates, it is usually just a matter of sweeping out a unit.
Don’t Overlook Small Towns
Small towns can have big potential. So many “mom & pop” self-storage facilities have done well in nonmetropolitan communities. As these smaller towns begin to grow, these facilities grow right along with them. After all, the price of the land is more reasonable in these areas than in larger cities. I also noticed that the farmer/land owner who had property just outside of town began getting into this industry because a major startup cost (land) was already covered. Instead of crops, the farmer saw that he could have a year round crop (income) with much less work.
Chapter 1 - The Beginning of Self-Storage In The United States
13
He recognized that owning his own land was a huge plus in his endeavor. As his city grew, his exposure did also. With 80 percent of Americans living in metropolitan areas, they are beginning to get fed up with the things that go along with that type of environment. Many people are relocating to rural and suburban areas. A lot of them are making the move into and around smaller towns. Let’s face it, they want less crime, less noise, lower prices and dislike the traffic. Big business is even following this trend. Regulations may be limited and the costs of doing business in these larger metropolitan areas are lower. A good example is Wal-Mart which has long recognized the opportunity to establish themselves in smaller cities. Another key trend is that smaller communities are experiencing a shift from manufacturing and farming towards more service-based economics. This movement brings dynamic thinking. For example, some entrepreneurs have even begun to build self-storage facilities in several small communities within a state or 150 mile radius of a major city. They have no offices, but only closed connection phones that ring to a central location (usually in their home). Once they take the information from the customer’s credit card, they give them a code for the gate. Then the owner/operator mails out a contract and the customer sends it back with a signature. It doesn’t take long to locate any competing facilities if any exist, because there is less competition in these markets. Visit with local developers to locate the good
14
Self-Storage • The Journey
neighborhoods and growth areas. Don’t forget, do your homework.
The Forecast for Self-storage
The self-storage industry continues to do well during times of market fluctuations. The term supply and demand is extremely relevant as the demand for selfstorage remains very steady. Volatility peaks and valleys do happen, but the demand is still way ahead of supply, especially for RVs storage. For a long time, we were in a market where shorterterm money was priced as much as three percent higher than long-term loans and if you were able to convert that to a fixed rate loan at stabilization, you could obtain a loan closer to six percent. Short-term money has decreased, but longterm money has increased making these loans more advantageous. Storage owners in the market who choose to refinance or acquire a property have to decide on a fixed rate for 5 to 10 years or float their loan on a shorter-term basis. Variable rates provide the flexibility to prepay, and then you can ride the market to see if rates decline any further. Use this time and opportunity to grow income through expansion or continued operations like rent increases. You can then refinance or sell the business at a later date.
Chapter 1 - The Beginning of Self-Storage In The United States
15
16
Self-Storage • The Journey
Chapter Two
Should You Buy, Or Build?
Some self-storage owners choose to sell their selfstorage facilities for a variety of reasons. Some are fearful of market expansion, while some simply want to liquidate their properties while the market is peaking. Buyers are eager to own self-storage facilities because they hear so many good things about ownership. Ease of management, flexibility in raising rents, and lower building costs are among the main reasons buyers seek these facilities. Self-storage facilities are different from residential properties because you need to analyze the many details that are specific to this industry. The self-storage business is a little more complicated than most businesses, so you need to do your homework and become familiar with the industry. Today’s properties are different because so many of them include ancillary income. If you are looking to buy a facility, there are many reasons to develop a large understanding of the industry. This is important because you need to verify every aspect of the information that you have gathered, before entering into contract to purchase. Include in your investigation of a particular facility a visit to the local police departments where the facility is located. Ask them about the number and types of calls made to the facility for the previous three or so years. A
Chapter 2 - Should You Buy, Or Build? 17
history of thefts and break-ins can indicate this facility would be difficult to market. Examine the physical condition of the building(s). Look at the version of the lease used. Make certain the document includes all the correct information needed to bind the tenants. While checking the current leases, see if the delinquency rate is high or low. If the delinquencies are high, you (as the new owner) will be responsible for collecting on past due accounts. Further, it is vital to make certain the leases follow and comply with state statutes. If so, this will keep you out of legal problems. Sellers have been known to intentionally avoid having auctions as this helps to maintain higher occupancy rates. This is why handling the files and using documentation procedures is so important to check. You don’t want to inherit all the legal problems that go along with previous poor management. While examining the financial records, look at the profit and loss statements for at least the past three years. The same goes for balance sheets, payment histories and tax returns. What kind of insurance policies do the current owners have? Look at the loan documents, title policy, deeds of trust and notes. Make certain they are all sufficient and in order, and consult a realtor or attorney, if needed. Verify the existence of every customer and that the spaces are actually rented. You don’t want to inherit the wrong information about the existing customers and wind up selling their property.
18
Self-Storage • The Journey
Look at the facility’s competitors and find out about the reputation of the business that interests you. What is being said about the facility and the current owner?
Building a Self-Storage Facility
The cost to build a self-storage facility is considerably less than it is to build office or retail space, hotels, or multifamily dwellings. In most cases, the cost of construction, including land, and soft costs (commissions, financing, and costs for various consultants or professionals) is about one-third of the price for other real estate types. Compared to buildings apartments, there is limited plumbing and electrical to install at a self-storage facility. The interior space is rather uniform, with specific unit sizes as opposed to residential floor plans. There is little dry walled and finishing required. There is a customization factor to consider, since oftentimes individual tenants require that the offices they lease be reconfigured to suit their needs. But, in general, these factors make self-storage easier to develop. Once a self-storage is built, it is much less labor intensive to operate and maintain. The staff is usually limited to you and an employee or two, or a manager or couple. You might also consider a part-time assistant manager. There are no real estate commissions to pay, and when a tenant vacates, it is usually just a matter of sweeping out the unit.
Chapter 2 - Should You Buy, Or Build?
19
The good news is the facility will generate the same rent per square foot as apartments. Specialty storage can bring in even higher rates. Self-storage facilities also have a lower rate of delinquency and rents can be pushed harder. When you initiate a 5 percent rate increase, the tenant would rather just pay the extra than move. When you look to the future of self-storage, its primary use by residential customers will always be popular. Not only that, but the facilities continue to draw an increasing number of commercial tenants. It is cheaper for them to rent a storage space at a facility rather than more office space. This opportunity is only going to get more appealing. People are always buying more “things” as well as commercial goods, expanding operations with more equipment or inventory, starting a new home-based business, or just need extra storage space. These folks will continue turning to self-storage to fulfill their requirements. With this information, you can now consider the type of facility you want to build or purchase. Or you can build any combination of the following. Look at Chapter 3 for information on the facility options: • Basic Dry Storage Only • Climate Control • Basic RV and Boat • Condominium Style RV and Boat • Conversion • Mobile Self-Storage
20 Self-Storage • The Journey
• Multi-Story Self-Storage • Private Storage in Multi Family Buildings • Records Storage • Wine Storage • Combination Retail and Self-Storage
Consider Your Exit Strategy
If you decide to become involved in buying or building a self-storage facility, consider your exit strategy. Your strategy may change through time, but this thinking is necessary to be well prepared.
Should I Sell, or Refinance?
Refinancing is good in this competitive lending market so you might want to re-finance at a more attractive rate. Take advantage of the competitive acquisition market and sell your property at a time when the buying market’s demand for self-storage real estate currently is outpacing supply. For example, you don’t have to achieve a near 100 percent occupancy to consider selling your facility. This is a misconception. The facility does, however, need about 60 percent occupancy before you list the property. These last three years or so have shown an advantage for those who have turned their investments because it is one of the most attractive markets this industry has ever seen. There are simply more investors going after self-storage than ever before, because the advantages are so clear. There is more supply (self-storage facilities) than demand. There are around 78 potential purchasers and usually 6 to 10 operators competing for the same facility.
Chapter 2 - Should You Buy, Or Build? 21
Still, do your homework to maximize your return and obtain a real estate advisor in tune with the market. They should understand the disposition and refinance markets. Also, it is essential to hire one without a vested interest in your decision. Always have a plan to run your facility as if you want it to grow and would never contemplate selling. This way, you have a better than average chance that a company or individual who meets your asking price will surface. Run your facility in the most efficient manner to create value and then identify prospective buyers. It might be a family member, a good employee, or a thirdparty. This third-party will give you the most dollars, of course. When you build a facility, you are going to attract institutional money. You have to have a good amount of added value (see Chapter 17) to be attractive. A welllocated, quality product with a good unit mix is required for an institutional sale. Another exit strategy is the tax-deferred 1031 Exchange. According to the Internal Revenue Code Section 1031, neither gain nor loss is recognized if property held for investment or for productive use in a trade or business is exchanged for “like in kind” property. This means that if you trade cash equity for equity, then you can delay paying taxes. Recognize that capital gains rates are as low as they have been in years, however, this means you may be better off paying the 15 percent tax on your profit and moving on.
22
Self-Storage • The Journey
In deciding whether to sell for cash, pay the taxes and completely exit, or agree to stock options and hope the shares appreciate on Wall Street, remember that the primary benefit of selling to a public company is the tax deferment. Keep in mind you need to present effective financial controls to convince a buyer that financial statements accurately reflect the company’s financial condition. To get the most for your self-storage property from the abundant, eager investors, you need to do your homework and understand whether selling your property is the right thing to do. Remember that every market is not the same in self-storage. Assess the local economy and make decisions that reflect long-term growth opportunities. Understand the local picture and trends in your city or market. When you’re at that point ask; does selling your property actually makes sense for cash flow, your financial environment, and the local market structure? If so, then begin to spruce up your facility. Repair and clean up all the areas of need. Then you can begin to target your buyers. For example, if you are building your property for the sole purpose of selling it, build to a broader market rather than a more confined one. Technology sells. Depending on your buyer, you’ll need to understand the aspects of technology that sustain modern self-storage facilities—and whether or not your potential buyer even has a desire for sophisticated technology. Prepare detailed reports because investors will want to see at least three years worth of your accounting records. Your files must include income statements,
Chapter 2 - Should You Buy, Or Build? 23
occupancy and rent rates, as well as expenses. You will also need to show a reasonable revenue projection for your property over the next three years.
The Importance of Building Value
The idea behind your strategy is to build enough value in your facility while you own it. This enables you to bring an attractive investment to the market, and one that generates high value when you sell it. Once you have completed all your homework and are prepared to meet your investors’ expectations favorably, you will be well on your way to getting the highest sales price for your self-storage facility. But as stated previously start thinking about an exit strategy as you go in so you won’t miss the opportunity when it knocks.
24
Self-Storage • The Journey
Chapter Three
Types of Facilities
Basic Dry Storage Only
This type of self-storage facility is just what the name implies. It normally contains buildings filled with various sizes of units, ranging from 5 feet by 5 feet, 5 feet by 10 feet, 10 feet by 10 feet, and 10 feet by 20 feet. A typical 2,000 square foot dry self-storage building should run around $9.13 per square foot to $9.63 per square foot to build. This includes building construction, insulation, labor and doors, according to Darren Newberry, General Manager of American Steel Buildings, Inc.
Conversions
Conversions involve transforming existing buildings into a self-storage facility. Warehouses, office buildings, factories, automobile dealerships, parking garages as well as other larger retail structures are good considerations for conversion. Keep in mind that, if it is large enough, it can be converted into a self-storage facility. Just look around for a vacant building that has either been vacant for a long time, or one that no longer has a use. This particular arena has really increased in the last five years and the considered size has even grown. In the past, the average size of the buildings being converted
Chapter 3 - Types of Facilities
25
to self-storage was 15,000 to 45,000 square-feet. Today, many are 100,000 square-feet or more. Many potential conversions are located downtown where entire communities of businesses are located. Most of them are already heated and air conditioned, and offer elevators and many other considerations. Plus, it doesn’t take near as long to finish and occupy a converted structure as it takes to build from ground up. The best thing about these conversions is that the building already lends itself to installing high security. If you are going to offer storage for niche items such as paintings and wine, the entry design must be equal to an upscale hotel lobby. Your building’s exterior already lends itself to advertising with its size. A highly visible finish can really promote the business. Another plus is you can actually rent out one section while working to finish out another area for the future. Location is still the name of the game. Look for favorable traffic patterns and easy access to the facility. Zoning is generally not a problem as more owners and developers have opted for conversions instead of groundup developments on raw land. In many instances, municipalities will do everything they can to accommodate self-storage developers who want to convert an older building, even if there is a pre-existing zoning issue. They want these abandoned buildings filled, functioning, and owners paying taxes, rather than having an eye-sore. It is better all around for everyone.
26 Self-Storage • The Journey
Another advantage to converting an existing building to a self-storage facility is that normally a building that is already zoned means considerably less time is spent dealing with building departments and zoning boards. This often results in a project being completed in 70 percent less time than normal. Another factor to watch for is the elevators. They must be large enough and sturdy enough to carry both passengers and their goods. The elevator’s door size needs to be appropriate. These elevators need to be situated within 150 feet from the farthest storage unit. Cost is to be considered as an elevator can run from $30 to $100,000 not including the shaft or installation. A less expensive way is a Vertical Reciprocating Conveyor or VRCs. Also known as storage lifts, material lifts, freight lifts, or even cargo lifts, they can be placed virtually into any type of building at any time, and they are very reliable with an established safety record. VRCs are about half the cost of elevators. However, if there is an American with Disabilities Act requirement to fulfill, or if the facility has four or more levels to service, a passenger elevator is advised. Keep customer convenience in mind at all times. The HVAC system must be repaired or expanded. This is especially true if you are offering climate control storage. When you find your building, consult with an experienced architect before you move forward. There are dollars to be made with this conversion process.
Chapter 3 - Types of Facilities
27
Private Storage in Multi Family Buildings
This form of storage benefits families who need storage because there is no place in their dwelling to put their toys and extra items. It can be centrally located in a basement or another area convenient to the apartments. This need became more recognizable when so many apartment complexes were being built in the late 1960s. With this influx of residents came the requirement for storage. This is what gave birth to the in-house storage units built mostly in the basements of multi-family buildings. In cities such as New York City where space is so limited, this trend is definitely on the rise. Convenience and the cost of outside storage is the driving force. Even building developers are beginning to include these storage areas in their planning. Approaches may vary from wire-mesh storage to fully enclosed storage units.
Multi-Story Self-Storage
While they can be a challenge to complete, multistory buildings have become a more solid consideration because of land costs and availability. This process can offset the higher cost of land, but you need to consider all of the extra costs to determine if the investment is prudent. This option is where your feasibility study comes in handy. The cost of a larger piece of land versus a smaller piece of land can often save you enough to put the savings into a multi-story building. So, after you have decided to go up, just how many levels should you consider? The main consideration is that of two stories versus three
28
Self-Storage • The Journey
or more. Strive to get as much value for your rentable square footage as possible on a particular site. Foundations are, of course different for a multistory building in that they must include full footings. Additionally, concrete costs increase when second or third floor slabs are included. Next, you need to decide on whether to build an elevator or two, or a material lift, or both. Codes, including fire exits and emergency alarms, must be considered. This is where the advice of a good engineer and architect will be beneficial. You need these professionals who are familiar with all the local and state codes. They also need to be very familiar with the ADA (Americans with Disabilities Act) codes and statutes. Keep in mind that these costs can be considerable depending on state requirements. Electrical costs increase dramatically, however, especially when elevators are provided.
Mobile Storage
This part of self-storage involves the delivery and pick up of special containers at businesses and homes for storage at your facility or for moving. The self-storage industry is still trying to decide if mobile storage is a good idea to incorporate into their self-storage business. It is happening more and more, so many are viewing this as a strategic method for adding value to their business. It does set your facility apart from competitors. This has been gaining in popularity since 2001. Eventually, this approach will really cut into the moving industry and the use of rental trucks. Of course you do need to have more acreage to apply mobile storage which does increase your overhead. To pursue this area of storage, you really
Chapter 3 - Types of Facilities 29
need to do your homework. Plus, you need to have good management skills to handle this type of operation. Mobile storage does provide a convenience. The difference is while self-storage is recognized as more of a real estate venture, mobile storage is more of a service business. For example, it takes longer to rent a mobile storage unit than a standard on-site unit. Further, consumer education and marketing is important, but it will expand your radius of operation. Normally this service requires a larger self-storage operation to work smoothly. You don’t have to start out too large to begin with which means that you can grow into this arena. But, if this idea of mobile storage looks good to you, don’t wait too long or your competitors might move into this area. As your mobile storage service grows, you will need to hire a full-time delivery and pick-up person. Oversight of this area will take a good manager who is detailoriented and will carefully track the inventory. The good news is there is software programs designed to run your entire mobile storage business. Many operators are requiring a minimum rental period for these units. Your delivery distance needs to come in around $5 per mile and you must plan to adjust this rate with the increase in fuel cost. This estimate should cover your employee’s time, gas and other details. Folks want to use these units to move and you will need to figure two men for the job. The most important component in this area is the lift system. Your lift system must be able to deliver these containers safely, efficiently, and repeatedly,
30 Self-Storage • The Journey
with minimal maintenance and in any weather. Your customer expects the unit to be delivered and picked up in a professional and timely manner. Research each of the many types and brands of lift systems before making your choice. The next important component is the box, or container. You are probably wondering which type is best? It’s important to develop a strategy for selecting the kind and size. How many options are needed? As you fill 20 or so containers, order more. A company called Kontane has no minimum purchase requirements, but does discount for larger orders. Keep in mind you will eventually need 100-plus containers in order to show a good profit. There are metal containers which are more expensive than wood or plastic, but are also more durable. Some can even be disassembled and stacked flat when you don’t need them. Storing these containers will take some planning. If you are going to stack them, you will need the appropriate forklift capable of lifting 10,000 pounds more than 15 feet. The size for the industry standard is 8 feet by 5 feet by 7 feet, but there are many sizes available. Make a choice that is practical for your space and economically sound. Do your homework. Search the internet and you will find many links to companies that offer mobile offices, trailers, and overseas shipping containers. As this idea is fairly new, you need to remain aware of changing legal issues. You are housing customers’ personal property and must uphold that responsibility.
Chapter 3 - Types of Facilities
31
While the self-storage business is engaged in real estate transactions, mobile storage is engaged in the rental and transportation of personal property. Sooner or later, the mobile storage industry will have true definition of just who and what this new business sector is and how it operates. Become familiar with your local transportation and storage of household goods laws. Some states have few regulations while others have many. A self-storage operator may require a license as a warehouseman to transport customer’s goods. Certain regulations may need to be upheld. Do your homework in this area because knowledge is paramount. Keep the right coverage with your insurance. The customer is responsible for insuring their goods while they are stored inside your facility, as long as the selfstorage facility is not shown to be negligent. To protect yourself, consider a rental agreement which states that a customer may not store more than $5,000 worth of goods in their container.
Climate Control
Although this type of storage is called Climate Control, you will learn that this is not always the case. It should be called Temperature Control. First let’s look at the value of climate control. This is a growing trend which is increasing as potential customers search for a facility where they can have their personal property stored and protected from extreme heat and cold. They will even drive a little further to find a facility that has these units available.
32 Self-Storage • The Journey
People are looking for ways to store possessions that need to remain within a certain temperature and humidity range. These items need to be protected from wide temperature changes, mold, mildew, bugs and rodents. Many considerations need to be addressed here. This consumer requirement began to take frontstage in the mid to late 1990s. Facilities began to offer at least one or two climate controlled units in their mix. As these types of storage units began to quickly fill up, more attention was placed on offering entire buildings housing only climate controlled units. Climate controlled units/buildings requires you to keep the temperature below ninety degrees in the summer and above forty degrees in the winter. Humidity is very important and needs to be kept below sixty-five percent in order to control/stop mildew and mold. This is where a good dehumidifying system is critical. Remember that when you choose to build a climate control building your cost is greater than dry storage. These costs will come with both new and retrofitted buildings and will include energy considerations and HVAC systems stability. Dehumidification systems are a necessity. To be safe, design the air-conditioning loads at 1500 square feet per ton (which is much less than a home or apartment). Under sizing your HVAC will make it more effective at humidity control. You may need to start out at a lower rate to introduce the benefit, but as your customers see the value of these types of units, then you can increase rates. Larger units
Chapter 3 - Types of Facilities
33
are more popular, therefore you should charge more here than for the smaller units. Consider discounting the units farthest from the entrance while keeping the more convenient locations at a higher rate. As demand grows, adjust your rates to improve profitability. Control is the key word in orchestrating the heat, cooling and humidity levels. A back-up generator is a fantastic solution to ensure the system will work. Continually check (or have alarms that notify you if limits are breached) the temperature as well as the humidity levels. This benefit needs to be worded properly in your rental agreement/lease. If someone brings wet items into a self-storage unit, all bets are off. Include a disclosure about mold, the possibility of mold and ways to avoid mold during storage. Your lease should have language to cover the possibilities that can occur if systems providing the temperature or climate control fail. Blackouts, tornadoes and other disasters may occur that are out of your control. The only state that has a statute concerning the advertising of climate control for storage of personal property is Nevada. A recap is provided here: 1. The owner of a facility for the storage of personal property or a person acting on his behalf shall not advertise that the facility is “climate controlled” unless the advertisement specifies the range of the minimum and maximum temperature and humidity within which the facility is maintained.
34 Self-Storage • The Journey
2. If an owner or a person acting on his behalf fails to indicate the range of temperature and humidity of a facility in the advertisement that refers to it as being “climate controlled” or fails to maintain the temperature and humidity of the facility within the advertised range, the owner is guilty of a misdemeanor and is liable to the occupant for any damages that are caused to the occupant’s personal property as a result of the extremes in temperature or humidity not withstanding any contract provision in the rental agreement. These statutes have caused other states to take a more serious look at advertising climate control. Some are even considering legislation concerning the actual range of temperature and humidity. This means that you must advertise what you offer with honesty. If you just have heating, say so. If you just have cooling, say so. If you just have heating and cooling (Climate-Control), say so. But if you have HVAC and a controlled dehumidification system controlled at the proper range, you can really promote these values. As there is a large movement in the U.S. to include dehumidification systems, what is the cost? Relative humidity is the highest during the nighttime because your temperature is cooler. Conversely, the relative humidity is lower during the daytime. Therefore your air conditioner doesn’t need to run early in the morning while it is cooler. The unit pulls some moisture out during the day, but builds up during the evening. The air conditioner and dehumidifier compliment one another.
Chapter 3 - Types of Facilities
35
Your air conditioner will waste around 50 percent of its efficiency taking out water but, if you reduce the humidity to five percent, the air conditioner doesn’t need to remove the water so it runs more effectively. The air conditioner is most efficient when you are cooling dry air. Likewise, when you are drying cool air, the dehumidifier is more efficient. A professional can help you to calculate the best efficient HVAC and dehumidification system for your particular building(s). As far as ducting goes, use large single-duct lines. Run them down hallways with vents situated along the sides of the ducts. The hallways and unit partitions are kept to a minimum of six inches. This allows for air flow without compromising security. Position duct lines to flow directly into the storage units. Make certain the building is tall enough to accommodate the height consideration for the air unit hanging in the hallway as well as the ductwork. As far as marketing climate control goes, advertise the design, reliability and other benefits these units provide. Some customers (especially customers such as pharmaceutical representatives) may require certification of how these units are maintained. Keep charts and install alarms to warn when limits are breached.
36
Self-Storage • The Journey
When designing your buildings, keep in mind that if you try to save money, this can end up costing you even more in the long run. Higher operating costs and other problems can occur if poor design choices are made. This type of storage is gaining in popularity. In fact, some developers are building facilities which only contain climate control with dehumidification systems. Beyond just the wine and cigar storage, a growing number of consumer types are looking for climate control. You need to offer climate controlled units to be marketable.
RV & Boat Storage Facilities
You need to decide what type of storage space will work best for your project. There are five types of RV and boat storage facilities. You may want to include one of these facilities, in your overall site.
Open Space
Sizes for open space storage range from 10 feet by 20 feet to 12 feet by 50 feet. This is strictly outdoor parking where individual spaces can be allocated on blacktop or by utilizing a marking system which offers basic parking only with no protection from the elements. The storage area must be kept orderly to lesson the accident factor. Spaces should be numbered and assigned, with extra spaces allowed for overflow parking. This option also can be used where the facility is being developed in phases.
Chapter 3 - Types of Facilities
37
Covered Space
These are open spaces with a roof. This carport style is the most-profitable of the two. You can use both of these styles (open and covered) which offer the customer a choice depending on what they desire/want. The covered space is much more expensive to build, but you can charge a considerable amount for the benefit and the protection it offers.
Covered Canopy with Walls
This option includes a two-sided storage which has canopy storage with end walls. A Three-sided storage will work to your advantage in climates with high wind and snow levels. This type can be constructed in long rows within the facility, or placed along the facility’s perimeter wall or fence. It may be a long row of canopy storage with somewhat covered parking by enclosing the back and both ends. This works best when you can back the RVs into the space, and offers protection from the sun.
Indoor Space
This is a fully enclosed space, but it is the least efficient use of land. You could build a few of these for the more expensive RVs. It is more expensive to build, but commands a high rent. You could also include some extra amenities such as climate control, automatic doors with remote openers, and furnish electricity.
38
Self-Storage • The Journey
Condo Style
Now this option is where the RV storage industry is headed. These units are offered for sale, and you charge for different levels of service. These normally have 14’ wide bays. This style of RV and boat storage normally includes many amenities such as an upscale clubhouse, specialty café, RV washes, valet, and make-ready services which add to your bottom line. No matter which type of RV and boat storage you favor (Condominium Style RV and Boat Storage), there are some key considerations. According to a 2006 news release from the RVIA (Recreational Vehicle Industry Association), RV shipments surged in 2005, setting a 27 year record. The point is this market is extremely strong and all indications are it will continue to grow. RV storage is usually calculated at 30 to 50 units per acre. A 60-degree parking angle works best. This design allows for smaller driveways. Instead of a 60 -foot driveway, you can get by with a 30 to 50 foot driveway. The only concern is getting the doors to work properly at an angle. Another space saving innovation is the use of RV covers which are similar to carports. They are a popular amenity because you can charge twice as much as open designs and you don’t have to use concrete. Gravel or asphalt has been popular in certain areas of the country. The cost in building with these materials is about half the cost of the enclosed units. Also, they can be built right
Chapter 3 - Types of Facilities 39
on the property line with steel fencing which hides the RV from the street. This gives the look of a fully enclosed building instead of a cover. Examine the economics and see if the proposed project will make financial sense. Will the rents be high enough to support the land and construction costs? Look at the market and consider whether the market is overbuilt or is there room for one more RV and boat storage facility, focus attention on any zoning challenges as well as topography. Does the site lend itself to storage? When it comes to boats, the costs involved in wet storage (boats in slips on lake) seem to be out of line with the convenience aspect. Dry storage is less expensive and especially at a well selected location. A great use of land is the stacking of boats, especially the smaller ones. Older fork lifts (with their long forks) just took up so much range that innovation produced a new more efficient design. Now this new lift system (designed by Harold Leslie of Leslie industries in Florida) allows for storage of six to seven boats high in the same amount of space (land wise) of one boat.
Land Costs and How Big
It isn’t easy to build a multi-story facility for the condominium-style RV and boat storage. You must look for good land at a good price and obtain, minimally, about seven acres. You must extract efficiency out of the land you purchase to ensure project profitability.
40
Self-Storage • The Journey
In other words, if your land is expensive you must carefully consider market potential. Look for land values close to $5 per square foot or $218,000 per acre. If you find land for less, this will show up in your profits. The new and improved zoning ordinances actually encourage RV and boat storage. They have finally figured out that these facilities solve the “parking at my house or in my neighborhood” dilemma. Further RV and boat storage provides value to the overall community.
How Is The Parcel of Land Shaped?
The shape of the land will dictate the efficiency of the layout. Generally, the rectangle works better than a square lot. The site is more efficient if the driver can drive straight through with ingress and egress on both sides. The focus must be on RVs, and/or vehicles pulling boats. Another consideration is circulation which dictates the site size. How much circulation space is needed for a truck and a boat? How long is the rig? Do your homework in the area of construction and soft costs. Be certain the contractor you hire has the appropriate level of experience.
Good Security Is a Must
Prevention is better than capture. A variety of security equipment is available including fences, lighting, computerized gate access, surveillance cameras, and individual alarms for boats and RVs. You will want to install motion detectors and can charge customer about $10 extra per month for this feature. Additionally, it is wise to have door alarms for enclosed
Chapter 3 - Types of Facilities 41
units. Place digital video cameras that begin recording when motion is detected at all exits and entrances. Equipment must have sufficient quality to capture automobile license plates as well as clear faces. Don’t hide the cameras. Making them large and visible can be a deterrent in itself. Photoelectric beams running along the fences will detect intrusions. Be careful though with the use of the word “surveillance” in your advertising and your discussion with customers. Some states have ordinances against using this type of language unless you have someone continually patrolling the premises. One very large advantage is that these photoelectric beams are used to deter would-be criminals who become tenants in order to gain access to the property. Put into force (include in your lease/rental contract) a policy whereby a tenant exiting after the facility is closed will have to call the police in order to exit. This helps to develop a good relationship with the police department. When the potential thief posing as a tenant knows this, he won’t be so quick to stay after hours. Do your rounds on all parts of the property just after closing. Use key access dumpsters and locate them next to the office. If possible, eliminate them entirely as this will stop the thieves from storing stolen property in them for later retrieval. Have good lighting, because thieves love to work in the dark. Individual door alarms also work well to deter criminal activity.
42 Self-Storage • The Journey
Fire protection is a must, so you need to have good up-to-date fire extinguishers handy as well as water access.
Insurance For Rv/Boat Storage
Not all insurance is appropriate for facilities that provide vehicle storage. It is essential to obtain a sufficient level and the correct forms, of insurance. A business owner’s policy is a good policy to consider as it combines protection in the event of property loss or damage. Liability (bodily injury and property damage) and loss of income due to a loss or damage is a necessity. You also want to have another two types of specialty coverage: • Customers’ Goods Legal Liability • Sale and Disposal Legal Liability Your standard self-storage rental agreement should be amended for this type of specialty storage. If you are offering a Condominium Style RV and Boat Storage style facility, you will need to shop and discuss this option with your insurance agent.
Lease/Rental Agreements
Tailor your rental provisions and lease requirements for RV, boat, and other vehicle storage. Having the accurate information on the vehicle (year, make and model, license plate, and VIN number) is essential to dispose of an abandoned boat or RV. Obtain a copy of the registration and a physical description of exactly what is being stored.
Chapter 3 - Types of Facilities 43
Make certain the name on the registration is the same as the person who is signing the rental agreement. Obtain a copy of the tenant’s insurance policy and ensure it has the proper property and liability coverage. If an RV catches on fire, it could easily spread to the other RVs.
Rental Agreements Need to Be Geared to Boats and Rvs With Addendums Which Include The Following Items
1. Have specific identification of the item to be stored on hand. 2. Clearly state that only the item identified can be parked in the space. 3. Maintain a copy of the registration and title for the facility records. 4. Acquire proof of insurance for the vehicle must be provided by the tenant.
Gas tank rules must be shown and followed. Stress that no changing of oil or repairs are allowed on property. Determine your process for dealing with hazardous materials such as gas and oil. Recognize the danger and come up with rules for the tenants that include the tank being low, instead of toped off. Customers need to park in the correct spaces. In the past, there was/is a loophole for the tenant’s attorney to pursue. This included something such as your customer said that someone was parked in their space, so in essence, the lease is void. Have your attorney rectify this issue. Provide overflow parking slots and have a fine for tenants who miss-park.
44
Self-Storage • The Journey
Addressing The Parking Issue
Chip Cordes of U.S. Door & Building Components explains, “The problem is, with the units on an angle, the piers separating the doors need to be wide enough to allow for the required backroom for the rollup doors. Usually 24” wide piers between the units are all that is required. A great deal depends on the degree of angle. Usually we see no more than 30 percent from the driveway.” “Another method is to saw-tooth the building, but this is more costly to build.” Doors are a big consideration for RV and boat storage. Sectional doors cannot be used for angled storage. That leaves chain-hoisted doors or motorized doors. With chain-hoisted doors, the tenant has to push the roll-up door open and go inside to reach the chain hoist. This has resulted in many facility operators now including a pedestrian door next to the roll-up door. U.S. Boor & Building Components has designed the EZ-Access Roll-up Door, which includes a walk-through pedestrian door as a part of the roll-up door. This qualifies for the fire code egress requirements while maintaining the roll-up door functionality. This allows the roll-up door to be raised so the full opening can be used to get the RV in and out. This also adds to the perception of security for the tenant. No one can see his unit until he opens the big one. This is good during poor weather also. Another option is the motorized doors for large RV units. The problem with this type of door has been where to locate the motor. To solve this challenge, the Janus International’s “Gliderol Operator Drive Unit” has built
Chapter 3 - Types of Facilities 45
an orbiting drive motor that is fully housed within the door coil. The Glidermatic opener is specially designed for continuous sheet curtain doors, and is ideal for RV and boat storage. U.S. Door has also been involved in a solution. They have been working with LiftMaster to develop a small motor operator that can be mounted inside the unit. They now manufacture a small bracket that allows motor mounting in front of the door inside the unit. It comes with a radio control remote transmitter to open the door. You can also mount a keypad on the outside. The cost is around $600, plus an electrician for installation.
Angled Parking
What kind of solution does angled parking address? Any kind of an angle beats a 90 degree turn for access. A 60 degree angle works so much better when entering and exiting. And backing is especially made simpler with a 60 degree angle. Angled parking does require wider doors. Normally a 14-foot wide door space is good, but is more expensive. Can RV storage be built on an angle? Yes, but it is more expensive and it is limited to a chain-hoisted, commercial roll-up door rather than sectional doors. The cost to build angled structures is higher, but the payoff comes in the need for less land per unit and a more satisfied customer. This approach isn’t as land-intensive as straight in designs. Traditional parking sites with straight-in parking do need wider driveways of 60 to 90 feet to give customers turning room. Now when you build an angled parking
46 Self-Storage • The Journey
situation, using the standard 60 degree angle, the driveway can be reduced to 35 feet. With these dynamics come the increases in land and construction costs. Will it become cost-effective? Determine this through your research. The same holds true for covered parking structures. Take into consideration the land cost reduction when you reduce that width to 35 feet. You will be able to get more rentable square footage. While the cost of constructing buildings with angled parking is more expensive in the beginning, that cost is offset by the fact you can build more accessible parking on the same pieces of land with angled parking than you can with straight-in parking. The number of units that can fit on a given piece of property is huge when building RV and boat storage. For example, you can plan for 50 spaces per acre, which is a much more profitable use of your land than 30 spaces per acre.
Condominium Style RV and Boat Storage
This is the latest industry trend and it presents a true profit center. The most popular form of specialty storage is condominium-style RV and boat storage. The emphasis is on RVs. Today’s RV ownership has surged to record levels with Baby Boomers leading the way. One in 12 vehicle-owning families owns an RV. Boat ownership has always been steady, while owning an RV continues to gain momentum year after year. Is this a real market, or just a trend? With more municipal and ordinance restrictions on parking in
Chapter 3 - Types of Facilities
47
neighborhoods and driveways, the need for storage is rapidly expanding. Currently, the demand far outweighs the available storage capacity and opens up the market for this type of storage facility more than ever before in the past. Vehicle storage feasibility does offer certain challenges. Land cost, zoning and location are the largest challenges. Planned communities may provide storage alternatives for RV and boat owners, but this is rare. This lends to the idea that you can sell these owners on a lifestyle of owning an extension of their homes. As these individuals are social and like to hang with their own kind, a condominium-style facility will attract their attention. When you build a condo-style storage facility, the expenses will be much higher, but people do seem willing to pay more for this convenience.
These Facilities Can Include One or All These
There are numerous options to consider offering: • Clubhouse • Lighting • Garage door openers • Complimentary motion detectors • Restrooms/showers • Dump stations (tap into the city’s storm sewer or an on-site waste tank depending on the city’s requirements)
48 Self-Storage • The Journey
• Dog run • Lap pool • Weight room • Shelving in units • Playground • Wash bay • RV repair/tool rentals • Marina delivery • One huge room for indoor RV and boat storage • Winterization service • Seasonable RV parking, • Lounge area with a computer for the seasonable RV owner • A unique café (even non customers frequent these types of eating establishments) • Ice machines • Electricity in units • Propane • Air compressor • Pre-trip make ready (you can offer different levels of service) The options are limited only by your educated imagination. In choosing which features to build, ensure that your insurance policy keeps up with these additional amenities.
Chapter 3 - Types of Facilities 49
Levels of Service
As these facilities may resemble a plush golf club and have a large array of amenities, you need to offer both baseline services as well as advanced services. For instance, a platinum card might entitle the tenant/owner to all services including filling all fuel tanks, pulling boats out to an area of easy hook up, fill ice chests plus all the regular prep services such as battery charging. Additionally, if you are close to a lake, you could also deliver or pick up the customer’s boat to a dock ready for the day. Some of the other services you could provide include RV washing, valet service, individual door alarms as well as video surveillance, and access to the facilities web site so they can see inside their unit. While the above services could be offered to all customers, most of the above options generally come with tenant ownership. Most customers want this type of security and convenience with ownership. Further you must provide 24/7 access. Monthly fees for all the extras should range from $40 to $70 per month. Just ask your customers (when you first open your facility) what the different levels of service would be worth to them. These levels of service also encourage a long-term relationship with your customers.
50
Self-Storage • The Journey
Devising a Unique Marketing Strategy
Encourage RV and boat owners’ attention by defining your unique services before you promote to the marketplace. If you are depending on word-of-mouth advertising, you want promotion to be accurate by giving the right information about location, amenities, and pricing. You need to motivate people to lease with you. Define why your storage facility is filling the need for a specific buyer and what your facility does best. Underscore that what you offer is high value indoor and covered RV and boat storage solutions. Use all the selling points such as air conditioning, lighting, cleanliness, affordable prices, computerized gates, the best security, and monthly pest control to explain your benefits. Visit RV dealerships in the general area, and ask them about the needs of RV owners. Leave some flyers with them and, wine and dine the salespeople, managers and owners. • Offer some coupons for a free tour and RV wash, as well as lunch at your specialty café. • Visit RV shows and/or pay some multimedia company to really do it up right. The big question is the appropriate price to charge for this kind of storage unit. RV storage doesn’t have a standard industry model, for this area. Fees depend on your market and what it will yield. Size, type and extras must be in the equation. Climate control, open,
Chapter 3 - Types of Facilities 51
canopy covered, indoor, self-park, valet, electricity are all considerations when establishing your price. Strategies you can use include offering a few different rates as well as “unit selling purchase prices” to see what the market will bear. The geographical location is the number-one influence on demand. Florida will run higher and Arizona less. Educate yourself by visiting RV and boat storage facilities. Checking out their waiting list, and what they charge for which services. Supply and demand is the key factor. You could also increase your prices as you build occupancy. How many RV/boat owners are there in your area? How many facilities accommodate these owners? How conveniently located are they? The self-storage facility used to offer RV & boat storage as an ancillary form of income. Now however this area is being rapidly developed into a large real estate investment solution. Ownership is being offered in these facilities much like a regular condominium. Entrepreneurial individuals are really becoming enthusiastic about this trend. During these last three or so years this area of the industry has taken on a real momentum of its own. This idea of owning instead of leasing a boat or RV unit is attracting a great many folks, mainly because these units can be quickly turned as a real estate investment. Developers like the fact that they are building to sell. As soon as a unit sells, they can build another one. So if you are considering this area of storage, keep this service area in mind when
52 Self-Storage • The Journey
shopping for land. The unit owner also can keep his for a time, and then customize it and sell for a good profit. Some operators are even getting involved in financing these units which turns into another area of profit for their business. The only downside for a facility owner selling these units is that there is no residual income. Customers, who buy these units, consider them as an extension of their home and/or business. They always have a place to store everything from an RV to a custom automobile. With thousands of RV owners looking for a place to store their “pride and joys” this is a trend worth seriously reviewing. You might remember that location is not as important as a secure place to keep their investment. These tenants will find your facility. These types of facilities are great, but can take some time from conception to completion. You have to sell the concept to the city which can be difficult because the idea is still new. Keep in mind that the city would rather have a facility as a solution rather than RV owners parking in neighborhoods. Convince the renting tenant that he or she should consider the buying option. This takes planning and an ingenious way to approach the tenant with this concept. Before initiating the discussion, ask yourself the same questions the renter will be asking: • Why should I buy? • What is the advantage? • What would I be willing to pay?
Chapter 3 - Types of Facilities
53
Know Your Target Client
You need to determine a clear understanding and plan of what you are going to offer for this specialty storage. These “big ticket toy” owners tend to be communal, very social, and most of them have very impressive financial statements. Some of these RVs like a Prevost which can run a million dollars or more and the owner wants a nononsense secure place to store their investment. The choice might as well be your facility. Cater to this population as word will get around on where to go and who provides the best options. All of these factors are an integral part of feasibility because your location, amenities, business plan, and rate structure will be dependent on your ability to meet these needs. The facility doesn’t necessarily have to be community located but it must have quick access to interstates. All offerings such as a wide base of amenities and security must be first class. RV owners also want paved surfaces instead of gravel, wider driveways and enclosed storage. Bottom-line, they want ease and convenience and are willing to pay for it. When it comes to the actual location of a facility, safety of the asset is sometimes secondary to the convenient freeway/interstate access of the site. Access (ingress/egress) is more important than visibility. The facility doesn’t have to be on a prime corner, however, as these customers will find you.
54 Self-Storage • The Journey
Financing For This Emerging Market
Because of its unique nature and the fact that it is still a new concept, this type of financing is not business as usual. You really need to do your research. After you have done your homework, you will begin to realize that a loan for this type of project is different than a loan for a regular self-storage facility. It is best if you have a good relationship with your bank/banker as well as a long history in order to become successful with your financing. Look around for other condominium-style RV and boat storage. Even if you have to travel to another state, you need to educate yourself on their story, obtain pictures and make it a part of your lending presentation package to your bank. Sell them on the fact that this is the time and you are the person who can make this happen in this chosen area. More of the development in this area has been going on for a few years, so your banker might be familiar with this type of facility. Keep in mind that your land cost can be much less, because the facility doesn’t need to be on a prime corner. As stated previously, your potential customers will find you. Take a look at your project versus the economics and make certain that your rent amounts will be high enough to support the land and construction costs. Does the area seem overbuilt or is there room for your RV and boat storage facility? Is the zoning going to present too large a challenge, or does your city realize this is a solution for parking these large vehicles?
Chapter 3 - Types of Facilities
55
Remember that banks make loans based on two important criterions, economics and the market. Consider opportunities thoroughly as the lender will want a full site review.
56
Self-Storage • The Journey
Chapter Four
Strategies
Although changes in the self-storage industry have been slow and easy to identify, it has been a definite evolution. Many of these changes have come due to competition and overbuilding in some areas. This leads back to the old do your homework thing. You need to have a strategy if you are to see your dream of owning a selfstorage facility come to life.
Some Decisions For Your Strategy Include
Do I build a large facility? Do I build a smaller facility and enlarge in phases? Do I include retail, or specialize in some areas? You need to know the market where you want to build, do your homework and become familiar with the competition. When planning the design of your facility, consider resisting the temptation of staying with the design of narrow aisles and row after row of doors. The trend is larger buildings with as many units as feasible.
How Do You Know When to Expand?
Enlarge your facility not when you are full, but when stabilized occupancy is achieved. Start, or have a plan for expanding before you reach 80 percent occupancy. When you reach 65 percent, it is time.
Chapter 4 - Strategies 57
If your facility is filling up faster than expected, consider expanding when you are at 50 percent. And, keep in mind that if a particular unit size is more popular, this type of unit size offers great opportunity for expansion. Hopefully you are not landlocked and over restricted from expansion. If so, consider adding value by adding services such as mailboxes and shipment (FedEx) drop offs and mail outs. The good thing about adding value is that it can be done in the planning stages of your facility as well as after the facility is complete and fully occupied. Another thought is that if possible build space that can be modified so unit sizes can be changed to meet market needs. If you are full of one smaller size unit, build walls and add doors if the design allows for this. Or (if the design allows) consider adding insulation to an area and also heating, air conditioning and a dehumidification system. This will allow you to rent out climate-controlled units at a higher rate. When designing and building a new facility keep in mind that you might have competition move in down the road. This is why you need to keep adding value. Remember, facilities with climate control will probably stay ahead of the older facilities that don’t offer this benefit. Don’t neglect your property, and invest in sprucing it up annually. A property that is maintained and constantly shows value is being watched by potential buyers and renters. Someday you might have an offer you can’t refuse.
58
Self-Storage • The Journey
Trends
As the self-storage industry goes through changes, we are seeing trends which raise the level of design in sophistication and modernization. These improvements are becoming more the norm with value-added services. Some of these include: • Multi-story buildings • Conversions • Multi-family buildings • Condominium-style RV • Boat storage offering ownership There is greater profit potential when offering ancillary retail products and secondary services for residential and commercial customers. Services include truck rentals and packaging needs, which may be in high demand. More than 60 percent of self-storage facilities now offer some type of ancillary services. This is up by more than 50 percent from the year 2001. This type of facility needs to be heavily marketed initially to build walk-in traffic, and fostered through, word-of-mouth and high occupancy. The Army and Air Force Exchange Service (AAFES) are looking at plans to develop on-base self-storage or portable storage facilities at strategic locations across the United States. This isn’t the first time they have visited this possibility. Consider this possibility if you want to locate a storage facility near a military base.
Chapter 4 - Strategies 59
Some Dos and Don’ts on How to Avoid Some Mistakes
The self-storage business requires a personal touch. Trying to handle everything from a remote location is challenging, but perhaps the biggest stumbling block is overbuilding by uneducated or rash competition. Being too aggressive and not taking enough time to do your homework is a big mistake that reduces pro-fitability and re-sale potential. Another mistake that people make is not growing. When you have the opportunity and it’s time to expand, take action. Some of the key ingredients for success are: • Accurately determining demand • Taking a realistic approach to financing • Creating a viable proforma • Building the right structure • Pre-marketing with care • Hiring the right people • Focusing on an exit strategy up front During your feasibility study, pay attention to owned land in an area where counties are bordered. This is important as after you have purchased your land and begun construction, a mile down the road in another county someone else is building a facility.
60
Self-Storage • The Journey
As for funding, choosing the wrong equity partner can be a critical mistake. Smaller self-storage investors often use friends and family, while larger ones use institutions or individuals with high net worth. You must share the same values and philosophies with any equity partner. Don’t focus too much effort on getting the most use out of the land and not enough attention to customer convenience. Remember to establish an exit strategy going in. Don’t over market your facility with big claims that you can’t back up. Sending fliers out beyond a range of five miles is a waste unless you are building a condominium style RV and boat storage facility. Don’t forget to include special offers in your mailers and ads which will allow you to track what is working and what isn’t. Immediately respond to tenant complaints. Not doing so is very poor word-of-mouth advertising and contributes to a poor reputation. Don’t be defensive or make up excuses. Just deal with. Perform routine, daily maintenance. Don’t let things slide. Set aside money for annual capital improvements annually. Don’t wait until the last minute to send out bids for things such as snow removal, lawn maintenance, and other services. Perform background investigations on all bidders.
Chapter 4 - Strategies
61
62
Self-Storage • The Journey
Chapter Five
Feasibility Study and Site Selection
Going from the dream to reality is definitely a detailed process. Building your first self-storage facility is an exciting venture. Learning about the industry, researching the market, finding financing, and mapping your dream for your new business is very rewarding. Yet, while self-storage is a simple product, building a good storage facility takes planning, research, and oftentimes, experience. When you are ready to purchase a site, you need to move quickly.
Should I Hire a Consultant in The Beginning?
A good consultant, can save you a great many headaches and money in the end. Get references and go review their experience and market knowledge. There are consulting specialists for different phases of the business cycle. First, recognize the challenge and then look for help. Some may also provide feasibility work, or other forms of consulting. Most consulting is at the beginning stages of the project. Probably about half of those who want to build a self-storage facility don’t know where to begin. Keep in mind that consultants charge in different ways. Some have an hourly or a flat rate for the entire job. Hourly rates can run between $200 and $300, depending on
Chapter 5 - Feasibility Study and Site Selection 63
the consultant and the type of project. A full consulting package can run $8,000 or more. You must be comfortable with your consultant. Sit down and have a comprehensive conversation about the process. If you feel comfortable with their communication skills and confident with their knowledge, it could be a good fit. If they are going to help you with the city council, he/she need to be articulate and skillful. Government interaction requires specific skills. Avoid exhausting and confusing contracts. The document should state fees, when they are due, what is provided, and the timeframe. Consultants may be located through national publications, the internet, trade associations and trade shows. Most come through referrals. Have a serious conversation with one or more of those references to ensure the consultant will properly support your needs.
Feasibility Study
This type of study may be used to determine if the self-storage business is something appropriate for your investment. The process will help you down the path to success, or serve as an independent warning that this business just isn’t for you. Key question that may arise include: • Will this site work? • Will it be too much work turning it into a good self-storage site?
64 Self-Storage • The Journey
• What kind of obstacles are in the way of converting this property into a money maker? Another consideration is that your facility needs to fit into the community as an asset. This means not just aiming for curb-appeal, but for neighborhood appeal. For example, if the area if full of condos, you want to look like a condo. This industry required less homework 8 or 10 years ago. It seems that there were so many successful sites because of the great demand. If you do your due diligence, however, you can be successful.
Several Key Areas of The Feasibility Study
Some of the most important components of a feasibility study are the proposed site, the market, demographics, your nearest competition, the design, and demand for the facility, zoning, financial workings and then the largest decision. This information helps you determine if you should build, or walk away. Consider the ongoing level of demand. For example, the self-storage renters in the Eastern part of the United States require less storage space than those in the West. During this process, don’t forget to maintain your perspective. Feasibility studies are good, but they are limited to their scope. Stay involved and ask questions. Push for the answers needed to support your decision. There is the 2/3 rule. You average the rental rates per square foot of a 10’x15’ and a 10’x10’ space annualized. Then multiply that number by two-thirds. This rule is
Chapter 5 - Feasibility Study and Site Selection
65
a good base for determining the most you should pay for the land on a square foot basis. It is critical to locate opportunities in an area with a good population base and one showing signs of growth. Look at all the self-storage facilities within this area and check them out personally. The owners will think you are a prospective renter or a mystery shopper (one hired by the owner or manager of a facility to pose as a prospective renter). Investigate these properties out as if you were a spy and they are the enemy. Be very courteous and look for strategic improvements. Look at their security and whether climate control is available. Where they are vulnerable and how full are they? Check out the streets and or highways close to the proposed property. Obtain a traffic count. You want high traffic with around 20,000 cars in a 24-hour period. The state highway and city-planning departments will help in acquiring these statistics. How is the access and is it easy? While you must meet the building code requirements, the facility should have an average unit size of 105 to 125 square feet. Sixty percent of the building should be 10’x10’ units and smaller. You need to maximize space while also considering landscaping, functionality and curb appeal. This feasibility study should be your guide, and not prepared to make the lender happy. The financial viability should be demonstrated in a conservative and very realistic way by a disinterested third party. If the proposed site can withstand conservative analysis,
66 Self-Storage • The Journey
projections, and lease-up rates, then your site has greater capacity for success.
Some of The Markets We Can Look At Are:
• Rural – This market has a lower than average self-storage demand. These individually generally have enough property for a shed or barn because there are fewer zoning requirements for these homeowners. • Urban - These are the bulk of self-storage renters. They love easy access and the facility becomes an extension of their house. They also like value in the form of free move-in trucks, convenience and close (3-5 miles) proximity to their home. • Metropolitan - This place has heavy traffic patterns and other traffic impediments to easy travel. These renters don’t really care about location, tight drives and other inconveniences as long as the facility is within three miles. • Downtown Markets - These are mainly business renters who live in, or close to downtown. Generally, they don’t mind smaller than average size units, as they really require storage. Don’t be blind to demographic trends. Do your homework and find out what is going on in your immediate market area. Check with the local chamber of commerce, real estate firms, local magazines and newspapers. A good site for information is Claritas at www.sitereports.com
Chapter 5 - Feasibility Study and Site Selection 67
There is a mathematical formula that provides a range of anticipated square-footage demand. Take the population of a five mile radius and multiply that number by the demand factor. Use 3.5 square feet per capita. The answer will give you a range of squarefootage demand. Use your commons sense and don’t put too much faith in this formula. Some folks swear by this approach How is the prospective piece of property zoned? Don’t go by what the seller tells you; go to city hall. If a rezoning is necessary, you will have to judge if it is worth the challenge of using, attorneys, architects and engineers and all the associated stress. Even if the property is zoned correctly, it is important to investigate the neighbors. Let them know what you are planning. Speak at community meetings or an open house at a hotel. They must hear your plans directly from you. Communicate clearly and have your facts well organized. Conduct a Phase 1 Environmental Assessment of the site. You can negotiate this cost with the seller. If he pays, the results won’t be made public because assessment belongs to the seller. If the seller refuses negotiations, let them know you will pay for the report but it will be made public when complete. Keep in mind that this could harm their selling plans if the results are poor. As about 98 percent of tenants have a month-tomonth lease. This means the market is more favorable to the landlord and makes it easy to consistently raise their rent, rather than having to wait for the lease to expire.
68
Self-Storage • The Journey
Month-to-month tenants stay on average for around 14 months which makes it easier still to react to market conditions. This enables the landlord to continue to constantly adjust rental rates for new tenants and twiceyearly raise rents to existing tenants.
Self-Storage Land Use Entitlements
You need to have a good understanding of the land development permit process before you are too far into the land purchase contract. It is important to know whether the land use policies of the local governmental agency will allow a self-storage facility to be built on this chosen site.
Understanding Entitlements
The land use entitlement gives the land developer the right to develop a property according to the plans submitted. All municipalities have land use policies dictating how a community will be developed. Most land available for private development falls into one of three categories. 1. Residential 2. Commercial 3. Industrial. These components define a community’s “general plan.” Individual parcels of land are further categorized into “zones” with the intent to describe exactly what types of land uses are permissible on a particular site. It is essential to determine if a proposed self-storage facility fits into the general plan and zoning designations.
Chapter 5 - Feasibility Study and Site Selection
69
The development team’s architect and civil engineer must prepare a full design for the project. This is the first step in initiating a land use submission.
Permitted Use No Discretionary Review
Compliance with the jurisdiction’s zoning ordinance in terms of site specific development standards will be required. This section discussion covers the development standards which specify the following overall requirements: 1. 2. 3. 4. 5. 6. 7. Maximum allowable building size Maximum allowable lot coverage by buildings Building setbacks from property lines Maximum building heights Parking required Driveway widths Landscape site coverage
These seven items largely determine the design of a project. Review of the project’s design drawings is normally done at the staff level in an informal process. This means the political process is totally bypassed, greatly simplifying approvals. Self-storage projects are occasionally permitted in less desirable industrial zones or second rate commercial zones without the requirement of a discretionary review.
Permitted Use With Discretionary Review
Here self-storage is also permitted by right however, obtaining a project entitlement requires discretionary review of the project’s design.
70 Self-Storage • The Journey
The agency will look at what is known as a “site plan review” or “design reviews”. This process gives the agency the right to add or change the design appearance, colors, shapes and details. The process can complicate the approval process. This process may be completed by one or more individuals in an informal manner, or by a board in a formal public hearing process. The intention is to allow the jurisdiction more control over a project’s design. Approval is almost certain but the process can take two to four months to complete. Many self-storage projects fall into this category.
Conditional Use
Although more complicated, self-storage is no longer permitted by right. The burden of proof falls on the development team to show that the self-storage use is appropriate for the proposed property. This conditional use permit process is a more detailed review of a project’s design. Here the required quality of design is substantially higher. Final approval comes in the form of a public hearing. Chances for approval are good if the project is designed in a manner that satisfies three main criteria: 1. Conformance to the zone’s development standards per the zoning ordinance 2. Sensible integration into the surrounding community, especially if residential properties are adjacent 3. Quality aesthetics in the building design and landscaping This is where the majority of self-storage projects fall and it normally takes three to six months for approval.
Chapter 5 - Feasibility Study and Site Selection 71
Rezone Or Zone Change
If not permitted in a particular zone, the zoning of the parcel may have to be changed. This “re-zoning” of a parcel is a complicated process where once again the burden of proof falls on the development team, and involves a high level of scrutiny by the jurisdiction. Ultimate approval involves a public hearing, and can take up to nine months.
General Plan Amendment
In some cases the property may be located in a general plan designation that doesn’t allow for self-storage facilities. Such an area may be planned for residential development, commercial development, or open space, thereby excluding storage as a land use. With self-storage frequently misclassified as an industrial land use, a general plan amendment may be the only way to obtain approvals, but this can take up to a year.
Understanding Building Codes
The lack of uniformity in building codes across America has long frustrated developers and other building industry professionals. This lack of uniformity results in differing requirements for the design and construction of self-storage projects from place to place throughout the country. Improvements in code uniformity are finally taking place.
72
Self-Storage • The Journey
These codes are: • The national building code which was developed by the Building Official and Code Administrators (BOCA Code) • The standard building code developed by the Southern Building Code Congress International (SBCCI Code) • The uniform building code developed by the International Conference of Building Officials (ICB) Code) These three codes, along with the National Fire Protection Association (NFPA Fire Code) and the Americans with Disabilities Act have long been the foundation of building codes nationwide. In 1993, a movement began to standardize the codes. As a result of the movement, there came the formation of the International Code Council (ICC). This group was comprised of members of BOCA, SBCCI and ICBO. This organization has been working on a new code intended to be the single, consolidated code in the United States. It is known as the International Building Code (IBC). It was completed in 1997 and is now in the process of becoming adopted by most of the states. Adoption of this new national code should eliminate discrepancies for self-storage design and construction. The challenge is that the local codes in some larger cities are not included. The local people have the ability to modify the basic building code standards, which creates a large area of considerations.
Chapter 5 - Feasibility Study and Site Selection
73
The IBC puts forth the requirements for all buildings, including self-storage facilities.
Occupancy Definition and Classification
Self-storage code designation are now known as “self-storage facility” and defined as “real property designed and used for the purpose of renting or leasing individual storage spaces to customers for the purpose of storing and removing personal property on a selfservice basis.” This self-storage classification is known as “Storage Group S.” • Group S-1 is intended for moderate hazard storage. • Group S-2 is intended for low hazard storage. This S-2 designation is used by architects. The final decision is up to the local building officials.
Construction Type Classification
Five types of construction are designated based on the type of building material used: 1. Type 1: Non-combustible materials, which is used normally for the larger structures over four stories in height. 2. Type II: Non-combustible materials. Normally concrete masonry and steel this is used for smaller buildings of four stories or less. Type II is less restrictive than Type I. This category is includes many larger self-storage projects. 3. Type III: Non-combustible or fire resistant exterior materials with non-fire-rated interior materials. Concrete masonry and steel are in this class. Mid-size and smaller self74 Self-Storage • The Journey
storage projects fall into this category. 4. Type IV: Non-combustible exterior materials with heavy timber interior materials. Type IV is seldom used for self-storage buildings. 5. Type V: All materials allowed by the code are permitted. Smaller wood-framed buildings are allowed, but not for the storage buildings. Construction Types I, II, III, and V are further classified as sub-type ‘A’ or ‘B’ with sub-type ‘A’ requiring a higher degree of fire resistance. The IBC mandated the following general guidelines under those circumstances, with the maximum number of stories being: • Five stories for II-A construction • Four stories for II-B construction • Four stories for III-A & III-B construction The number of stories may be increased in some cases where automatic fire sprinkles systems are provided. The maximum allowable floor areas are: • 39,000 square feet basic area for II-A construction • 26,000 square feet basic area for II-B construction • 39,000 square feet basic area for III-A construction • 26,000 square feet basic area for III-B construction.
Chapter 5 - Feasibility Study and Site Selection
75
The occupant load will establish the number of occupants normally in the building and calls for safe exits. The IBC states that an occupant load of one occupant per 500 gross square feet of building area for “warehouses.” Once this has been established, emergency exits need to be designed to provide an orderly exit from the area that is threatened by fire. After the exits are established, there must be a path of travel to provide safe passage to those areas. Hallways carrying more than 30 occupants must be one-hour firerated which makes them corridors. If you have sprinklers, the 30 occupant or more fire rating is not required.
Exits
Exit requirements include: • Minimum hallway widths • Heights • Exit door sizes • Door swing direction • Stair tread width • Stair riser height • Stair landing sizes. The IBC establishes specifications for fire rating of corridors and sets forth requirements for the fire rating of individual building components. Exterior walls have fire rating requirements based on the overall construction type of the building and how far they are from property lines. Exterior walls closer than
76 Self-Storage • The Journey
10 feet from the property line are required to be one-hour fire rated. In some circumstances, corridors and stairwell walls may be required to be fire rated (two-hour fire rating for four stories or more and one-hour fire rating for three stories or less). Floor construction and ceilings below the floor are required to be fire rated similar to interior walls. In order to reduce the risk of fire spreading from floor to floor vertical shafts between floors are required to be firerated at one or two hours. Mechanical room walls are required to be one-hour fire-rated construction. The IBC also has construction requirements concerning accessibility for physically challenged persons. Requirements for engineering-related items are set forth by the IBC. These items include wind resistance, earthquake resistance, weight (load) resistance, and building material performance standards. Twenty-nine states have adopted the IBC. This shows that many advances have been made to adopt this new code across the nation.
Site Selection and Unit Mix
One of your most important decisions is determining the site layout and unit mix of a self-storage project. This decision will effect the initial lease-up of a facility which impacts the bottom line. This is crucial to your long-term occupancy and your overall success. Keep your objective of designing a unit mix that will maximize income and will also lease up quickly.
Chapter 5 - Feasibility Study and Site Selection 77
Some facilities have opted to make all of their storage units one size. For instance one facility in New Jersey with 500-plus units has built all 5’x10’s; another in Texas has built all their 400 units 10’x20’s. Both of them have since modified their mixes by expansion. This has come as a result of many requests from potential customers requesting a different size. As you can see it is not strategically wise to have all units one size. First analyze your area’s demographics. You can do this by calling on many facilities and finding out just what the storage size demand appears to be. • A good guide is to build 20 percent 5’x10’s; 10 percent 10’x20’s; 25 percent 10’x15’s; 40 percent 10’x20’s; and 5 percent 10’x25’s. • Use some of your 5’x5’s for leaders at a low cost. • On average, your unit size should range from 90 and 130 square feet. • Don’t load your facility with too many large units as this is a mistake. It may take a little longer to rent smaller units, but your income on the same square footage is more than double than on a single large one. This mix will also work well for any climate controlled units. And yes, you should have some climate controlled units. If you construct your project in phases, you have the advantage of building the most popular size. Further, you can design the unfinished part of your project accordingly.
78
Self-Storage • The Journey
Planning Your Site Layout
There are many factors that will affect the site layout of a facility
• The size and shape of the land • The terrain of the land • Any up front challenges with the land • Zoning for the site • Any setbacks or Easements the city may require like landscape buffers Other initial considerations are sanitary sewers, drain fields, and storm drains to consider. There might be a requirement for retention ponds or swales. Look at whether the site is close to environmentally protected areas such as a river, creek, or designated wetlands. You don’t want to build on parcels where there is an environmental corridor that cannot be built on and must be maintained according to dictated guidelines. This is why a qualified architect and engineer are needed during this developmental phase. Consulting with a professional who is educated in the development of self-storage will save you from making mistakes. He or she can help with showing how much of the site can actually be built on, and the portion that is rentable square footage. These decisions also depend on whether your facility is or includes single, multi-story, climate controlled units and any other specialty storage you may want to build.
Chapter 5 - Feasibility Study and Site Selection 79
You want maximum usable space without limiting its function ability. Other site layout considerations include building design, the type of buildings to be erected and where they will be located. Will the units have interior or exterior access? Will they have doors on one side, or both sides? This can depend on property lines. Decide where the facility’s entry and exit points will work best for your design. Most self-storage owners prefer one access gate. Some use both and entry and a second gate as an exit. But, both the ingress and the egress must be in a position where the manager can see who enters and who exits from his/her office. The important issue here is that you do your homework and consult a professional. You can do a little searching to find out what size units are the most popular and also if climate controlled units are in demand. If you are going to market to businesses, you will want a number of larger units. You can also install what is called “flex space technology”, which allows for resizing of units as needed. There are a few very good architects that specialize in designing self-storage facilities, yet most developers must make critical design decisions on their own. Many of these design decisions are the result of attending conventions and seminars, visiting other self-storage facilities and speaking with seasoned self-storage developers that are willing to share and talk about their mistakes.
80
Self-Storage • The Journey
Site selection and a feasibility study go hand in hand. The feasibility study is actually you or a professional firm, carrying out due diligence in finding a good site for your facility. Another consideration to make before deciding to move forward with a specific site is your exit strategy. If you think about a plan to get out of the business before you get in, it will help you to make sound business judgments about the project you seek to develop. For example, if your goal is to simply sell the site after it has been re-zoned for self-storage, you will have a different mindset than if you are building a project to be placed into a trust for your children to operate. A highly visible site in the midst of a population center will usually perform well and can sustain a higher value over the life of the project. It is always better to pay a little more for the land (within a population center) if you gain visibility. This will also sustain a higher value over the life of the self-storage property. The best site is one zoned for self-storage as a “use by right.” According to the Mini-Storage Messenger, “Choosing the site for a new self-storage facility is perhaps the most difficult development decision to make filled with both advantages and disadvantages. The site needs to be one that fits the typical profile of land price, demographics, zoning, development potential, population density, and visibility. Therefore, feasibility must exist and support the addition of new self-storage rental space. The ideal site is one that is located on a major arterial or travel corridor of 20-30 thousand cars per day.”
Chapter 5 - Feasibility Study and Site Selection
81
Mini-Storage Messenger says that these sites tend to fall into four categories: 1. Highly visible-contiguous: Highly visible to the population center they serve and are easily seen from highways and/or surface streets. This site is most preferred. 2. Marginally visible-contiguous: Narrow presence on the street but the majority of the site is nestled behind another retail/development use. 3. Contiguous, but not readily visible: This destination site is contiguous to the population center, yet often located in a cul-de-sac, warehouse development, or other use-area where the drive-by visibility is virtually non-existent unless you are specifically looking for the site. 4. Non-contiguous: This site is located away from the population center and may, or may not be, visible from travel corridors. Factor all of these considerations into your decision. Obviously some of the less contiguous sites will be less expensive, but you will need to spend more money on marketing. Two and a half to three and a half acres are the best target. You might though consider satellite sites close to one another with a central office. Zoning is critical in determining a good site. The best site is one zoned for self-storage as a “use by right.” Special use permits and zoning variances are risky, time consuming, and expensive. You can get much further and faster, if you know and understand the local politics, then investing in the entitlement process may be appropriate.
82 Self-Storage • The Journey
Some sites are more trouble than they are worth and even can’t be developed for self-storage use. This can be due to easement, soil problems, retention requirements, wetlands, toxic waste, contamination, impact fees, improvement districts, traffic mitigation fees, or assessments. Weigh the costs and challenges after you have done your homework. Then you will be able to consider any site – even those with challenges.
More Site Selection Considerations:
• Parcel shape and soil conditions • Demographics of the area • Zoning • Population density • Potential for other self-storage developers to build nearby at a later date • Site’s easements, retention requirements, and impact fees • Wetland areas, toxic waste • Traffic mitigation fees. Remember: look for a piece of property that is located on a major arterial or travel corridor. You are seeking a minimum traffic count of 2,500 cars per day.
Chapter 5 - Feasibility Study and Site Selection
83
84
Self-Storage • The Journey
Chapter Six
The Loan Process
You have found a prime location to build a new selfstorage site. Demand is excellent and growth is rapid. You’ve done your homework: attended seminars and some trade shows, researched building designs and layouts, scoped out the competition, and finally landed the proper zoning and approvals. You’re almost ready to go. Now you need to find a lender who will believe in you and your project as much as you do. The first question most lenders ask when approached about financing the development of a self-storage facility is: Does the market support the proposed development? Being completely prepared to answer this question is paramount on getting the loan. A good lender needs to be confident in your assessment. He or she must fully understand what you are proposing. Study and become the expert. Be the professional and ask questions. For instance, you can ask how many self-storage applications have they looked at in the last six months, how much capital has your firm allocated to loan to the self-storage industry, what makes your firm qualified to fund my project, and what is the timeline to gain approval and move towards closing? You also need to have a check list completed before pursuing this loan like:
Chapter 6 - The Loan Process 85
• A business plan • Resume • Personal tax returns for the last 3 years • Business tax returns for the last 3 years • Balance sheet/financial statement • Interim statements • Site plans • Itemized budget • Feasibility/market study • Environmental survey • Zoning and permits • Third party contracts • Lender application
When presented to the lender, it should include the following items:
• Construction financing request • Project overview and attributes • Investor and developer qualifications • Management qualifications • Feasibility study • Construction budget/timeline • Income and expense proformas Supplemental information should include: • Architectural drawings
86 Self-Storage • The Journey
• Environmental study • Zoning and building information • Construction firm resume • Management firm resume • Supporting exhibits Keep your lender involved throughout the entire process. They don’t like surprises any more than you do and having your lender on the same page with you will prevent a lot of headaches. Understanding the evaluation process and reasons behind a lender’s analysis of a potential loan on a selfstorage facility will allow you to more realistically assess the financing possibilities for an acquisition or a refinance. A lender looks at self-storage property much the same as the owner does. Both look to the cash flow available from the operations of the facility to pay them a return on their invested funds. The lender seeks to be repaid for the amount of the loan, plus the interest earned on the loan. Then interest rate on the loan is the lender’s rate of return or yield for their investment in your self-storage facility. First there are some significant differences in how the cash flows are calculated and projected by financial institutions and by owners. In the standard self-storage owner’s income and expense/cash flow projection needs to look like this: • Potential rental income
Chapter 6 - The Loan Process 87
• Vacancy and credit loss • Gross collected rental income • Plus other income (late fees, box sales etc) • Gross operating income • Operating expenses • Net operating income (NOI) Of course the above list doesn’t include any allowance for depreciation, but only includes the actual operating expenses of the facility. Lenders look at things differently when they create a projection. This helps them estimate a value on your selfstorage facility. Lenders will actually include an additional expense category for professional management. The difference in perspectives (owner/lender) result in a very different calculation of the facility’s Net Operating Income (NOI). This helps both to understand one another’s positions for seeking the value of a project in order to come to an agreement on the proper loan amount. After projecting the adjusted NOI of the property, the lender’s approaches for determining value are applied based on the first year’s operating expenses, including management costs. The majority of commercial real estate lenders base their credit decisions on the comfort level they have about a property’s ability to consistently generate future cash flow in excess of the required debt payments.
88
Self-Storage • The Journey
Because most of these lenders have been used to dealing with properties that have longer tenant leases than self-storage, such as retail and office properties, work with a lender who understands the unique, monthto-month nature of the self-storage industry. Lenders lean towards making loans on projects with which they are familiar. You may need to further educate your lender about the viability of this type of project and provide examples of self-storage projects across the country. Even though many institutions are becoming more and more familiar with the industry, some are still lagging behind. Capital is more readily available in more creative forms. This is especially true at the permanent financing stage which occurs after the construction or bridge loan term ends.
The Construction Loan Package
A developer must present a compelling construction loan request to a lender—one that is so attractive, that the lender will believe the project will be successful and that it is a good credit risk for them to take. Keep in mind that a construction financing request should include everything about the project. It should be scrutinized from beginning to end and be just as carefully prepared. Because few constructions lenders market themselves directly to the self-storage industry, commercial mortgage brokers have assumed a much larger role in helping self-storage developers, buyers and owners to obtain financing.
Chapter 6 - The Loan Process
89
90
Self-Storage • The Journey
Chapter Seven
Planning and Construction
Another key consideration is facility lighting. It needs to be attractively lit during the evening hours, but toned down to a gentle lighting overnight. As far at the units, a good rule of thumb is to install lighting in every unit larger than a 5X10. Keep in mind, that fires have been started by customers who had cardboard boxes too close to incandescent bulbs. For this reason, fluorescent fixtures work best. As far as switching goes, you will want to install motion sensors that automatically energize lighting circuits when the customer enters the service area. This is energy efficient; as long as the customer is in the area, the light stays on. Another way to light is the high-tech option. This system will switch on lights in various areas of the facility based on the tenant’s access code at the gate. When it comes to hallways, fluorescent lighting is preferred and energy efficient and does not produce heat. Exterior lighting is important as well. The industry standard tends to be high-pressure, sodium (HPS) wallpack units that are surface mounted on the building. Very energy efficient and casts a pleasing light. Most exterior lighting circuits are on photo cell controls that automatically turn lights on at dusk and off at dawn.
Chapter 7 - Planning and Construction 91
Gate Access Systems
Most self-storage facilities use horizontal sliding gates controlled by entry/exit keypads. Vendors offer a great many options to this. These entry and exit points should be well lit. Your customers should not have to get out of their vehicle to use the gate system. If you cater to RVs, you can install a high and low key pad for ease of use.
Hose Bibs
Remember to install water access during the construction phase. You will need these outlets/hose bibs in different areas to clean and wash down driveways and roll-up doors (once per year) and for general cleaning chores.
Heating and Air Conditioning
Your office and/or apartment must be heated and air conditioned for comfort. The most common mistake made in the two-story office/apartment design is not installing a split system where the temperature in the office can be maintained separately from the apartment. In two-story office/apartment designs, the upstairs apartment can be warm in the summer. Also, if the thermostat is located in the apartment, the office will become uncomfortably cold for customers. Ceiling fans are a great way to add ambiance to your offices and apartments while maximizing cooling and heating efficiencies.
92
Self-Storage • The Journey
Climate controlled storage spaces present several design challenges. A common mistake made in the self-storage design is to climate control the upstairs of a two-story building to make it more marketable. This is inefficient. If you have a choice, chose to cool the downstairs of a building. In climate controlled buildings, insulation is very important to energy efficiency. This is especially true for heated spaces in very cold climates. Another challenge is condensation created by cooling humid air. Condensation must be piped outside the building and dispersed. One way to handle condensation is to install heated condensate drains. This device collects the condensation from the HVAC unit, heats it until it evaporates, and thereby eliminating the need to pipe condensation outside the building. If possible, install air curtains between the door to an exterior or a staging area. This air curtain is a series of heavy duty plastic sheets that help hold the heated or cooled air in the building, but allows the customer to easily pass through it. There are several industry vendors that produce outstanding inexpensive and tension adjustable roll-up doors with excellent hardware. Partitions are another design consideration. One good design technique is to attach partitions tracks from the front to the back of the building first, then cut the tracks that fit inside the building at the rear of the spaces. This allows for changes in the future if the unit mix is incorrect.
Chapter 7 - Planning and Construction
93
Recently, developers have begun to abandon the 5’x10’ storage space configuration in favor of 10’x5’ storage spaces. This makes the space much more marketable as there is a wide, eight-foot-roll-up door. This is especially true if the unit is located on a five-foot interior corridor. It is much easier to load a sofa into a 10’x5’ rather than a 5’x10’ space. Roll-up doors are typically better than swing doors. The price difference between roll-up doors and swing doors is not that great, and roll-up doors do not swing into the corridors.
Office Design
In today’s market, facility operators have begun to plan for a very attractive foyer or reception area. A good idea is to think in terms of an upscale hotel lobby. Bright decor, specialty lighting, treated concrete floors and wider hallways attract interest. Further, large storefront windows give the customer a sense of security. The right use of tile, carpeting, and wall finishes will make your office a showplace. Install granite counter tops in your offices. Granite wears indefinitely, never loses its style, and is much more professional than Formica. Track lighting and recessed can-light fixtures add an air of professionalism and design to the office environment. Avoid the boring look of fluorescent fixtures in your business office. Customers can see quality and professionalism in the beautiful area and feel comfortable about leasing with you. Look to complete the image that you have worked so hard to create.
94 Self-Storage • The Journey
Use glass, fine wood, and metal to define the sophisticated style you are looking to achieve. Use your imagination and consider a decorator to refine the presentation. Your office should have two customer contact areas. A high counter (40 to 42 inches) for a customer to quickly and conveniently make payments, and a low counter (30 to 32 inches) for the customer to sit at while initially renting the space. Your office design should allow the employees to maintain a clean, sterile office environment. Copiers, fax machines, and stackable trays should be located in a back office out of sight of the customer. Consider a lounge that contains an internet connection, fax machine, phone, and conference table. Have a mop sink and service sink close to the office so this area can be routinely cleaned. Also an area with a sink, refrigerator and microwave is a must. This provides the employee with a place to eat away from customers. Technology is advancing rapidly and the leading industry vendors offer high-tech solutions for camera monitoring, access control, and the alarming of doors. Buildings with metal sidings have changed to upscale exterior walls such as brick or concrete masonry. They are staying away from the industrial look using block, glazing and glass. If you are considering converting a multi-story building into self-storage, you need to take a look at what differences there are in doing this kind of construction versus a “build from the ground up” self-storage. Much
Chapter 7 - Planning and Construction 95
of this is discussed in chapter 3, but this area is growing in importance these days. I will say that this type of building needs to have a non-block look. Like variation in horizontal planes, materials and just a lot of proportion differences. Colors are another way to break up the block view. On the whole, today’s self-storage facilities are becoming much more upscale than a decade ago. Keep in mind that the majority of renters are female. Remember to take a long hard look at the security of a facility. They must feel safe and comfortable while on your premises.
Community Planning Committee Considerations
Now, one of the first things you will have to deal with and satisfy is the community planning committee. This is standard procedure. They have the power to approve, demand changes to fit in, or deny your project. In some urban areas, these departments no longer allow metal siding. Instead, they want a more finished look with concrete and masonry or stucco. Again, this is blending into the neighborhood. Local review boards have created oversight boards that are forcing architecture and landscape design requirements. These committees (as well as architectural review boards) all result in another challenge for the selfstorage developer. While the industry has experienced evolution in design and construction, no major transformation has occurred with construction materials. There may have been some facilities built using wood frame and drywall
96 Self-Storage • The Journey
in the past, today it’s all about pre-engineered steel systems. In addition, the vast majority of all self-storage buildings built today are type II (IBC) rated, which means they’re constructed with non-combustible materials. Wood is rarely used except for framing, as steel and concrete are better suited for self-storage buildings because of their durability and the sense of security they convey. The three basic materials for selfstorage construction continue to be steel, concrete, and masonry.
Green Building
Green Building is a term used when building a structure that is designed to reduce a project’s impact on the environment with emphasis on the health of its inhabitants and its environmental impact and resource conservation over its lifecycle. This approach reduces human exposure to noxious materials, conserves nonrenewable energy and scarce materials, and considers the life cycle ecological impact of the energy and materials used. Renewable energy and materials that are sustainable are used and the project protects and restores local air, water, soils, flora, and fauna. The bottom line is influencing many self-storage owners to check out the benefit of an eco-friendly development and also in the tax area. A few of the following websites are beneficial if you want to lean green. • www.buildinggreen.com – This site features resources for builders.
Chapter 7 - Planning and Construction 97
• www.smartcommunities.ncat.org/buildings From the U.S. Department of Energy featuring background information on green buildings, cast studies, articles, and other resources. • www.edcmag.com – for Environmental Design + Construction Magazine includes searchable archive of articles covering all aspects of green buildings, product reviews, and case studies.
Security
Customers should find your self-storage property easy to use and should think highly of your property protection efforts. The time to discover requirements and property security as well as making provisions for the systems you plan to install is while your plan is still on paper. You can change things as your construction progresses, but unplanned additions can be quite expensive. The key is to plan early for the electrical supply wiring for all your low-voltage security systems, conduit and raceways for camera and alarm connections, concrete standards and pylons for gates and gate operators, and equipment closets and cabinets to house the electronics that drive your security package. While your security vendor will supply the specifications, be certain to pass along any requirements you become aware of to your vendor. Also mention your ideas on how you want each tenant to use and access different parts of your property. Those ideas translate directly to your construction and security plan.
98
Self-Storage • The Journey
It may help you to visualize the construction requirements for your entire security and onsite communications system by breaking them into separate subsystems. Each will need consideration for: • Power • Data flow • Physical installation. Self-storage starts with the physical protection of the site. This includes items such as: • Fences • Walls • Lights • Landscaping. Many law enforcement agencies advocate Crime Prevention through Environmental Design (CPTED). This approach integrates proper design and the effective use of environment to reduce crime by creating a perception of risk. A key component of CPTED is architectural design and landscaping that makes intruders easily observable and maximizes the visibility of people on site. It also utilizes thorny plants such bougainvillea and Natal plum along fence lines and walls. Perimeter fencing at self-storage facilities should be at least eight feet high. Tubular steel is often recommended as it is stronger. After fences and walls, access control systems are the next line of defense at a self-storage facility. Facility access is restricted allowing only authorized tenants and personnel to gain entry. It also restricts and logs the time of day and specific areas
Chapter 7 - Planning and Construction 99
for which access is granted. Self-storage operators may also restrict access to the facility for delinquent tenants as long as it is done in accordance with the tenant’s contract and the state’s lien law. Access is usually gained to the facility using a numeric keypad, but some devices include a magnetic card reader or a combined keypad and magnetic reader. The system is normally integrated with an electronic gate, management software, and, if present, individual door alarms. Inside the facility, high security locks are a must. In fact, law enforcement professionals say disc locks should be mandatory. Cylinder locks are an option as they are embedded in a specifically designed latch, can’t be cut like a traditional lock, and have a seven-pin barrel keyway that allows for over 10,000 key differs. Another popular and growing trend is individual door alarms. With this option, all you have to do is change the code when a customer vacates.
Fingerprinting
After fingerprinting was introduced at a facility in California, there were concerns about privacy. But, after a survey they found that very few even cared one way or another if it was a lease requirement. No one should be excused.
Identity Theft
The widespread criminal activity of identity theft now impacts self-storage. The law has now stated that there are now strict restrictions on how personal identifiers
100 Self-Storage • The Journey
must be stored, utilized, and disposed. It is just good business to protect your customers’ information and also a legal requirement. This is especially pertinent if you have to do a lien sale.
Access Control
Access control will play a large part in your day-today operations. You need to know you have control over property access. Additionally you want easy traffic flow that protects your improvements. Properly planned, you will have plenty of room for access at a gate area, ample turn areas, and driveways that accommodate easy entry and exit. Some pieces of property lend themselves to easy access with a single gate and a straight shot in and out. Some sites must be configured for one-way traffic and multiple gates. Each gate operator requires power and a wire for data to vend the gate signal. Each keypad or other entry device will need conduit to the gate operator location or the main office, and its own concrete pad as a foundation. Roll-up doors at loading dock or drive-through areas will greatly enhance your appeal for some prospects, especially commercial customers. How the doors are controlled by code or card-entry systems, how long they remain open, and whether or not they have alarm notification, should be part of the construction plan.
Remote Management
An approach known as remote management is coming back. When the self-storage industry was in the early stages, all you did was call a number and someone
Chapter 7 - Planning and Construction 101
met you at the facility, got your money and signature and let you in. In rural communities, this might be a good option as full-time employees and automatic access expenses can be avoided.
Choosing a Kiosk for Your SelfStorage Business
A kiosk might be a good way to increase profitability. More and more self-storage owners are turning to self-service kiosks. Many large names in the industry including Public Storage, Shugard, Storage Solutions, and SecurCare have already installed kiosks on their properties. This new technology might help your facility. These units enable prospective customers to rent units 24/7 through a machine. That’s right; there is no facility manager to go through. Virtual tours provide the unit options, and then customer select the unit, purchase a lock, pay for unit, insurance and print out a rental agreement. Existing customers can use this service to make changes to their accounts and also make payments. Plus most kiosks have a speakerphone to you can be connected to a live customer service agent to answer any questions. This helps to reduce staffing cost as it provides convenience. You have a permanent “open” sign. This really has the potential to improve your bottom line. And the security factor is handled by the kiosk with fingerprint scanner, license reader, signature pad, and check reader. Plus the kiosk has a digital camera to positively identify
102 Self-Storage • The Journey
new tenants and discourage potential customer’s intent on wrongdoing. You can also integrate kiosks with SSA Counter Measures, providing real-time customer ID verification, credit scoring, bankruptcy screening, and criminal background checks. This kiosk really becomes the manager’s assistant and allows more flexibility for the manager to do some other things, or scale back on the number of hours worked. This is a good option for a semi-retired person who wants maximum convenience for themselves and their customers. These kiosks are basically outdoor computers and can include the following automated services (functions): 1. A digital camera which takes and stores a photo of the potential new tenant 2. A speaker phone programmed to call the manager or a call center if assistance is needed 3. Fingerprint scanner that takes and validates an actual fingerprint suitable for law enforcement. 4. Background screening on prospects using county-lever criminal records from all 50 states. 5. Digital signature pad that records a prospect’s legal signature on the lease 6. Driver’s license scanner that takes and stores a photo of the driver’s license 7. Real-time credit card and check processing
Chapter 7 - Planning and Construction
103
Alarm Systems
Alarms may very well be the feature that helps your property stand above your competition. Individual unit door alarms may be hard-wired or wireless. Either way, you’ll be looking at similar requirements. You’ll need power and data connections, as well as a convenient place to locate the components of the alarm control and communication system. You may choose to use your unit alarm components to double as lighting controls for each unit. Manufacturers of the contact switches now provide the capability, but that choice must be planned so that the security vendor and electrician can coordinate the wiring and dedicated circuits for the lighting contractors. Your AHJ (Authority Having Jurisdiction) may require termination of your alarm notifications at a monitoring facility or the local police station. They may not allow an external siren because of community or neighborhood considerations. These determinations will have an effect on your security plan, and translates into your construction plans.
Video Surveillance
Closed circuit television is a proven theft and vandalism deterrent. The sophistication, reliability, and functionality of the current generation of digital video recorders, and video surveillance can be a powerful weapon in your battle to protect your property and provide outstanding customer service.
104
Self-Storage • The Journey
Each camera must be powered from a plug-in power supply within a few yards of the location or from a central power supply in the equipment room. For long distance runs over about 800 feet, a larger coaxial cable may be required, chewing up more conduit space. For even longer runs, some owners are opting for other technologies such as twisted pair wiring or more expensive fiber optic backbones through the property. Inside structures, your requirement may call for plenum-rated wire. Camera locations should be selected carefully to help provide evidence that limits liability. As the owner, you want to know you have protection for your investment. Be certain to cover traffic areas where vehicles will be entering, turning, and parking. Having an electronic eye on building entrances, elevator lobbies, and loading areas will help you secure your property.
It’s Up to You
When it comes to security components there are multiple solutions with many features. Keep in mind that, especially when your wallet comes out, everyone becomes an expert. The security industry has many quality providers that have engineered their products specifically for self-storage. Choosing the right provider is an important decision. A wrong choice can be both expensive and frustrating. Choose a supplier with tenure in the industry. Don’t be afraid to ask about the history of the company and for references in your area. Remember that the company you choose to supple your security components needs to be there for you for years to come.
Chapter 7 - Planning and Construction 105
Sound Systems and Intercoms
All those walls in a self-storage facility seem to intimidate some customers. Piped in music soothes and calms this anxiety. Plus you can use this system as a public address (PA) which makes the effort and planning worth it, but you do have to pre-plan for this. Generally speaking, that is a free run without conduit, but may require pre-planned transit locations through firewalls. Your customers will appreciate this. Your staff needs all the assistance possible and twoway communications helps. From a keypad or card reader location, from each elevator lobby, and from well-located call stations throughout your property, customers like to know they can press an intercom call button and speak to someone. Wire connections make the communication possible. The wiring needs to show on your construction prints along with all your other planned amenities.
Parking and Traffic Flow Planning
Most zoning ordinances have not kept pace with the self-storage industry. One of the major misgivings of communities about self-storage is parking for customers. An understanding of parking and traffic flow is crucial for the maximization the property/building use, because you don’t want to show an empty parking lot. In many communities, zoning is worded “one space per 1,700 gross square feet of building plus one per employee”. For a large facility, the inaccurate estimation
106 Self-Storage • The Journey
of parking needs could lead to almost half an acre of land wasted. This land is most likely taxed and requires storm water management, as it is required but most likely will not be needed for parking. During the first year in the life of a self-storage facility, you obviously need more parking spaces. But after initial lease-up, very little is needed. A recommended parking ordinance should read one parking space per employee working at the busiest time, plus five customer spaces at the front office and one temporary space per 75 rental units for a period of two years from opening.
If Multi-Story, Lifts Or Elevators
Consider these during pre-construction. They break down, create code violations, and seem to take forever to get to your floor—not to mention the hefty cost of service contracts. In the self-storage business, elevators are essential to moving people, their goods, and customer satisfaction to higher levels. Today, as many as half of the self-storage facilities are multistory, and this requirement has evolved because of land cost.
Do You Need Elevators or lifts?
Vertical lifts move items—not people. Although they’re used less frequently than elevators in self-storage applications, lifts can work well when cost is a factor. They can be added as a back-up for breakdowns, or where existing elevators don’t cover customers’ needs during busy periods. A lift cost about two-thirds less than an elevator. As elevators transport people, they involve much stricter safety codes, which mean costly added features. However, vertical lifts require a nearby
Chapter 7 - Planning and Construction 107
set of stairs so people can meet their loads on upper levels. While you save money on a lift, it’s important to remember that the extra set of stairs on two floors costs you a couple of 10’x10’s or 10’x20’s, which means you’ve lost income. Still, in some applications, a vertical lift is the best option. Determining what type, what size, and how many elevators or lifts will meet your facility’s needs can be challenging. The best option is a 5,000-pound freight or hospital-type elevator because it comes with a large cab. You will want the cab to be higher than normal maybe at least a 10-foot clearance so that large items can be stood on end. Hydraulic elevators are best for applications up to four stories. For high-rise applications, it’s necessary to use a traction elevator (the kind with motors at the top and cables) because hydraulic mechanisms are too slow. Hydraulic elevators are considerably cheaper, and are adequate for most high-rise applications. Lifts, or VRCs (vertical reciprocating conveyors), use hydraulics for two-story applications but require a mechanical motor (which adds about 30 percent to the cost) for anything higher. Interior and exterior elevators cost about the same, so make your selection based solely on the application. A good idea is locating the elevator inside the building but having it accessible to a loading area outside. An elevator can be recessed 10 to 15 feet into a building sot that it has a covered vestibule but is open to an outdoor loading area. The advantage is that, while
108 Self-Storage • The Journey
much of the elevator is protected inside the building, it is accessible from outside and can have large openings. Remember, convenience, ease, security and access is what the customer is looking for in your self-storage facility. Strive to provide these requirements to remain competitive. You need one elevator for every 45,000 square feet. On average, you don’t want your customers walking over 175 feet to their unit. Check with your state and city for to help you determine what to do in this area. Some states require you to have permits in hand before ordering your elevator. It’s important to check the power supplied to the conversion. Some older buildings don’t have the needed three-phase power and this can add extra cost. Maintenance contracts are a requirement. You will likely find that quarterly contracts are the most cost effective. Remote monitoring can be added for around $50. Elevator lobbies are important. They must be roomy, convenient, bright, and located out of the rain.
Snow Guards
Snow guards are a good idea, but you need to consider the following: • Check your roof warranty because you don’t want to do anything that would invalidate its warranty. • Make certain the retention system you choose comes with its own warranty.
Chapter 7 - Planning and Construction
109
• Check your local building code because every municipality has its own codes regarding snow retention. • Do your homework on the company you’re buying from, to select a reliable vendor.
Facts About Construction Pricing
It’s been said that what goes up, must come down. That seems true in almost every instance—except, perhaps, construction costs. Metal buildings are still the least expensive to build. You can construct these with a standing seam roof and the finest materials for around $9 per square foot. While you may be able to locate a less expensive product, remember that quality is essential to preserve your investment.
Increased Costs
Overall construction costs have continued to increase while the engineering process strives to deliver quality projects for less money. Sometimes, this means incorporating alternative materials such as composites, metal panels, sidings, and stucco. Various electrical options and needs are also under scrutiny. When it comes to roofing, the prevalent system for self-storage continues to be the standing-seam metal roof. No radical change from this standard is expected in the near future. While the skyrocketing cost of steel catches everyone’s attention, concrete, drywall, paint, and almost everything else in between the outer and inner walls has dramatically increased as well. Insulation has
110 Self-Storage • The Journey
also been short in supply and high in price. This has impacted new facilities with climate control. Despite the enormous increase in materials, the self storage industry is booming. Remember, though, if you want to leverage your investment plan to build a quality facility.
Choosing a Contractor
There are two options for construction of your project: 1. Choose a qualified contractor. 2. Act as your own general contractor working through your own sub-contractors, such as suppliers and erectors. Becoming your own contractor is also time consuming and involves a great deal of stress. You can hire a general contractor who will handle the entire project, but, of, course this is a much more expensive route. This is where a good supplier comes in handy. I think the major difference between a Steel Building Manufacturer and a Steel Building Supplier/Broker, is that the Supplier/Broker is more customer sensitive. In the area of self-storage, price isn’t the largest difference. American Steel Buildings, Inc., for instance, does a large volume with several manufacturers thereby getting lower prices than the end user can get directly from the manufacturer. A good supplier uses construction crews who specialize in assembling self-storage buildings. These suppliers have much confidence in the crews they use and this can save you a considerable amount.
Chapter 7 - Planning and Construction 111
You will still have to get your own concrete poured, but the supplier will supply you with the plans for this which lay out in detail the way the concrete is handled. Simply give this requirement to your concrete people and let them handle it. Be careful about the suppliers you use. Many may claim they manufacture buildings and can save you money. To be honest, a good amount of them are simply not telling the truth. The way they get by with this claim is by the use of a phrase which means that they represent the manufacturer. Check out suppliers with the Better Business Bureau in their state. It doesn’t matter how large they are and what their rank is, as the credible ones have the BBB logo on their site and you can click on it to check them out. Use a national supplier who does a high volume of business with the major manufacturers. This enables them to get you the best pricing. The high volume these good suppliers do with the different manufacturers puts them in the position of looking out for your interests. Further, a good supplier stays with you throughout the entire project. Some manufacturers will, but most of them don’t regard a smaller project as important as the supplier. As the owner or developer you will need to work closely with the general contractor for an extended period of time. It is imperative, therefore, to do a thorough interview.
112
Self-Storage • The Journey
There are two key points to keep in mind when making your hiring decision. You and the general contractor need to be comfortable working with each other and the general contractor must be able to provide the needed services. The supplier/broker also does a huge volume of business with door manufacturers and insulation manufacturers and can save you money. The advantage for the customer is that you would receive a greater value both in price and service.
Phasing a Self-Storage Project
Should you build your facility all at once, or in phases? If you choose to build your project in phases, you need to design your project in a way so that there is enough of a unit mix to enable high occupancy at the time when the facility opens. After your feasibility study is complete and you have selected your site, you will be able to decide if you want to do the whole project at once, or in phases. Much of this will depend on your financing. This also depends on how much you have borrowed up front which reduces your interest. The overall project size may dictate how you approach your decision. Some lenders want to see this done in phases. These choices also help in deciding on unit mix. As you begin to fill up, you may want to add more units of a certain popular size.
The ADA (Americans with Disabilities Act)
The Americans with Disabilities Act became law in 1990. This caused big changes for the building industry. Many new regulations and requirements were designed
Chapter 7 - Planning and Construction 113
to make accessing buildings easier for the physically challenged. The federal definition of a disability includes any physical or mental handicap person that is substantially limited in one or more of life’s major activities. This law applies to new construction as well as any major renovations, as a high population qualifies under the Act. Twenty percent of non-institutionalized Americans over the age of 15 report suffering from some handicap that falls into this category. You must use professional architects and engineers that are well educated on ADA regulations to determine design requirements. Take this area seriously as penalties for non-compliance can add up to thousands per day, in some cases. Although some of these regulations are left to interpretation by the state, you need to make every effort to comply with the code from the beginning. For example, requirements include a five-foot circle where a wheelchair can roll in and turn around and be able to access the toilet, handles, pulls, latches, locks, and other operating devices on accessible doors. Door handles must have a shape that is easy to grasp with one hand and that does not require tight grasping, tight pinching, or twisting of the wrist to operate. The handles must also be mounted no higher than 48 inches above the finished floor. Further, the force required to open swinging doors can be no more than six pounds, which is about the weight of a liquid gallon.
114 Self-Storage • The Journey
Additionally, sidewalks leading up to the facility office can present a challenge. The appropriate slope for asphalt or concrete is about one quarter inch per foot. Most experts will tell you to proactively work with the building inspectors. This enables you to come to an agreement on ADA issues and the best way to ensure compliance with the city’s interpretation of the code.
Chapter 7 - Planning and Construction
115
116
Self-Storage • The Journey
Chapter Eight
Marketing And Advertising
Marketing Prior to Opening
At the onset of construction, be certain to post a “Coming Soon” sign at the site with the telephone number for more information, and the facility opening date. Include the name of the new facility, telephone number, and an appeal to reserve their space now. This, exposure and a flier left in the construction office will help you generate a list of potential customers that need storage in your market area. You can then pursue pre-lease agreements, which will help with cash flow. Hire your manager before your site is ready to open. This enables you to begin a working relationship, set up the office, get systems in order and take reservations. Your manager can also be asked to visit other sites in order to conduct a competitive review and bring back facility improvement ideas. Obtain your Certificate of Occupancy for the office and manager’s apartment ahead of the units. This will allow you to be well prepared and to focus on leases. Managers can also investigate which companies are best to hire for on-site needs such as grounds, electrical and plumbing services
Chapter 8 - Marketing And Advertising
117
Grand Opening Preparations
You can now begin planning for your grand opening and begin some advertising. Order business cards, brochures, fliers and other promotional items. Get your web site (which should be able to take reservations) in order. These things should be accomplished a month ahead of opening. Your signage package should be ready well in advance of the grand opening. Remember that drive-by traffic accounts for almost half of a facility’s business. Visit different retail outlets in the immediate area, and ask to leave some brochures in their lobby. The grand opening is a very important part of the marketing process. As it sets the tone and establishes a good first impression. Even if the attendees don’t all use the facility, they will mention your name when someone is looking for a place to store some items. The grand opening needs to be about two months before the actual opening. This enables you to take leases while working out the bugs in the system. You will need a couple of months to plan for this event. A ribbon cutting coordinated with the Chamber of Commerce, along with invitations to the local dignitaries, can go a long way in generating interest. Your opening may even hit the five o’clock news and help set the tone for your operation. You can make the event fun for families and their kids. Offer food with a familiar connection to the site’s name and create a theme.
118 Self-Storage • The Journey
Chapter Nine
Operations, Maintenance & Upkeep
This section offers valuable pointers to run your facility effectively. Create a binder with contact numbers, site plans, bank information, file locations, several hard copies of all your forms, and operational information. Establishing a daily checklist is critical. It helps if your manager is good at multi-tasking. The reason for the binder is two-fold. 1. It serves as a central location for operations 2. If you need to hire a relief manager, it serves as a vital reference tool Set up a vendor binder containing information regarding all of your regular vendors’ information. Keep their invoices, proposals and invoices. Create a contact list on your computer and maintain customer information. Organize your computer and paper files with care. Keep most of your information on the computer so that it can be immediately printed out at any time. Make certain to back up your files often. Walk-through unit status checks should be completed at every 3 to 4 days. Take notes on any problems and don’t let them go without some immediate attention. While doing this walk-through or ride-through, you can immediately fix or clean up many issues. Each walkChapter 9 - Operations, Maintenance & Upkeep 119
through needs to be followed by a short report of what you saw and what was done to resolve any issues. Purchasing postage online through www.usps.com a dds to your efficiency. Print the receipt, order forms, labels and envelopes.Get as much information as possible from your telephone reservations. This makes it easier when the customers arrive to move items into their unit. Go with your customer the first time they park their RV or boat to make certain they know what they are doing. You want them to be comfortable with the experience. The HVAC checks need to be done monthly to change any filters that require service.
Holding an Auction/Lien Sale
As part of operations, there will come a time when you need to go through the auction process. This occurs when a customer has defaulted on their lease and you have followed all of your state regulations to reach the tenant. Keep in mind that to call this an auction, some states require you to have a licensed auctioneer. As a lien sale, you normally handle the liquidation like a garage sale. Rules have to be followed because this area of management is so prone to litigation. They are, however, a necessity. There are professional buyers out there who love to attend these auctions. They turn around and sell these items on Ebay, flea markets and many other outlets.
120
Self-Storage • The Journey
You need a way to figure out how to attract these professional buyers and yes, even reward them. Donuts and other refreshments could be offered. Plan these auctions in advance and let these buyers know when it is going to be held. Maintain a mailing list so that you can keep them informed. You could also allow them to use your move-in truck for free. Another good thought is to coordinate the auctions with other self-storage facilities in your area so that the buyers can visit them all in one trip. On auction day, stay organized and hand out your rules to all the potential buyers. Be courteous and friendly, plus offer them a flashlight to more easily inspect items and units’. These buyers are an asset to your business and need to be treated as such. You want to be viewed as a professional operation, so being well organized is a great benefit and will draw greater attendance at future auctions.
Pest Control
Implement an effective program for pest control. As you can guess, this is an important item that needs to be watched carefully. Have consistent, on-site inspections so needed deterrents can be applied as often as needed. Even if no bugs or varmints are spotted, systematic applications are advised. Make certain your customers understand your facility’s storage guidelines regarding pest control and procedures. They should know (in their paperwork) not to leave cardboard or paper on the floor of their unit.
Chapter 9 - Operations, Maintenance & Upkeep 121
Critter control is another one of the reasons why you need to keep your property clean inside and out. Vacant units need to be swept out from top to bottom, including the inside of roll-up doors. After you sweep and clean, spray with an insecticide and leave a small plastic bag of rodent poison in the unit. Remove cobwebs from corners, light fixtures, ceiling fans, perimeter light fixtures (interior and exterior), and anywhere they might be spotted. Sweeping and moping in all customer access areas is vital. Keep dumpsters checked and make certain the lid is closed and the area is clean. Some facility owners prefer the natural way of dealing with the pest challenge like Cedar Oil. This prevents moths from hanging around as well as controls other certain insects. It works best in confined spaces, plus it doesn’t take a permit or any other type of license. Keep in mind though, this approach repels, but doesn’t kill, pests. There are other natural products which are good for eliminating mice and other rodents. Another good thing about natural repellants is they make a good alternative to what the bug man uses and you don’t have to be concerned with anyone’s health and any ecological problems.
Mold
Rain leaks, plumbing leaks, condensation, floods, faulty sprinkler systems, and excessive humidity can cause mold to develop.
122
Self-Storage • The Journey
First of all, good insurance is important. This area of mold isn’t specifically available for coverage, but can be covered under “sudden and accidental events” such as flooding or pipe breakage. The insurance company is left to determine what is incremental at additional costs and probably will have a cap. If you find mold, call a good team of professionals. They will test it and if it is caught in time, it can be cleaned up with bleach and water before it can become hazardous. Think prevention by inspecting for leaks. Don’t procrastinate. Unit ventilation is a must.
Operational Expense
Your insurance doesn’t change based on occupancy. It is fixed while other expenses vary. Reduce expense costs wherever possible this translates into significant benefits such as borrowing power and sales proceeds. Insurance becomes a good area to watch as you consider the possibility of a sale down the road. Develop a cash flow budget and stick with it. You need to anticipate downturns and be able to forecast your cash flow crunch by recognizing your business cycles. Do your budget at the beginning of the year to estimate the month-to-month cash flow.
Analyzing Cash Flow
Self-storage is a profitable endeavor for many businesses; however, cash crunches are inevitable. How you navigate through these obstacles is a key to smooth sailing. The key to managing cash flow is the ability to
Chapter 9 - Operations, Maintenance & Upkeep 123
forecast the precarious elements that comprise the funds that come into a business. This cash flow budget is a good way to predict your business’s cash flow for the next month, six months, or even the next year. Computer programs offer forecasting models for the self-storage businesses. You could also use a consultant or there are many web sites such as www.entrepreneur.com and www.allbusiness.com that can help. This approach will help you in the event that you discover another facility is being built near your business. Further, it will help you to plan rental increases to counter these cash flow challenges. Another tip is that if a payment is due in 30 days; don’t pay it in 15 days. Use electronic funds transfer to make payments on the last day they are due. This will allow you to remain current with suppliers while retaining use of your funds as long as possible. Don’t select suppliers on price alone. Check out their payment terms. Consider leasing instead of purchasing for items such as computers and other office equipment and furniture.
Maintenance
Roofs
Plan a seasonal maintenance for the roof. Inspect it every few months and check the seals. Look for any signs of leakage and clear the roof of all items that don’t belong there. Watch for pooling around any object on a roof. While there, tighten screws that need tightening and check the guttering system.
124 Self-Storage • The Journey
Look for anything that either needs repair, adjusting, or just plain attention. Manufacturers might have a say in how you deal with your roofs, so familiarize yourself with any requirements.
Walls
At the beginning of each of the hot and cold seasons, check your insulation in your climate controlled buildings. You can test by hand to see if the temperature is consistent over the plane of the wall. If the insulation is uniform, the wall temperature should be uniform as well.
Interior Hallways
Tracking in mud and other seasonal objects will impact your interior hallways. Install mats and other shoe cleaning items outside of the entrances. Halls will need to be swept more often if your facility is located in a windy area.
Checking your Pipes
Hard freezing can create a problem with pipes. Have your landscaping company blow the water out of the sprinkler system. Turn off the water to everything on the property that doesn’t need water during the cold months. Wrap and insulate exposed pipes. Turn your water on in the spring and reset the timers.
HVAC
The HVAC system should be checked regularly. Most of the time, the utility companies will handle this at a very reasonable rate.
Chapter 9 - Operations, Maintenance & Upkeep 125
An efficient air conditioning system is your main defense against mold and mildew. It is important to clean air conditioner drains along with each drip pan at the beginning of summer. This will help to avoid algae growth.
Gates and Lighting
Problems with gates and lighting aren’t necessarily visible. Perform routine maintenance on your gate(s). Tracking, chains, and especially joints need to be cleaned and lubricated as needed, especially at the beginning and end of nasty weather. Remember to reset automatic light timers with the seasonal changes.
Pavement and Landscaping and Snowy Control
Do routine inspection on all your concrete and asphalt. Look for cracks and potholes. Weather can definitely damage or age pavement and you need to repair any sign of decay or cracking sooner than later. Landscaping maintenance speaks for itself. Remove fallen leaves, replace dead flowers and scrubs, spray for weeds and fertilize the lawn. During the hot season, set your lawn sprinklers to cycle in the early morning, or evening. This gives the water more time to go to the roots before evaporation takes place.
126
Self-Storage • The Journey
Advancing Technology and the Tools needed to keep up
It’s not a matter of being cool, but being efficient. The self-storage industry is catching up with major businesses in that it realizes that this use of technology saves time and money while helping to increase sales and productivity. Hosted applications are accessed off-site. Instead of investing a ton of cash in software, many operators have chosen this alternative. Accounting applications are a good example of the popular hosted applications. Some of these packages are offering entire hosted suites which provide 24/7 monitoring. Google “hosted applications for self-storage” and begin collecting information on this subject. Using e-mail as a business tool enables you to track communication. This will allow you to communicate with your entire mailing list at once. Keep in mind that e-mails are legally binding, and are much faster than regular mail. Payment reminders can also reduce delinquencies. Removable Metal Partition Walls provide a new way for self-storage facilities to become more flexible. They allow operators to change the size of units to meet the market demand and are known as Flex-Space Technology. If you are going to use this technology, it is a good idea to incorporate it at the design level. This way you are certain to have door access and meet fire code requirements.
Chapter 9 - Operations, Maintenance & Upkeep
127
Enabled Intercom Systems play piped music and allow for two-way communication. They come equipped with a remote dialer in case there is no answer on the manager’s end. The system will then dial the manager’s cell phone or PDA. Wireless Unit Door Alarms are very reliable and provide a good security and marketing message. Consider one of those new and powerful notebook PCs. This will enable you to stay mobile so you can visit other facilities and do some field spotting, especially with WI-FI Networks where customers can access the internet from your PC. Plasma Displays give you the competitive edge. They can also display your security features and are an impressive use for customer presentations. Logi-Tech is now offering 24/7 monitoring for temperature and relative humidity through a telephone modem linked to the system. This remote system records the readings, trouble-shoots, and also makes adjustments. If you find the need, you can have a lock system installed which can be controlled from a remote location. Partner with a local technology company. Track-it, Inc. has patented a multifunctional switch that can be programmed to simultaneously activate and deactivate the unit alarm, turn lights on and off, and turn AC off when the door is open. Self-Service Kiosks with Video Conferencing works when no manager is on site. These units also have twoway video conferencing with a manager at a central
128 Self-Storage • The Journey
location which can add a human touch to these kiosks transactions. Since 9/11, this has become a real asset at most self-storage facilities as they help to reduce criminal activities and delinquencies. Today’s internet tools provide quick and reliable ways to come to a decision to rent or not to rent to this person, plus it is convenient. Digitech International has a system that automatically integrates video surveillance and access control. Access log activities automatically become part of the time and date stamp on the video. In the past, tailgating had become a real problem. This is when one vehicle follows another while the automatic gate is still open. Preventing tailgating can make break-ins by non-customers much less likely. With new Anti-Tailgating Systems devices, the gate opens approximately 13 feet and then, when an electronic sensor determines that a vehicle has passed through, the gate begins to close. Be certain and post signs on both sides of the gate accordingly. Technology is constantly changing and it’s difficult for business owners to keep up. Strive to stay abreast of what is available and explore how technology can streamline your processes, enhance your service level and generate new customers. The bottom line, however, is to incorporate only what makes sense for your business.
Auditing
Conduct timely audits at least twice a year to operate successfully. Audits maintain certain standards and procedures. They also clear up any miscommunications, identify discrepancies, and help devise ways to improve policy, procedures, and increase income.
Chapter 9 - Operations, Maintenance & Upkeep 129
Scheduled Audits Are Unannounced
The manager is given minimal notice during unannounced audits, depending on the size and vacancy. This enables all vacant units to be opened for inspection. The audit is three fold: 1. The space audit in which every space is accounted for and compared to the rental agreements and computer information for accuracy. 2. The site audit which includes curb appeal and maintenance. 3. The office audit which covers procedures, rental agreements, delinquencies, auctions and reports.
The Space Audit
Space audits are a physical inspection of every unit and must agree with the computer print out as to the lock status and vacant unit status. All self-storage management software programs will provide a Tenants’ Unit Report to compare with what is actually on site.
Here Is a Sample Checklist For a Space Audit:
The Site Audit
Because customers want a clean and neat look at the facility where they store their goods, site audits cover all outside items and those things that a customer will notice. Always look at the property through the eye of the customer. • Curbs clean • Golf cart clean and maintained
130 Self-Storage • The Journey
• Door and store front signs • Welcome/hours • Payment drop box • Credit card logos • Open neon sign • Manager on property sign • Signs and banners • Main logo sign’s light working • Gate sign with access hours • Keypad instruction signs • Welcome sign at entry • Thank you sign at exit • Reader board changed weekly • Promotion signs/banners not faded • Customer rest room sign • Fire extinguishers with up to date annual inspection • Clean HVAC filters • Thermostat settings • Perimeter fence in good conditionclean of vines and weeds • Gates lubricated and adjusted to operate properly • Ant infestations treated
Chapter 9 - Operations, Maintenance & Upkeep 131
• Dumpster area clean • Property lighting check after dark • Landscaping clean, mowed, trimmed • Outside areas free of safety hazards • Public restroom clean and well stocked • Corridors, hallways, and stairwells clean and lights working • Gutters and roofs free of debris • Abandoned items removed from site • Graffiti removed • Sand urn at office entrance clean • Windows and store front clean • Gate codes working for management team.
Office Audit
This audit covers general procedures, policies, delinquents, auction processing, and reports. Every property should have a workbook that will assist a relief manager and anyone running the store during an emergency. This workbook includes the location of the bank, the post office, the golf cart, the model bay, the shop, and the box storage area. Also included are directions to the store from several well known roads, a map, and location of the electrical box and water cutoffs. There are blank pages for notes between the office manager and relief managers to keep each other informed.
132 Self-Storage • The Journey
Here is a sample checklist for the office audit:
• Review the store info workbook • Count the cash drawer and reconcile with the day’s business • Count the petty cash and reconcile with receipts • Check bank deposits timeliness • Phone settings – day message, night message • Workman’s comp notice posted • Business license posted • Prepackaged rental agreements • Rental agreements • All lines filled out on every customer • Customer’s signature – one name only—and manager’s signature • Change of address attached to rental agreement • Minimum of three telephone numbers • Readability • Good until date on specials • Rent amount compared to computer amount • Lien holder’s information completed • Vehicle VIN numbers and picture of customer with vehicle • Picture of all other customers on file with valid ID • Computer records up to date
Chapter 9 - Operations, Maintenance & Upkeep 133
• Customer service clean and free of clutter • Merchandise inventory records accurate • Merchandise is displayed with pricing • Auction schedule displayed • Current auction ad displayed • Company manuals – check for updates • Operations manual • Auction workbook • Marketing manual • Comparable survey book • Computer check • Free of games, videos, and CDs • Notes in computer on all collection calls • Late fees and auction fees added to delinquents • Exceptions Activity Report with notes completed for all variances • Manage Summary Report to compare previous month’s figures • Standard Rents Report to analyze free rents and below market rents • Market Summary Report • HVAC filters changed • Polaroid camera and film on hand.
134
Self-Storage • The Journey
The Action Plan
The final step of an audit is to devise a written action plan that includes what needs to be done, by whom, a timeline for completion, and a one-month follow-up date for the new audit. Give a copy of this action plan to the store manager, the area manager and any other appropriate office personnel. Make certain assignments to correct findings are clear to those responsible. Then set a date to come back and check those items to see what action was taken. Audits are the key to provide owners and customers with quality service. No manager is perfect, so reward your manager for diligent work. This process also helps you to make a decision to terminate non-productive employees. These audits can be very time consuming, but are very beneficial. Here are some good companies that serve as providers for this need: • Syrasoft Management Software www.syrasoft.com • SiteLink www.smdsoftware.com - Space Control www.spacecontrol.com • StoreMan www.storman.com - DOMICO www.domico.com • eMove, Inc. www.emove.com - Digitech www.digitech-intl.com • Quayle Computer Concepts www.quayles.
Chapter 9 - Operations, Maintenance & Upkeep 135
136
Self-Storage • The Journey
Chapter Ten
Additional Security Measures
While Armed Robberies are Rare,You Still Need To Have A Plan Of Action
The number-one priority during a crime is the safety of all the employees and customers. Make certain you have an alarm system in the office and the manager’s apartment. In addition to cameras in the office, you need a Web cam that can monitor both audio and video via the internet. It is always a good idea to have a sign on the counter saying that you don’t accept cash. Let the robber take whatever he wants. Don’t argue or resist, as this will only serve to escalate the situation. Hold a meeting with employees about how to handle a robbery. Discuss the demeanor of both the robber and the employees. Determine in advance of an emergency, who will activate the alarm? It should be the closest one to the alarm without drawing any attention. The alarm should be an unmarked, wireless, silent signaling device which alerts your alarm company. Potential robbers are usually walk-ups and need to be treated with caution and calmness. When they come into the office, immediately call someone over a walkietalkie or intercom. Even if you don’t have anybody out there to respond, this gives the impression that you are
Chapter 10 - Additional Security Measures
137
not alone. Use a pre-agreed upon coding word or number for this potential scenario while on walkie-talkie. If a weapon is seen, do your best to move slowly and remain calm. The robber may be more nervous than you are and won’t respond well to quick movements. Immediately tell them to take what they want as they generally just want quick cash and a quick exit. When they leave, call police immediately and don’t touch anything. Take this time to immediately start writing down everything that happened as well as the robber’s description. Have your employees do this same thing while the incident is fresh on their mind. This will help the police to react and get the perpetrator’s description out to the field so there is a better chance of capture. Secure videotapes for the police and review it for details. Digital video recording devices are very handy here as you can get a second by second playback from different angles and make copies for police. There is an overall decrease in this type of crime and the self-storage industry doesn’t suffer from this as much as other businesses do. But you need to be prepared for obvious reasons. For example, you should be concerned about the public reaction. Is your facility safe and did you act properly. Remember, customers need to believe that your facility is secure.
138
Self-Storage • The Journey
The facilities that have individual door alarms and plenty of cameras don’t seem to have many problems. Facilities with few security measures are, however, starting to see increased break-ins. The after hours perpetrator violates the perimeter of the property usually cutting a hole in the fence to look for small items to sell at pawnshops and other outlets. There is one scam to be in the alert for, as paying tenants may rent a small unit in order to gain access. They will usually loiter around to see who is storing what and where. Then after writing down their unit numbers, they return for a massive break-in of the different units and quickly exit. The latest trend is the perpetrator who cuts a lock and begins to tunnel his way through to other units all the way down the hallway. They break through the drywall and exit through the last unit they burglarize. The facility and tenants both suffer loss. Another vulnerability is the individual involved with counterfeit money, money orders, and bogus receipts. The receipt is taken by the customer and he runs it through a scanner, converts it to a text file or replicates it on their own computer. With a simple date change they have a receipt saying they are paid up for months. You can combat this with the facility’s watermark on your printed receipts. The installation of expensive high-tech equipment at self-storage facilities is also drawing criminals. They will try to steal your cameras (which don’t have serial numbers) by climbing up on the roof and taking them.
Chapter 10 - Additional Security Measures 139
Computer Viruses are on the rise and have the potential to really hurt any business. You need to stay current with anti-virus software and install a firewall. Do not allow employees to use the company’s computers for personal emails etc. Self-storage operators are getting serious about security measures in an environment of potential terrorism. This is where background checks and other initiatives designed to discourage terrorists from using self-storage as a place to hide their bomb-making materials and other supplies is vital. Until these new security methods became standard in the self-storage industry, these facilities were the most logical place for terrorists to hide their bomb-making items and weapons. As far as background checks go, terrorists typically don’t have a credit history or residency referrals. They also know that there are some smaller self-storage facilities in out-of-the-way towns that don’t conduct checks. It is up to the managers to be able to tell if the potential customer is legitimate or not. Maintain high standards in your applicant screening as this will weed out most all potential terrorists. Also be a nosey manager, your environment this will run most of the disreputable customers off. Employees must watch for prohibited materials on the premises, including gunpowder, PVC or metal piping, and dismantled kitchen timers. Maintenance crews should be trained to look for odd behavior on the property. This includes smells, sounds, erratic schedules,
140 Self-Storage • The Journey
heavy foot traffic, or anything else that seems out of order. Self-storage managers should conduct routine lock checks and invite the police department to use the property as a training facility. Don’t forget to have a check-off list when closing up. This ensures the safety of the facility. Don’t oversell you security as this can have legal repercussions. Don’t allow police officers to intimidate you into opening a tenant’s unit without the proper paperwork such as a court order/search warrant. If you cut a lock for any reason, you automatically become responsible for the contents of that unit and may be violating tenant rights. Check your state’s laws.
Chapter 10 - Additional Security Measures
141
142
Self-Storage • The Journey
Chapter Eleven
Employees
Staffing, Training and managing a self-storage facility
As soon as you decide to go forward with your facility, begin looking for your team. Consider where you will recruit folks and how you are going to train them. Another early decision is for you to decide who is going to be involved in the day-to-day management of the facility. Your options are a manager, yourself or a management company. Bringing in a management company will mean they will be responsible for hiring and supervising the staff. If you are building a large facility, this may be a better approach than trying to do this yourself unless you are experienced. A management company can also be responsible for handling the grand opening and reservations. Prior to obtaining your “Certificate of Occupancy,” a two-person team (if you have the average size facility of less than 40,000 square feet) will be needed. They will handle things such as sales, leasing, marketing, maintenance, audits and landscaping.
Chapter 11 - Employees
143
If you are building a large facility consider having a team of three or four. These facilities are generally open from 9a.m. to 9p.m., Monday through Saturday and 1p.m. to 5p.m. on Sundays. If you build an apartment on site, hiring a couple is a good idea. If not, two unrelated people can cover your workload. This enables them to overlap three days of the week and one of them can handle the other four days. Your manager needs to have the ability to market in your community. He or she should attend regular meetings with any local business groups including the Chamber of Commerce. The manager can also help during the construction phase with duties including numbering the units and hiring landscape personnel. They can also take telephone reservations during this time. Remember, train for skill and hire for attitude. The ideal self-storage manager has some customer service skills, sales, marketing, some computer and accounting including budgets and marketing. In other words, they need to be able to wear many hats. This manager must be able to take possession and handle the store as if it were his/her own. And remember, you need to be on the lookout for a relief (part-time) manager. Every employee you hire must agree on their application to a background check. Examine their honesty, integrity and abilities. Also make certain they agree to a 90-day probationary period.
144 Self-Storage • The Journey
This application should be finalized by your attorney to ensure clarity on points such as when the employee agrees to your right to terminate, and to have the apartment vacated within a specific time. Three things that are also important are the employee handbook, operations manual and the employee agreement. Consult your state self-storage association for help in this area. Make certain your manager has a working knowledge of your state’s lien foreclosure process as prescribed by the state statute. Things to seek when hiring include: • A great attitude • Maturity to handle difficult people • Flexibility • Customer service orientation • Good telephone and sales skills • Pride of appearance (how they look personally is usually an indicator of how they will maintain the store) • Self-starter • Sincerity • Management attitude (non clock watcher - will they lease to someone who pulls up at closing) • Organizational skills • One who sees the big picture, and watches the details.
Chapter 11 - Employees 145
What do you pay your Managers?
You get what you pay for here, but stay within your budget. Salary depends on their hours, the facility size, and whether they live on-site. Some states have very stringent overtime pay schedules. It is wise to calculate the hours necessary to complete the assigned tasks and provide an adequate salary and bonus structure that provides just compensation. The average across the U.S. is $25,000 to $35,000 with a stated percent lease bonus in place.
Training Managers for a New Site
Explain to employees that they provide the first impression for the facility. This is crucial in that your potential customers must feel important, safe, courteously treated and leave the property knowing that they have just had a good experience with customer service. This training should be a pre-scheduled class or seminar. Use a well organized hand out so everyone can follow along. Also go through all procedures from the time the customer walks in to the time he or she walks out with a smile.
Mystery Shopping
This is the practice used by independent facility owners to gage how their managers and other employees are doing the job you hired them to do. This “mystery shopper” goes to a facility or calls and doesn’t say he is interested in leasing a storage unit, but acts interested in a way that one would come to that conclusion.
146 Self-Storage • The Journey
He asks a great many questions about why he should choose your facility for his storage needs and this is also good for checking the facility’s customer service as well as several other areas. This practice needs to be included in a section of the employment agreement that informs the employee that “tapes” or “mystery shoppers” will be used in recording calls or in-person visits. You as the owner have an obligation to disclose this practice during the hiring process. There are several industry vendors that provide these services and deliver these reports, tapes, or CDs to the owner and on-site manager.
Hiring and training for success
Profits are the goal of any self-storage operation and professional managers are the key. As such, employing great managers is the owner’s responsibility and goal. Newer stores are retailers in every sense of the word and understand the need for the best, most qualified marketing oriented managers they can afford.
Email in the Workplace
Minimize employer liability by realizing that neither common nor Federal law prohibits employers from monitoring employee e-mail and Internet use. If the computer or network is the employer’s property, then everything that’s transmitted through it belongs to the employer.
Chapter 11 - Employees
147
E-mail activity is a social activity between employees, but can be wasted time. Also, you as the employer can be held liable for things like sexual harassment, defamation of character and all kinds of things. Employers are also responsible when their employees violate the copyrights and trademarks of another party in the course of everyday business. It is wise to monitor employee e-mail simply because of the plausible liabilities faced by the employer for employee actions. But you have to inform them you are doing so. Another way to minimize liability is to use a disclaimer (can find at e-mail disclaimers.com) at the bottom of every e-mail sent from company systems. What type of disclaimer used is dependent upon which legal aspects are pertinent to a particular business.
Here Are Some Tips For Personal Safety in The Self-Storage Industry
• Always be alert to your surroundings • Photocopy drivers’ licenses before taking customers out on site • Trust YOU’RE instincts • Don’t walk inside units when showing to potential renters • Don’t show units after dark • Provide managers with cell phones • Provide managers with key bobs that tie into alarm system • If legal in the area, encourage managers to carry mace on keychain
148 Self-Storage • The Journey
• Install cameras at office front door to get picture of person’s face upon entry • Place keyhole cameras in keypads to get a full-face shot • Have a camera in the office with video display screen in the manager’s apartment • When inspecting the property, use a golf cart rather than walking • Keep hallways straight so there are no corners for criminals to hide behind • Install phone lines in display units • Have fake “dummy” videos on hand to give criminals who ask for a copy of the video tape • Install glass storefront windows at exits, giving passerby a view into store • If being robbed, back away from cash register • If being robbed, ask to be locked in a unit • Try to take note of the criminal’s height and physical characteristics. • If you see a crime, don’t confront. Take note of the person’s physical characteristics and license plate, and call 911 • Walk the site in pairs, if possible • Before opening a unit door, check for unexplained wires. (Renters operating meth lab out of storage units have been known to wire doors to explode when opened.)
Chapter 11 - Employees
149
• managers keep cell phones with them at all times • Always have two sources of communication • Build a relationship with your local police department. • Tell the management office before walking the site • Hold training sessions and practice for potential robberies • Walk in the middle of aisles away from unit doors • Create safety manuals and train employees to handle situations • Encourage managers to take self-defense classes • Vary times and days of cash deposits • After auctions, take the money to the bank immediately Employees can become your greatest asset. Treat them right and reward good work. However, don’t be taken advantage of; your business is an asset to them as well.
150
Self-Storage • The Journey
Chapter Twelve
Customer Relations
In today’s society, people want convenience and customer service. If they don’t receive it at your facility, they will move on down the road. You have to realize just what the potential customer’s wants and needs are and meet them with a smile. Your facility needs to be a clean, user-friendly and safe environment. Going the extra mile will help in this area also. There are also those customers who are hard to satisfy even with the best service, but you need to treat them just as you would that person who is cordial. Be prepared to ask questions so that you can meet their needs. Remember the majority of unsatisfied customers will not even voice their concerns and complaints. These folks are even more dangerous to your facility’s reputation in the community. Word-of-mouth advertising is your most important vulnerable asset. These people will not only go to another facility, but will tell others about their bad experience at yours. You want your employees (and whoever answers the telephone) to be able to answer all their questions when talking to a potential customer. You need to train for this service level.
Chapter 12 - Customer Relations 151
Arguing with customers who have paid their hard earned money does no good at all. If you are able, bend your policy in order to make your customer happy. Don’t do this constantly for them, because you will wind up doing this for everyone. If possible don’t pass the customer to another sales person. Do your best to satisfy their concern yourself and become a good listener by repeating it back to them telling them that you just want to make sure you understand them correctly. Customer relations includes scheduling a time (once every couple of weeks or so) to call your customers and share your appreciation for their business. Ask them if they have any questions or needs that you can support. Send your customers a thank you card from time to time. This builds long-term good customer relations. Greet each customer like a friend. Stand up from your chair, smile, shake their hand and introduce yourself. Treat them with respect and dignity. At the same time, you want to instill confidence that you are the one to solve their storage challenge. Strive to make them feel special and at ease. Stay focused on issues, not personalities. Don’t make it personal. But, set a boundary on what you will tolerate and stick to it. Do this by being polite but firm in your position at all times. Use straight talk and no analogies or figures of speech. Ask them, “What do you want and need from me.” The best thing is to work together to find a solution that you both can benefit from.
152 Self-Storage • The Journey
Remember, customer complaints are to your benefit. Feedback is the only measure of performance that helps you make improvements. After you have finished your conversation, show them the correct unit before they sign the lease. When they leave, document the conversation, especially their questions and your answers. And when they call, simply return their call. Customer conflicts will occur, but there is a right way to handle them. Keep an eye on your emotions and stay very professional. Don’t react, but respond. Like having to sell a customer’s goods because of them not paying their rent. This can be emotional for them even if they do owe you money. You do have leverage when it comes to liquidation, but there is a right way and a wrong way to approach it. Make certain you have gone the extra mile to contact them. Let the customer know that you understand their belongings are important to them and you are looking for a solution. Don’t just move toward selling their belongings after only one collection attempt. Keep it business, and never take it personally. Most conflicts can be handled with this mantra in mind. You need to clarify what is and what isn’t a problem. Simple, calm, and good questioning can uncover the true source of the conflict. For instance, say to the customer, “I know that you are concerned about losing your belongings, what can we do to work this out?” Knowing the answer to this inquiry will help you determine the real problem, and then you can create the right response.
Chapter 12 - Customer Relations 153
You need a strategy for resolving customer disputes. Thoughtful responses separate customer service professionals from non-professionals. Don’t ever try to resolve a conflict through people who are not involved. Choose a quiet, private environment for your discussions. Customers want to feel that you aren’t threatening, that you care about them and their issue. Don’t cross your arms or roll your eyes or look disgusted. If they start out angry this can be difficult to maintain but stay calm. Begin by being the listener and allowing them to be the speaker. Let them finish and don’t interrupt. If you become angry, deal with it in a non-threatening way by body language, smiling, and slowing down the conversation. Don’t blame others. Take responsibility as part of the facility’s staff. As far as customer satisfaction goes, fewer than 10 percent ever complain to the management. For instance, have you ever been to a restaurant and received horrible service from the person waiting on you? You may have thought, “Wouldn’t this be valuable information for the owner?” But you decide to leave and didn’t tell anyone but your friends. This is what I mean by most customers will just choose another restaurant/facility. A customer survey is a good way to stay on top of these things. Your might even use the restaurant analogy somewhere in your survey. You will want former, current and past customers to voluntarily participate. You need to know about their facility experiences. Begin the survey by stating that you are striving to make everyone’s experience with your facility the best it can be and you value their opinions. When developing
154 Self-Storage • The Journey
the survey questions, you need to know objectives you are trying to accomplish. Keep the survey short and to the point. Another good point with customer service is to wave late fees for the first late incident, if appropriate. This practice shows flexibility and customers will be appreciative. If late payments continue with a particular customer, you can tell them that the computer is set up to wave late fees once every three or so months and you can’t change this system.
Chapter 12 - Customer Relations
155
156
Self-Storage • The Journey
Chapter Thirteen
Insurance Concepts
Are You Properly Covered?
Premiums and insurance companies will vary from state to state. Risks are rated on the type of construction, location, square footage and limits selected for various liability coverages. New self-storage operators need professional consultation early in the construction process in order to evaluate potential exposure. Your agent will assist in determining the type of coverage and proper limits, plus he or she may provide recommendations which could save you from costly claims. Remember, claim activity will be factored into the determination of your future premium costs.
The basic types of insurance you will need
1. PROPERTY ExPOSURE —Offers coverage on tangible property on the premises and needs to be replacement cost. Replacement cost isn’t the same as your home replacement cost. You have to stay up to speed on rising construction costs and adjust your policy periodically for this. a. Fire b. Smoke damage c. Wind damage d. Hail damage e. Theft f. Vandalism
Chapter 13 - Insurance Concepts 157
g. Collapse of buildings 2. Business interruption—protects you against the interruption of business cash flow. a. If a hurricane damages your facility, for example, you will have cash flow interruption for a time. b. This is designed to give you a continuous uninterrupted flow of revenue to a length worked out beforehand by you and your agent. Mostly the time period is a year to a year and a half. General liability—Covers against lawsuits a. Provides protection whether or not it is your fault. b. It may be useful in situations such as slip and falls to an access gate damaging a vehicle. Crime Sale and Disposal—Protection against negligence from disposing of tenant property. a. This varies in different states. b. You need to follow proper state regulatory procedures in disposing of tenant’s property in a lien sale. c. It provides legal cost coverage if you do follow all the procedures and are still sued. d. This is based on an aggregate limit for a year’s time. Customer Goods Legal Liability—Covers the loss or damage to tenant’s property. a. It covers you if the loss was a consequence of the operator’s negligence. b. It will pay for the tenant’s property
Self-Storage • The Journey
3.
4. 5.
6.
158
on a per-occurrence basis. 7. Limited Pollution Removal—If a customer leaves things like a barrel of oil or other pollutant. a. Cleaning up and removing. 8. Automobile 9. Workers Compensation 10. Employer Practices Liability— Usually for larger facilities. a. Claims of wrongful termination b. Sexual harassment c. Discrimination. 11. Systems Breakdown—Equipment of all types covered. a. Machinery such as heating and air conditioning which is valuable to climate controlled units. b. Electronic security systems c. Electronic gates d. Computer systems. 12. Umbrella Policies—Provides many types of coverage under a single package policy. a. It can include most if not all of the above considerations. b. It is an extension of liability limits for your general liability, auto liability as well as a portion of your workers compensation. As far as trying to keep your premiums low, you could always increase the deductible, but be sure you can afford to pay the deductible if you have a claim.
Chapter 13 - Insurance Concepts
159
Many commercial insurance companies require a client/company to prove that it can actually afford to pay the deductible before binding the coverage. When looking for coverage, be sure to get several quotes with the available deductibles. There is a specific dollar limit that you must specify. Consult with your agent about what types of coverage and limit amounts are needed. In addition to having a total liability limit, most policies are written on a per-occurrence basis with an aggregate limit. Be certain aggregate limit is above your occurrence limit.
Pay With Rent Tenant Insurance
Facility operators use rent tenant insurance as additional income for their facility. Although it has been around for a long time, owners use this to lower their liability risks. This is mainly a risk management tool rather than a profit source. Coverage is offered at point of lease to the customer and is written on a group insurance policy. The customer pays this extra amount along with his rent. The facility may earn fees for simply offering (and protecting) the protection to their customers. This insurance is permitted for a facility that is non-licensed to handle or sell insurance. Of course this approach does reduce control of insurance activities to raise money through license fees and taxes, so regulators are beginning to take a second look at this. Be certain to check with your state statues.
160 Self-Storage • The Journey
A few states offer a special class of insurance licenses for self-storage facility permitting the company to be licensed with a minimum of paperwork and educational training. This will help facilities to reduce their damage liability for tenants’ property. These are the basic concepts that you as the selfstorage operator/owner need to consider. Given the complexity and constantly changing legal areas of risk management however, every self-storage business owner should definitely seek the advice and service of a qualified insurance professional who is familiar with exposures associated with self-storage businesses.
Chapter 13 - Insurance Concepts
161
162
Self-Storage • The Journey
Chapter Fourteen
Legally Thinking
The Premise Liability Law has experienced changes that are in favor of the plaintiff. You need to understand these modifications as this law implies negligence on the part of the property owner. The courts used to put the burden of proof on the plaintiff. They only needed to prove that the owner/ management failed to make a reasonable effort to take care of a problem before a person sustained an injury caused by this failure such as when someone was injured from a fall. It is even more important for the management to identify and fix potential liabilities and problems. All the plaintiff needs to do is show evidence that the condition had been there for a while. Questions like; “how often does the management require the employees to walk the property to clean up areas that could potentially cause an accident?” The argument that owners have the duty to conduct regular inspections where the public has normal access has been successful in some cases. Courts raise two notices called actual and constructive. Actual is when a customer or other individual notifies the management of a potential problem. Constructive is when the defect remains there for a long period of time.
Chapter 14 - Legally Thinking
163
If the facility has reasonable inspections/maintenance policies, these problems are addressed and barricades positioned as a warning of the problem until the issue has been fixed. Security gates must be routinely maintained to prevent personal injuries. Bodily and automobile damages from these security gates are most common because if the gate doesn’t work properly, it can close too quickly and injure a person or damage their vehicle. You must have signs on both sides of the gate saying “this gate opens and closes after each vehicle and does not allow pedestrian use”. Maintain a log of repairs and maintenance.
Property Damage and Loss
This is another area of liability risk. When a facility disposes of a tenant’s goods due to lease default, sometimes the tenant will file a claim against the facility for lost goods. This should be addressed during the leasing process. Also during the leasing process, tenants should be given a list of safety and security items.
Some Other Legal Suggestions
It is a good idea to own either the facility or the land, but not both under the same corporate structure. This will help protect you if you are ever involved in a major lawsuit. On a security level, it is a good idea if you install fake cameras on the property implying that you have extensive security and surveillance on the property.
164 Self-Storage • The Journey
This can only become an issue if you don’t inform (in the lease) that you have these. If the cameras you have are not monitored either part time or full-time, your customers need to be aware of this issue.
Environmental Claims
Mold damage has moved to what some are calling today’s asbestos. In some circumstances, exposures to mold can potentially damage property and people. Mold conditions are very favorable when the relative humidity is 60 percent or higher. You need to address the possibility of mold quickly. Leases and rental agreements should address this issue and have specific exclusions from liability to prevent such claims. Let your customers know that there are risks of mildew and mold when property is stored. Pay close attention to controlling the relative humidity in your climate controlled units. Water leaks are a main cause of this issue. Find and fix potential problems in the roof, eaves and foundations and fix them quickly. Humidifiers are effective if they fit the building’s needs and are correctly installed.
When a Customer has Caused Damage
If damage occurs because of a tenant, the key question is: Who is at fault and who is liable? The owner (depending of the size of the damage and the scenario) can either turn the damage over to the insurance company or pay for repairs themselves which may be more convenient.
Chapter 14 - Legally Thinking
165
Come to an agreement on who caused and is responsible for the damage. It is important to take the right steps for the person at fault to be held accountable. If it is beyond argument that a customer has caused some damage to the property, start with the lease. The language should be clear on just what is expected in these particular situations. You can either add the cost of the repair to the tenant’s rent (if it is small enough) or deny access to their property until it is settled. A good lease with the appropriate language will settle the matter. When the damage is discovered, immediately contact your insurance agent no matter what the deductible or damage level may be. This is generally required by your insurance company. Remember to inform the tenant (when leasing the unit) that it is prohibited to store anything that is dangerous (such as flammables and such) in either the facility, or other tenants property.
Limiting Value of Items Tenants are Allowed to Store
The lease should state a dollar amount (limit to $2,500 unless addendum agreement) that your tenant is allowed to put into storage at your facility. You are not agreeing to be liable, but this does set a limit. Give them an insurance brochure and tell them for a small premium, their items are protected to the agreed amount.
166 Self-Storage • The Journey
This type of provision should also contain language that prohibits the storage of irreplaceable items that have an unknown immediate market resale value or objects with a special or sentimental value. Tell the customer that the facility is rarely liable, but you would encourage them to get their own insurance for items valued over the dollar amount allowed in their lease clause. Limit your exposure. Cap the limit on what the customer can sue for. Actual cash value is the replacement cost less depreciation. This is how the insurance companies get to the ACV (actual cash value). The clause should state they cannot sue you for more than X amount, even if you are found to be liable. The idea is to put as many hurdles between you and your tenant as possible. There is no lease that completely protects you, but some of these insertions just make it harder for tenants to cause you legal problems.
Legal Trends in Self-Storage
The first terrorist to attack the United States at the World Trade Center used a self-storage unit to store bomb-making paraphernalia. Because of these types of scenarios, today every operator should focus attention on screening customers, hazardous materials and release of liability provisions. Background checks can be provided by many companies such as the Self-Storage Association in your state.
Chapter 14 - Legally Thinking
167
Notice the behavior of each individual you are considering renting to. You can obtain a “red flag” list from your local or state police department. You should have a clause in your lease/rental agreement that releases all claims by the customer. This is enforceable in almost all states if it is clearly worded and prominent in the contract.
Search Warrants and Subpoenas
It is a good idea for all of us to help the authorities when it comes to legal operations. The owner owns the property and has the right to its rent roll. You can give this information to the authorities because the tenant is renting a unit owned by you at your facility. This enables authorities to better support their subpoena or search warrant request. Don’t be under pressure to show the authorities a tenant’s property or unit without the appropriate paperwork. Officers should provide identification and, appropriate paperwork. Write down the officer’s name, badge number and document the visit. This will protect you if the inspection of the unit is ever questioned by the courts. A subpoena is a command that requires someone to appear (or for the authorities to see their personal property) at a certain date, time, and place to give testimony in a legal matter. Subpoenas don’t require immediate action. This gives managers time to contact the owner or management company as well as his attorney.
168
Self-Storage • The Journey
Search warrants require instant action and are issued by a judge. This allows the police to search a specific person or property for evidence of a crime. You need to have a plan with a checklist before it takes place at your facility. Managers should take some time to examine all the documents. Be helpful, calm and courteous. If the search warrant allows police to take business documents such as rental agreement or a customer’s personal information, remember to provide them with copies not originals. Be prepared to copy surveillance video from the computer or VCR to a CD or videotape. If you don’t have this capability, they can walk out with the originals which compromises your files. When they leave, make thorough notes about the event and what you gave them. If possible, photocopy the search warrant and write down the names and badge numbers of the officers. If they take things from the unit, ask police to inventory those items. The key is to be as thorough as possible when recording the incident. As far as lock cutting goes, the jury is still out on whether this is in order. If a methane laboratory is involved, however, it can be very dangerous. You need to be as helpful as possible; because the assumption is that the police are there to protect the public.
Chapter 14 - Legally Thinking
169
Should a Self-Storage Accept Packages?
With so much competition in the industry and pharmaceutical becoming very solid tenants, should selfstorage operators accept packages? This can be a risky practice and it puts you in the bailment business. As self-storage is defined as real property and used for the purpose of renting storage space to occupants, should you risk being designated as a bailment business? The business model in self-storage is the rental of real estate. While pharmaceutical representatives are very solid tenants, and with competition in the industry, more and more self-storage operators are asked to accept packages. This puts you in a position of being able to enter the customer’s storage unit and accept the responsibility for that property. As such, you have accepted the duty of providing for the ordinary care of the unit’s contents. After all, you normally have no reason to access an occupied unit unless you are made aware of a maintenance situation, police documentation, or an emergency. Even if you accept packages in your office, you have assumed care and responsibility for holding them in a safe place. You become responsible for the damages as well as the possible opening and even the theft of stolen items. The customer expects their packages to arrive and be taken care of in the same condition they were delivered. You have assumed a new duty and liability which goes beyond the duties of a self-storage operator.
170
Self-Storage • The Journey
Holding a key to a unit is a bad idea and can expose your facility to a new liability. One solution is an automated locker system. It is expensive, but if you are going to accept packages for your tenants, this can protect you from any bailment liability.
Cash Put in a Box
State in your lease agreement that cash needs to be paid in person with a receipt issued. This is where a self-storage kiosk is good as it doesn’t require a tenant to actually pay a person in cash and get a receipt. A kiosk tells you how the payment was made, and if cash was received.
Late Fees
Late fees can be regulated by the state, so check this out. A good way to alleviate this challenge is to state in your leasing agreement that taking a payment with a credit card authorizes you to charge the tenant if he forgets to make a payment. This eliminates the potential for a late fee.
Lien Sales
The self-storage operator generally has the right (in at least 46 states) to conduct a lien sale of a tenant’s property if the customer defaults on his lease. Check with your attorney about how to proceed with this limitation. You must give the tenant proper notice that a lien sale will take place in a certain number of days from the time of the default.
Chapter 14 - Legally Thinking
171
Different states have different statues related to this area. This needs to be clearly stated in your tenant lease. Make certain not to call the lien sale an “auction” unless a licensed auctioneer is being used.
When a Tenant Files Bankruptcy
You need to become aware of what to do when a tenant has filed bankruptcy. First you need to determine the type of bankruptcy the tenant has filed as a self-storage operator must know the automatic state provisions. Go to the court and seek relief from the automatic stay so that you can gain possession of the facility’s space back for rental.
172
Self-Storage • The Journey
Chapter Fifteen
Rental/Leasing Agreements
Your state self-storage association may have the most valuable document needed by new store owners, the state-specific rental agreement. Federal and state laws might require your facility to perform a pre-rental screen so that you remain in compliance with the statues. You need to go over your proposed lease agreement with your attorney who has experience in the self-storage industry. This document needs to be solid enough to protect both you and your tenant.
The Self-Storage Lease Should Address The Following
The term and renewal clause is an important issue. It should clearly state month to month, or longer and on what day of the month is it due. The termination date is important. Don’t use the term “anniversary” because this implies a once-yearly event and you don’t want to limit rent increases. • You should include a right to terminate and the amount of notice required as well as a renewal date.
Chapter 15 - Rental/Leasing Agreements
173
• Include the definition of storage unit use. It is intended for the sole purpose of the storage of personal or business property only and is not a warehouse. • You need to list what is prohibited in their storage unit. Examples are hazardous, flammable, and noxious-smelling items as well as irreplaceable items which have an unknown immediate resale or emotional value. This also prevents the use or manufacturing of items in a self-storage unit. • Include the exact language for the definition of “hazardous materials” from the Comprehensive Environmental Response Compensation & Liability Act (42 U.S.C. Section 9602, et seq.), also called “CERCLA.” This precision is often required to appear in the lease by the mortgage and/or the insurance carrier. • Include the dollar value limitation without the express written permission of the facility provision. • The lease must state the right of the operator to control access to the facility by either electronic gate or signing in and out during certain hours. These rights may be altered by the facility management during an emergency. • Specify the gate hours plus any exceptions in the event of emergencies or power failures. Also the facility has the right to deny access to the tenant for any default.
174
Self-Storage • The Journey
• Make certain the lease includes appropriate release language to release the facility from liability from both personal injuries and death to persons at the facility, and for property damage or loss from various elements, including, but not exclusively, fire, water, acts of God, theft, burglary, vandalism, malicious mischief, mysterious disappearance, and/or rodent damage. • There needs to be two entirely different and separate paragraphs including these releases to meet certain state requirements. • Although some states require a conspicuous statement at the beginning of the lease, make certain the customer is notified of the facility’s right to any lien. • The lease must state the facility operator has the right to enter a unit in the event of any emergency, governmental requirement and in other limited circumstances to perform inspections or repair. • The lease must contain a default clause outlining all of the instances that the facility would consider to be a default under the lease. This goes beyond non-payment of rent, including failures to perform the other requirements under the lease. A subletting provision is a good idea. Have an attorney establish a mediation or arbitration clause. This is simply an additional hurdle that the tenant must jump before committing to sue the facility.
Chapter 15 - Rental/Leasing Agreements 175
A clause must to state that the information provided in the lease and any other documents which have lead up to the rental are true and accurate. The rental agreement is often the only protection between the operator and its tenants and should be carefully drafted by an experienced attorney experienced in the area of self-storage law. This lease should explain the facility’s role as landlord, the tenant’s risk of loss and the need for insurance for the tenant’s stored property. It should outline the rights of the facility owner, the obligations of the tenant and what happens when the tenant doesn’t pay the rent. You need a statement in the self-storage lease specifying that the owner is not a bailee and does not take care, custody or control of the tenant’s goods. Include a statement which states that there is a limitation of value. It should explain that the value of the property stored cannot exceed a certain amount unless approved in writing by the facility owner, and that the customer may store more than the limited value if he/ she provides a proof of insurance for 100 percent of the estimated value and agrees not to store property with special or sentimental value unless waving the right to make claims for emotional attachment to these items. Include that in the event of a claim there should be a jury trial waiver provision which restricts the tenant’s rights, to bring its claim before a jury. This depends on the state so check this area out with your legal counsel. Have a section on the lease which specifically addresses the tenant’s release of liability against the landlord. In other words, the tenant is storing at the
176 Self-Storage • The Journey
“sole risk” of the tenant and the landlord is not liable for loss of or damage to his/her property due to burglary, mysterious disappearance, fire, water damage, rodents, and acts of god. Include a provision that states the landlord will not be held liable for such property loss or damage arising from the “active or passive acts or omissions or negligence of the owner, owner’s agents or employees.” Another important clause involves the issue of tenant insurance. The tenant is obligated to obtain their own insurance to protect the value of the stored property and they assume full risk for the loss or damage to its stored property. Include a provision which contains a waiver of subrogation which prevents the tenant’s insurance company from pursuing claims against the self-storage facility after it has paid its insured. With a kiosk or internet lease goes, you need to add a line that states that by pressing the “accept” button on the internet or on the kiosk, the customer is indicating that they have reviewed, found to be acceptable as written, and agree to abide by and be bound by the terms and conditions set forth in the lease agreement. Wording should also indicate that the customer is agreeing that payment of rent at this time and in the future constitutes their ongoing acceptance of the terms of the lease as well as any modification(s) of the lease of which they are notified at least 30 days in advance.
Chapter 15 - Rental/Leasing Agreements
177
178
Self-Storage • The Journey
Chapter Sixteen
Rental Rates and Increases
Establishing Rental Rates
Don’t make the mistake of not charging enough for your product. Many business owners seem to confuse customer service with giving away profits. Don’t confuse being competitive with offering your product at a price that is too low. Just concentrate on outstanding customer service and that you must have profit to survive. Establishment of rent rates should occur after you have completed the needed homework regarding whether or not you are relatively competitive and have recently added more value to your facility. Check out other facilities in your area to determine the need and the rates as well as the competitiveness of what you are offering. This has to coincide with your expense evaluation and how much you need to make for a good profit. It is based on the theory of supply and demand and can fluctuate depending on market conditions and the economic mindset of the local demographics. Keep in mind that if you don’t rent that unit today, you will never recover that lost rent. So you have to stay in touch with your competition. Market demands, not occupancy, are where your rental rates come in play.
Chapter 16 - Rental Rates and Increases
179
If your facility is 100 percent occupied, you are not taking advantage of your optimal income because you are turning away business. If you are full, you will be encouraging competition. Remain flexible in establishing rates as you remain aware of changing market conditions. Long-term rent trends need to be adjusted upward to be competitive and profitable. It is a good idea to stay somewhere between the highest rates being charged in your area and the lowest rates. The actual price depends on what you are offering. Better amenities can command higher rental rates, as can a more premier location. Pricing is just a starting point as you observe market conditions. This provides the ability to adjust your prices at any given time. You are just thirty days away from raising the rent on your existing customers. Choose a pricing strategy that will work for you and your market. You will do fine if you apply common sense. You can tap into extra income by enhancing your investment with amenities. If you have been either full or at a high percent of occupancy and have never raised your rent, you have unnecessarily decreased the value of your facility. People are accustomed to costs going up from time to time. You can post rate increases as you keep up with the market demand.
180
Self-Storage • The Journey
If you ever plan on selling your facility, you don’t want it to be worth less because you have never increased rental rates. This would allow potential buyers to offer less for your business. The bottom-line is that tenants will either eventually accept the new rates or move out. If you raise the rate a minimal percentage, they would rather just pay the different amount than to go to the expense and trouble of moving. Besides, if they do move out, others will quickly take their place at a higher rate. Don’t leave money on the table, especially for a potential buyer. Even if you leave the facility to your children, it is better to raise or keep the value higher than to not take advantage of this potential revenue. Watching the competition will help you understand changes in the market rates. Understand what you provide compared to your competition, and become prepared to market your advantages.
Ask Yourself These Important Questions
1. 2. 3. 4.
Are you the new guy in your area? Is your location better than your competitors? Is your management better at managing? Are you or your management better at marketing?
You can be the lowest priced facility in your area, but don’t give your value away. Most likely your competitors are waiting for you to raise your rents so they can do the same. This is a normal way of doing business.
Chapter 16 - Rental Rates and Increases
181
Come up with a plan for handling rent increases. Will all tenants receive an annual increase or smaller semiannual rates? Decide what percentage you are going with and at what times you will implement it. Stay with four to ten percent, but make the choice based on how it will affect your bottom line. Look over your tenants “length of stay” and look at how long they have been paying a certain rate without any increase. You may want to stay with the popular unit mixes and then raise the rates more often. If some do move, you will have more tenants move in at the newer rate. You could do it all at once or seasonally at the busiest time of year. Rent raises aren’t as painful to customers if they are only increased by a few dollars per month. Determine the difference in what they are currently paying compared to the new rate. Is it more appropriate to implement the change all at once or in several small steps? Train your staff on how to handle the increase. It is all about perception and good managers know the benefits of and the need for the increases. They need to use tact and be confident in their explanation. Provide your employees with incentives for handling this change. They can also provide you with a list of the tenants who are due for an increase. Demonstrate the value of the increase to customers by doing some conspicuous facility repairs and upgrades. This will make it easier for them to deal with and accept
182 Self-Storage • The Journey
the increase. If possible, start these improvements even before you notify the tenants of the increase. Evaluate the results after each rate increase. Track the complaints and move-outs as well as the occupancy levels. This approach enables you to adjust your next plan accordingly. There isn’t a “make everyone happy” way to do this, but it is beneficial to be consistent.
Chapter 16 - Rental Rates and Increases
183
184
Self-Storage • The Journey
Chapter Seventeen
Expanding Remodeling Adding Value
Another way to keep up or surpass your competition is to remodel or expand your facility. You could also add value to your self-storage facility with extra services. While some improvements do not raise your property’s value, some do. You don’t want to leave money on the table that you could be earning with a few improvements or expanded services. Sharpen your pencil and get to work on just what will be beneficial to your bottom line. With careful and calculated planning, you can raise the occupancy and have higher rental income. You don’t necessarily want to keep up with your competition, but you do want to offer the best facility you can. Check out your curb appeal and drive up to your facility with the eye of a potential customer. Access your first impression. Drive-by traffic is a big percentage of any self-storage business. Don’t leave out the second impression which involves your office, employees, the reception your customers receive, and how clean and bright your reception area appears.
Chapter 17 - Expanding Remodeling Adding Value 185
Consider the condition of your units and buildings. Remember that females do influence other folks with their interpretation of your facility, especially appearances and cleanliness. As far as expanding, make plans when you begin to push a 60 percent occupancy level.
Some Ways to Add Value to Your Facility
climate control
(See chapter 3 for a more complete section on climate control) Does your competition have climate control and if so, how full are they? This comparison can help you to decide how to market your climate controlled units. If you don’t have any, consider building at least a few and then decide (after the results) just how many you need to satisfy the demand. Tenants who intend to store electronics, furniture, art and many other valuable items are a more affluent market segment. Businesses need this for their items like furniture, fixtures, pharmaceuticals, cosmetics, and many retail items. These types of tenants normally stay longer and can be more stable. They seek climate-controlled units. The size of the unit mix is about the same averaging from ninety square feet to one hundred and thirty square feet. The larger is more common to rural areas. Climate control facilities normally run out of the larger units first.
186
Self-Storage • The Journey
If you are building a new facility, keep in mind that around 15 percent needs to be added to the basic building costs for climate control. You will benefit greatly from marketing these climate controlled units. Use fliers, mailers and e-mail to your area to educate your potential client base. Do this on a regular basis. You can call on or telephone the professionals in the business district telling them that due to the demands for such units, you have more units readily available. When marketing these buildings/units, don’t use the phrase “Climate Control” by itself. You need to let them know that the humidity is important in these units and call them “Temperature and Humidity Control.”
Combining Retail with Self-Storage
Have you ever had or been involved with Retail or does retail simply sounds like a good way to improve your bottom line with your self-storage facility? The answer depends on you and your business style and skills. While this type of inclusion is gaining in popularity, there are pros and cons. You might consider a strip mall in front with the selfstorage office at one end to the entrance which allows customers to shop, eat at your café, or rent a unit. This also helps in advertisement. People will spread the word about this business. Either way, you need good management. This skill will cover the requirements of both the retail and the selfstorage facility. If you choose to rent out some or all of
Chapter 17 - Expanding Remodeling Adding Value 187
the retail spaces, you can handle this from one central location. You could include a postal center, café, donut shop, nail salon and many other types of businesses. You could also have living quarters upstairs. First impressions and curb appeal is a true asset. All of the businesses will gain exposure from one another, and should reinforce the image you want to project. A strong financial benefit of this mixed-use retail facility is that you can use triple-net leases to offset expenses. Talk with your CPA about this, as it commonly includes things such as common area maintenance and property taxes.
Milti-Story
As land prices increase, more developers are turning to multistory buildings. These types of buildings are less expensive to heat and cool. This is a great form of expansion if you have room on your property to go up. Many practices have evolved in the area of records storage area. Most records are now digitally stored, but businesses still have a need to maintain secure hard copies off site. This is a niche area of expertise. Film must be kept cold and dry in airtight vaults. Marketing is best with word-of-mouth and referrals. You need to be able to deliver.
Records Storage
Film storage
188
Self-Storage • The Journey
Medical Records
Handling medical records does require special training for security measures. This is in accordance with the Health Insurance Portability and Accounting Act.
Wine Storage
Wine sales in the United States have been on the rise for the past decade, and approximately 10 percent of the wine purchased is being stored by consumers. As a result, the number of self-storage facilities offering wine storage is seeing an increase. The U.S. is expected to continue to expand. It is easy to see why many operators are considering this as an option although it is a niche market and not suitable for everyone. There are three major categories of wine storage issues: 1. Controlling the climate 2. Controlling the security 3. Understanding and complying with laws involving alcohol in the state in which the facility is located. One of the best sources of information about this specialty niche is your local wine merchant. This individual also happens to be a great referral source. The more storage a customer has available to them, the more bottles or cases the merchant can sell. This type of customer seldom defaults on their lease. If a client requests that your facility accept direct shipments, it is important to be aware of federal regulations. You must then arrange for appropriate legal advice.
Chapter 17 - Expanding Remodeling Adding Value 189
The problem with new entrants entering into the wine storage business at a self-storage facility is they will sometimes automatically assume they can add this specialty storage to their unit mix and that it will be successful. This is not always true. In fact, wine storage is perhaps the most niche-specific specialty that a selfstorage facility can offer. It takes a very specific target market for wine storage to work and it does not work in every market. In general, wine storage is best suited for affluent markets, such as resort areas where people tend to bring their own wine with them, or upscale neighborhoods where wine connoisseurs may not have the space to maintain their own wine cellars. In coastal areas with yacht marinas, wine storage is often a draw for those who have a wine cellar onboard and need storage. Essentially, wine needs to be stored in a clean, dark, damp place with good ventilation. It should be stored in a vibration-free environment at a constant optimum temperature of 50 to 55 degrees Fahrenheit. More important than the temperature range, however, is the rapid fluctuation of temperature. For instance, if wine is subject to a slow temperature change of 10 degrees between summer and winter it may not be an issue. A daily or weekly 10 degree jump will be a problem. Proper humidity is also essential when it comes to wine. While the acceptable range falls between 50 and 80 percent, the ideal humidity is 70 percent.
190
Self-Storage • The Journey
Because of wine’s sensitivity to temperature and humidity, facilities that incorporate wine storage have back-up methods for maintaining the proper temperature and humidity in the event of a power failure. Typically, wine storage areas are isolated from the rest of the facility. They have their own entrance with specialized security. In fact, most facilities that store wine incorporate individually alarmed units or lockers. Some state-of-the-art facilities are going a step further by incorporating biometric scanning for these high-security areas. Should you consider delivery and picking up containers at businesses and homes? The self-storage industry is still trying to decide if mobile storage is a good idea to incorporate. It is happening more and more though. Many are viewing this opportunity as a valuable way to do business as it sets your facility apart from competitors. More acreage is required which does increase your overhead. You, also need to have good management skills to properly handle this type of operation.
Mobile Storage
Truck Rental
Truck rental is becoming more and more normal at self-storage sites. Customers expect to at least be able to rent a truck (or use one free) to move their belongings into their storage unit. Offering this service will generate leads for your storage business. The general consensus is that it can potentially raise your occupancy up to 25 percent. Additionally, you will need to add extra things for sale
Chapter 17 - Expanding Remodeling Adding Value 191
like boxes and tape. This service generates around $1,500 per month per truck. You can also use the space on the side of the truck to advertise your facility. You might consider becoming a dealer for a truck leasing company. For example U-Haul offers an advertising program with its dealer trucks and with a minimal cash investment. Do your homework because while this offers profit, it does have its challenges. It can take a great amount of time to rent and receive trucks. Adequate personnel and some salesmanship are required.
Car Washes
In addition to an immediate cash flow, car washes offer an instant and steady return on the investment. Another benefit is that it is an all cash business. Very little labor is involved and it even makes cash while the offices are closed. They are also recession proof. Tax benefits are gained by depreciating the equipment. Plus if you decide to sell the self-storage facility, the car wash adds value. Plan the space for your car wash carefully. Remember expansion and turning radiuses. You will need approval from local governing bodies for drainage and access. The average cost of a self-serve car wash bay ranges from $25,000 to $30,000 per bay to construct and equip. Automatic car washes are much more expensive. However, most banks will finance a car wash with 20 to 30 percent down.
192
Self-Storage • The Journey
Telecommunication Towers and Billboards
The enormous increase in cell phone use has prompted a tremendous need for more towers. These are typically 100 to 200 feet in height, which thanks to improved technology, has been lowered recently. Leasing space for this tower has become a viable ancillary income option for many self-storage facilities. Most self-storage facilities are located where zoning is favorable for these towers. No shed is needed for equipment; they can just use a storage unit. The cell tower company will build out and maintain the normally 10’x20’ space. You could rent this space to a cell tower company for around $900 per month instead of the $100 per month of a normal rental for that unit. Obtaining approval for a traditional tower can take as long as a year. Disguised towers such as a pine tree look or a flag pole, takes a lot less time. Of course the different cell phone companies own their own towers, but many cell phone tower companies build towers and lease out slots (up to five) to the different cell phone companies. This is promising for you as a self-storage owner because each cell phone company that leases out a slot from the cell phone tower company needs a storage unit for their equipment. Also, during negotiations, you can build in annual increases in lease payments. The contract must specify that each company which rents out a slot must rent a minimum amount of storage space from you also.
Chapter 17 - Expanding Remodeling Adding Value
193
When a tower leaves, have it in the contract that they must pay to have the unit put back into original order, or take a good size deposit so they can just take their tower and walk away. Or the self-storage facility gets to keep the tower and rent out the slots to other cell phone companies. Be careful here, because the FCC regulations say that you have to have a carrier on that tower or the tower must come down. This means the cell companies think they have the upper hand on you. The only slight drawbacks it has are the after-hours access requirements of the wireless companies. There may be zoning and community restrictions for billboards. These play a large part in determining where the board can be placed. Educate yourself on the available options as you are likely to be approached with a development proposal.
Billboards
Safety Deposit Boxes
While this can be expensive to build, safety deposit boxes can bring in good profits. You need to have a safe with a good vault door. You can find out the need for safety deposit boxes by checking the waiting lists at local banks. Tell them what you are considering and ask about the need. Just do your homework on the companies that provide the best fireproof boxes and determine the most popular sizes in your location.
Storing Firearms
You have three choices: 1. Have the customer fill out and sign a standard lease.
194 Self-Storage • The Journey
2. Politely say, “No, thank you.” 3. Or you could find the middle ground and make extraordinary lease provisions for this specialty storage. There is no right or wrong answer, it’s just a matter of owner preference and risk tolerance. Storage is not illegal as long as they are legal firearms. Whether it is hunting equipment or part of a valuable collection, self-storage facilities offer gun owners a safe stowaway for their firearms, and gun owners offer selfstorage operators an additional niche market to pursue. Some people welcome the fact that they can store their firearms away from their home and children. This also keeps their firearms safe from loss if their home is ever burglarized. If your state or area is known for its hunting, firearm storage is worth marketing. Gun clubs and insurance agents are a good place to start the campaign. A key selling point is the fact that storing valuable guns in a high-security area outside the home allows homeowners to get a discount on their insurance. You absolutely don’t want illegal firearms stored in your facility. For example, sawed off shotguns, firearms with silencers that are not accompanied by a permit, and short-barrel firearms are illegal to store, along with brass knuckles and switchblade knives. If a hunter wants to store his dove shotgun for the off season, there’s nothing wrong with that. But you do need to recognize an illegal firearm when you see one. Your customer needs to have to walk by the employees (trained on what to look for) when storing their firearm.
Chapter 17 - Expanding Remodeling Adding Value 195
With terrorism at the top of everyone’s list, this is a good way to keep persons from storing a large quantity of arms. A special lease with a non bailment by the operator clause is important. This clause makes it clear that the landlord does not have custody and control of the tenant’s firearms and, therefore, is not responsible for those firearms. The tenant accepts all risk of loss to his firearms, including but not limited to the risks of fire, water, storm, mysterious disappearance, or theft. Another component for special leases is to place the responsibility for insurance on the tenant. Legal experts say this is especially important given the potential value of collectible guns and other valuable items. There should also be a provision for the separation of ammunition from guns, as well as a requirement that all guns be properly registered. If it ever came to selling the guns at a lien sale the law varies from state to state. Most local jurisdictions have procedures for verifying that a particular weapon is registered to a particular tenant. The manager can then remove the gun from the unit until the time of the lien sale. If the tenant comes back and pays, then the manager can return the weapon. Requirements vary from state to state. In Texas, for example, selling guns at a lien sale is not illegal. You don’t need a license if you only sell them this way and only on occasion.
196
Self-Storage • The Journey
And, if you are already planning on one or more of these options with a safe, you could also plan for a wine storage in the same area.
Executive Suites
Some self-storage facility owners are getting into office and suite leasing. They can have a common area kitchenette, restrooms, a conference room, and a reception area that is staffed with a receptionist to accept calls and greet business suite clients. Some facilities have included other things such as high speed internet access, secretarial services, copying, faxing, and mail services.
Postal Services
While postal services aren’t new, they are gaining in popularity among self-storage owners and the area is a good fit. Some are even going to the trouble of establishing an official U.S. Postal Office branch, which adds value to the facility. The traffic (normally over 500 per day) increases your facilities exposure for renting out more units, but you do need to have adequate parking as well as meeting the standards set forth by the government. This works especially if the government needs another facility in your area. There are companies (such as Plano in Texas) that can help with startup. You need to be able to handle the extra time and work with your employees. If new employees are added, they can get training from you local post office. Further, about 750 square feet is required to qualify. The process can take
Chapter 17 - Expanding Remodeling Adding Value 197
up to six months. The facility must meet the Americans with Disabilities act for parking and access. Some postal facilities bring in an extra $3,000 per month which includes retail elements as you see in any post office. The government pays you a percentage of the postage sales. Consider these ideas if you are looking for opportunities to expand, remodel or add substantial value to your facilities.
198
Self-Storage • The Journey
Summary
The self-storage industry offers many opportunities, but is it appropriate for you? During these last couple of years, we here at American Steel Buildings, Inc. have received hundreds of questions which have been used to formulate this book. This resource was designed to be a starting point as you explore the self-storage industry. There are many valuable options to explore. You could begin with a smaller group of buildings in a smaller town and keep this as a good retirement or even a very good business income. Or you could get out there and go for it by doing your homework and develop a large and very profitable business. Whatever your decision, I hope this information has been helpful in your decision making process. Some of the questions that have been asked of us are as follows: • What is this self-storage industry? • Where did it get its start? • Where is it going? • What are the pros and cons? • Do I need to take a more serious look? • Where do I get started? • How do I get started?
Summary
199
This book may not meet your every need in your particular situation, but it is a well organized overview to stimulate your thinking process. You will find the phrase do your homework in many places throughout this book. Some ways of conducting your research are attending self-storage seminars, trade shows, and also the web. The self-storage industry is a great business consideration. It is now up to you to determine what it has to offer.
200
Self-Storage • The Journey
