"America's Premier
Self Storage Brokers"
October 2004
2953 S. Peoria Street
Suite 207
Aurora, CO 80014
1-800-55-STORE
I just wanted to take a moment to thank all of you for your loyal readership. We have just celebrated the second anniversary of the Alert on Self Storage and we're thrilled that the readership has reached an all time high.
The Self Storage Industry has seen many ups and downs during these last two years. With the current state of the economy and rising interest rates, we may see some significant changes in the self storage sales market in the upcoming year. Please be sure to read our "Special Feature" article below. Argus President, Mike McCune, really hits the nail on the head with this one.
Melanie
Melanie R. Aaron is the Director of Marketing & Operations for the Argus Self Storage Sales Network and www.selfstorage.com. She can be reached at 303-785-6086 or via e-mail at melanie@argus-realestate.com.
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Tuscaloosa
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Oakdale, CA: $1,100,000; 19,000 RSF. Contact Broker Affiliate Ron Largent at .
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Fort Collins
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Middleborough, MA: $4,000,000; 40,330 RSF. Contact Broker Affiliate Joe Mendola at 603-668-7000.
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Detroit, MI: $3,800,000; 60,000 RSF. Contact Broker Affiliate Bruce Bahrmasel at 312-518-3550.
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Rogersville, MO: $900,000; 29,960 RSF. Contact Broker Affiliate Larry Goldman at 816-931-3101.
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Marble Falls, TX: $2,126,000; 67,523 RSF. Contact Broker Affiliate Mark Keys at 210-366-8817.
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Bedford, VA: $800,000; 29,700 RSF. Contact Broker Affiliate Kathleen O'Brien at 703-538-2382.
Check out all of our Current Listings
“No Excuses, Just Results."
That's the motto
of
the newest Argus Broker Affiliate, Paul Svenvold.
Paul has
been with Coldwell Banker Burnet in Plymouth, Minnesota since 1999. During
that time, Paul has been involved with investment properties, land
development, and residential real estate. Paul strives to provide all his
clients with honesty, integrity, and a level of professional service above and
well beyond the average. Paul will represent Argus in Minnesota.
Welcome aboard, Paul!
Visit the Argus Self Storage Sales Network at the ISS Expo in Miami!
November 17-19, 2004 ~ Booth #316
Talk with Argus Broker Affiliates and take a look at our current listings. We have 46 great properties for sale!
Argus President, Mike McCune, will be speaking at the Expo:
"Overbuilding: Is It Happening to You?"
Thursday, November 18th at 11:00 a.m.
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What You Need to Know About Selling & Valuing
Your Self Storage Property
Join us at the Roundtable Discussions
Friday, November 19th
11:30 a.m. -1:00 p.m.
*** Check your Expo Guide for session details and locations. ***
www.selfstorage.com
Announces Release of Online
Reservation Notification System
The self storage industry's leading website has announced the addition of an online reservation notification system. This new feature is available to all Premier Webpage customers at no additional cost. The system sends an e-mail notification to the facility when a reservation is requested by a potential renter. The system can be easily and seamlessly integrated with a facility's current management software.
To
list your facility or for more information on the reservation system, please
call 1-888-414-7871. Just one new rental covers the cost!
Low Cost ~ Easy to Update ~ No Long
Term Contract
Mention the Alert and we'll waive the set up
fee.
Congratulations to Argus Broker Affiliates
Joseph Mendola
of The Norwood Group on the sale of
Fremont Storage Company in Fremont, NH!
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Larry Goldman
of Prudential CRES for representing the Buyer of
Cardinal Storage in Webb City, MO!
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Richard Minker & Tyler Trahant
of Richard D. Minker Co. on the sale of
U Stuff It Self Storage in Mineral Wells, TX!
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The Argus Self Storage Sales Network
"
1-800-55-STORE
The Future of RV Storage
One would think that recent efforts by cities and homeowners associations to prohibit residential RV parking would translate into unprecedented financial opportunities for anyone wanting to go into the RV storage business.
But while such opportunities certainly exist in some parts of the country, the self-storage industry isn’t necessarily racing to build new facilities to accommodate RV owners.
“(RV storage is) a miniscule part of our business,” said Harvey Lenkin, a spokesman for Glendale, Calif.-based Public Storage, Inc., the nation’s largest self-storage company, with nearly 1,500 locations across the country.
While some Public Storage locations have spaces for RV
parking, the company often finds that it can make more money providing
relatively small, enclosed storage units for boxes and furniture than it can
by providing parking spaces for RVs. This scenario is particularly true in
metropolitan areas, where the high cost of real estate can make it
financially impractical for businesses to provide RV storage services.
Meanwhile, some parts of the country, including parts of central Florida, actually have an oversupply of RV storage facilities. “There’s more than enough places to park in central Florida,” said Bob Hattaway, owner of Adult Toy Storage in Altamont Springs, near Orlando. Hattaway’s facility, which has enough space for 1,600 RVs and boats in both indoor and outside facilities, was about 80% full at press-time. “When I opened in 1989,” Hattaway said, “I was the only one serving the Orlando community. I think there’s 22 today in the yellow pages.”
Other factors influencing the RV storage business, beyond supply and demand and the price of real estate, include the cost of insurance and local regulations. In Altamont Springs, for example, businesses are required to install fire sprinklers in buildings larger than 15,000-square feet, even though sprinklers would have little effect controlling a fire involving gasoline or diesel powered motorhomes, Hattaway said. The rising cost of insurance is also a significant hurdle for individuals considering the self-storage business. “The biggest hurdle for us is the price of insurance,” Hattaway said. “We’ve had problems getting coverage, even though we’ve never had a claim.”
Nationwide, the self-storage business has seen considerable growth during the past decade, but the industry has seen its revenues decline in many areas of the country during the past couple of years as falling interest rates have paved the way toward increasing home ownership. Indeed, as people move from apartments and condos into single family homes, it lessens their need for self storage facilities, said Bob Schoff, chairman of Tucson, Ariz.-based National Self Storage, Inc., which operates 93 self-storage locations in Arizona, California, Nevada, Colorado, Texas, Utah, New Mexico and Tennessee.
But
even though the self-storage industry has been relatively flat in recent
months, National Self Storage is finding it worthwhile to target the RV
sector in its home base of Tucson. At the time of this writing, in fact, the
company was preparing to pull permits for a $6 million, 115,000-square foot,
air-conditioned indoor RV storage facility that will be able to accommodate
200 to 300 RVs, Schoff said. The business, which is expected to open next
spring, will also provide valet parking, an RV wash facility and a
maintenance center with “four or five” service bays, Schoff said.
RV dealers, for their part, are increasingly eyeing the RV storage business, though many do not have the space to provide storage services themselves. About 25% of the Recreational Vehicle Dealer Association’s members currently offer RV storage service, up 5% from 2002, according to RVDA statistics.
Jeffrey Crider is a
freelance writer with more than 20 years experience. Jeff can be
reached at (619) 546-0572 or via e-mail
jeffreycrider@cox.net.
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Tennessee Storage Association First Annual Convention and Tradeshow, October 29, 2004 at the Knoxville Convention Center. This day-long event will include discussions on many topics as well as displays by corporate sponsors. To register, contact the TSA at 4260 Ft. Henry Drive Suite 151, Kingsport, TN 37663 or by phone at 423-239-8432 or fax 423-239-3003.
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"Building Your Future in Self-Storage", getting started in self storage seminar presented by BETCO, Inc.
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First statewide meeting of
the Colorado Self Storage Association will be held on Wednesday,
November 10, 2004 at the Four Points by Sheraton Hotel (formerly the
Marriott at I-25 and Hampden). Managers Course - SSA Professional
Development Course for Mangers (PDCM) - Human Relations and Sales Module: $100
COSSA Member, $120 Non Member. Owners course in the
afternoon (separate registration fee for owners seminar): $40.00 COSSA
member, $50.00 non-member. To obtain registration information go to
www.Coloradossa.com.
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Inside Self Storage Expo,
The following article was written by Michael L. McCune, President of the Argus Self Storage Sales Network. The article will be published in the January 2005 issue of Inside Self-Storage. Because of the timeliness of the content, we thought it would be helpful to preview the article for our Alert readers. Mike can be reached at 303-785-6087 or via e-mail mccune@argus-realestate.com.
The End of an Era— Very Serious Business!
You Only Have Three Choices.
The End of What Era?
No, not all of the Beatles are dead. However, the handwriting is now on the wall that the Era of Low Interest Rates is rapidly coming to a close. You may justifiably ask, "What are these signs of impeding rise in the cost of borrowed money?” First, the Federal Reserve has now raised the rates consistently for some four months and what is more, they say they are going to continue to do so for some time into the future. Next, interest rates are currently negative. In other words, the interest rates are lower than inflation, and thus if the Fed wants to limit inflation, interest rates will go up. Interest rates are also at the lowest point in 43 years, and it sure looks like this is an extreme condition from an historical standpoint. Please look at the attached chart and notice how long the up and down trends last. It should also be mentioned that the government just ran spending in the hole this year to the tune of $450 Billion (that’s almost $6,500 per family of four) and that had to be borrowed. You can imagine what the rate would be if you put that on your credit card! Lastly, the economy appears to be growing again, if only modestly, and that requires more credit for other purposes, which in turn means that rates will likely increase because of supply and demand. Whoops, I almost forgot that by the time you read this, the elections will be over and whoever wins won’t be trying to keep the rates down because they have four years before they have to answer to the voters. In short, there is not one single credible indication that rates will go down over the next year or so and many reasons that they will rise.
What Does This Mean for Self Storage?
It means that cap rates and interests are going up, neither one is good for self storage owners or sellers and, frankly, not much use to buyers either. A rise in interest rates almost always means the cap rates for valuing real estate also rise soon after, causing a decrease in the value of a property. (See my article in the November 2004 issue of Inside Self Storage, “Cap Rates—A Mystery Unveiled” at www.selfstorage.com/argus/articles/caprates_1104.pdf). Thus, it appears that if interest rates are going to rise by some amount and for an indeterminable time, owners and prospective buyers (most buyers are already owners) have to do some serious thinking. Fortunately, they really only have three strategies to choose from. While the decision is a hard one, at least there aren’t as many options as when you help your wife decide on shoes. If these decisions are postponed too long, the costs of delay will be very high if you don’t have the luxury of waiting for the interest rate cycle to return to low rates. The three choices that a self storage investor can make are: 1) hold for the period; 2) sell; and/or 3: buy. The time to make a money saving (making?) decision is quickly approaching! Let’s see what we have to do to maximize our returns from our interest rate forced decisions.
Buyers Opportunities
Buyers might think that with prices going down, this would not be the time to buy. Unfortunately, what really happens is that the rate of cash on cash return goes down much faster with rising interest rates than the prices fall, and, after all, a buyer is buying cash flow and return on investment. The problem for a buyer in a period of rising rates is that they wind up paying more interest than they save on price – and by a large margin! For example, a million dollar loan at 8.5% costs an owner $480,000 MORE in interest than a 6% loan over 25 years – and the lion’s share of that interest cost comes in the early years of the loan. In other words, a buyer has to get a giant discount to make up for a rise in interest rates. Rates of return work the same way. A project that would have a 15% cash on cash return with a 6% loan would only yield a 9% cash on cash return with an 8.5% loan. And don’t forget that because loan amounts are inversely tied to both value and debt service coverage it is very unlikely that a buyer would be able to borrow as much with prevailing higher interest rates. Thus, even though prices are high (i.e. cap rates are low), now is a good time to buy. Remember, the seller isn’t getting the benefit of your loan and that is where you get your increased cash flow. Sellers make a note here, if it is a good time to buy, it is a good time to find a buyer. In summary, buyers waiting for high interest rates and lower prices are usually engaged in a losing proposition. Thus, if you are thinking of buying, now is the time to get the job done.
Should You Hold?
We think that self storage is a very good business with a long-term bright future. If you agree and are absolutely sure that you want to stay in the business with your current facility for the next five to ten years, then you are a “holder.” If this is you, then you must either have a low interest rate loan or get one ASAP. Unless an owner has a favorably priced loan, the project may have trouble being competitive against other projects in the time of difficulty. The “holder” should lock in a fixed interest rate for as long as possible, usually limited to 10 years. Playing around with variable interest rates in a rising market is a very dangerous and tricky business. If you were that good at guessing interest rates, you would be on your yacht, not in the self storage business. Just in case you aren’t sure you are a “holder” read the next section.
Are You a Seller?
This is really a series of questions because few people believe they are sellers until they ask themselves some serious questions about the possible future. Most owners love being in the self storage business and believe in its future, and thus, really don’t like to think about selling, so they don’t. In the last decade or so it didn’t really make any difference if you thought much about selling because anytime you wanted to sell, you could, and on fairly favorable terms. With interest rates rising and knowing that the upward trend up is likely to last for some time, selling is going to become less profitable and harder to do. Remember, the math of buying a property doesn’t work as well in a period of rising rates, which also means that there are fewer buyers and they will have more leverage. Now is the time to decide if you are a seller because the opportunities to sell are going to change very soon. To miss this opportunity and have to sell at some later date at either a forgone profit or a diminished price, could prove to be a costly mistake. Let me describe what has happened over the last year because of falling cap rates; the roughly 1% drop in cap rates (largely due to continuing low interest rates) has increased the value of an average project by about 11% and the equity by a whopping 44%. This is without any improvement in net operating income! Unfortunately, this can also happen in reverse if interest rates and cap rates go up.
There are many reasons that people want to sell their self storage facilities and many are uncontrollable by the owner. If these reasons arise in the next period of rising rates the terms, timing and price that the property can be sold on will likely be less favorable than those available now with the low interest rates. Some of these “selling events” are: retirement, illness, desire to move, estate planning, divorce, need for money for other purposes, partnership breakup, death in the family, your product is not competitive, and overbuilding in your area. If you believe that any of these reasons, or any other, is likely to affect you in the next five years or so, you should give serious thought to selling now when the market is excellent for sellers. The next few months are probably the last time for at least two or three years --or perhaps more-- that we will describe the market as a “sellers” market. It will also be the last time you can be certain to control the timing and the value you receive if one of the selling events occurs. Now is the time to make such a valuation for yourself!
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