By David Wilhite

A recent survey conducted by a major insurance company revealed that many, if not most, business owners purchase liability limits that will not fully indemnify them against the awards typically being handed down by today's juries.

Business-liability insurance provides essential protection for every self-storage facility owner. Business liability protects you against bodily-injury lawsuits--for example, a lawsuit claiming that someone slipped and fell due to wet or icy conditions on your premises. It also protects against property-damage lawsuits, such as one claiming that a security gate crashed down on a car while on your premises. Business liability also provides important protection against lawsuits involving libel, slander, physical eviction or the false arrest of a third party; and advertising injury lawsuits involving plagiarism, copyright infringement and false advertising. (Note that while libel, plagiarism, etc., may not seem like bodily or property damages, that's how the courts have interpreted them.)

The important point for you to remember about business liability is that if you are found liable in a lawsuit, business-liability insurance will cover those sums that you become legally obligated to pay up to the limits of your policy. In short, it protects your business, your assets and your peace of mind. Therefore, since business-liability insurance is one of the basic costs of doing business--and since you, as a smart consumer, want to invest your insurance dollars where they will do the most good--this month's column will provide a brief overview of liability-limit options, and why you should consider higher limits of protection.

It should come as no surprise that today's juries are routinely awarding tremendous sums of money in bodily-injury and property-damage lawsuits. More than 10 million civil cases are filed each year, resulting in hundreds of millions of dollars in jury awards. What is surprising is that a recent survey conducted by a major insurance company revealed that many, if not most, business owners purchase liability limits that will not fully indemnify them against the awards typically being handed down by today's juries. Obviously, this can be a very dangerous practice, especially in today's litigious climate.

If you think your current limits of liability are adequate, consider these three cases: Five years ago, a jury awarded a $1.95 million judgment to a delivery man who slipped and fell on cracked pavement while making his rounds to a business. Four years ago, a jury awarded $3.5 million award to a man who sustained serious personal injury after falling in a hotel shower. And just three years ago, a jury awarded $22 million to a woman who went into a coma after being struck on the head by a heavy toolbox that she pulled off a shelf in a hardware store.

These cases illustrate three important points: First, juries routinely award enormous sums of money in personal-injury cases; second, the liability limits you choose can spell the difference between solvency and bankruptcy; and third, liability limits of $1 million or more--which, just a few years ago, was considered adequate for many business owners--must no longer be considered unusual or excessive.

Fortunately, business-liability insurance coverage is readily available for self-storage owners at reasonable rates. Increased liability limits can be purchased in $1 million, $2 million and $3 million limits for just hundreds of dollars per million extra per year.

Assuming you've reviewed your business coverage and decided to increase your liability limit, how do you go about estimating the amount of coverage you'll actually need? Some experts recommend that you base your limits on multiples of your annual revenues. Another method for determining adequate coverage limits is to ask your agent what kinds of claims have been filed against storage facilities in the past and what the results were. You may also want to consult with a legal professional to find out what kinds of awards (in dollar amounts) have been made in your state in the past few years for similar businesses, and under what circumstances. Base your limits accordingly. If you are on an extremely tight budget, evaluate how much you can afford to lose if a judgment is made against you, and make sure your coverage protects you to at least that point.

Remember, no matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480) 970-6240; e-mail uif@vpico.com; www.vpico.com/universal.

 

Tech-Fast Metal Systems is a Tacoma, Wash.-based designer, supplier and erector of low- to mid-rise commercial buildings specializing in pre-engineered self-storage structures. The company's services include engineering, site design/layout, unit-mix analysis, detailing, project management, construction, site safety planning and customer service.

The company also hosts a seminar for members of the self-storage industry, "Current Issues for the Development of Self-Storage Facilities," which includes information on: selecting the most effective site in your market; market feasibility; understanding your cash-flow requirements and operating-income projections; management and marketing; and convenience-oriented collateral services and products.

Tech-Fast was founded in 1989 by current president, Dave Cook, and vice president, Mark Duncan. From the start, Cook and Duncan complimented each other with their extensive backgrounds in the metal-building industry--Cook from the sales side and Duncan from building and engineering.

The company employs 28 full-time employees who contribute to supplying and building more than 100 projects annually. The company's success has been fostered by the following corporate philosophy:

• Listen to clients in order to understand their specific needs and provide extraordinary service to meet them.
• Combine internal experience with external resources to design and deliver the best possible solutions and maximize each project's potential.
• Strive to build customer trust and mutually beneficial relationships that earn repeat and referral business.

Tech-Fast's experience in the self-storage industry has allowed it to develop processes to help its clients build successful projects. The company's client list across North America includes the major self-storage REITs, multifacility regional developers and many smaller owner/operators.

Tech-Fast shares its experience and knowledge with clients to help them understand their design options. From the concept of the project to opening day, the company contributes to the process. Its layout services help provide increased project returns by maximizing both land use and net rentable square footage in each structure.

Once design is completed, Tech-Fast provides a detailed quote outlining the specific scope of work. A project manager begins detailing submittal plans and engineered calculations for the project. The company then initiates material deliveries, bundles and marks materials for easy site sorting, keys the materials to the working drawings and sequences the construction process so the project flows smoothly. The end result is a project that is "On Track, On Time and On Budget."

The company's plans for future growth include the building of client relationships that further its penetration in the self- storage marketplace. Tech-Fast will also pursue new product developments that will take it into additional markets.

To the new self-storage owner/developer, Tech-Fast offers the following advice:

• Do your due diligence. Market and feasibility studies are critical to understanding the demand for storage. This information will help you in developing a financial pro-forma to provide maximum returns.
• Recognize that you are entering a retail business that serves a local marketplace. Design your facility to provide the products and services that meet your local market demands.
• Understand the complexities of today's building and permitting process before you purchase your site.

For more information on products, services or seminars, visit www.techfast.com; call (800) 709-4440; fax (253) 572-6396; write 711 St. Helens, Suite 200, Tacoma, WA 98402.

By Jim Kane

To Whom It May Concern:
Please be advised that unit #3088 is now clean and unoccupied.

For the record, I would like to state I am disappointed in your facilities. Upon my initial visit to your business, when I was shown a model unit, I was informed of a safety and security feature--that being entry to the elevator that was granted only through an access code. This feature, which was used as a selling point, never worked. Also, the elevator doors close much too quickly considering they are used for the loading and unloading of large quantities of furniture or other items.

I understand you are remodeling to upgrade your property; but from the time I leased a unit, until today when I vacated, I was continuously inconvenienced by the construction.

I am disappointed that your company promises services, such as convenience and elevator security, which are not provided to the consumer. I am further disappointed that the consumer receives no compensation for your ineptness.

Sincerely,
Amy, Your Customer

You have just read an actual letter I received in the past week. I was uncomfortable reading it, since I pride myself on the attention (I believed) we pay to the delivery of customer service. As you can see, we haven't provided value for this customer's money. Have we failed all of our customers? How can we turn this customer's experience into a positive one? Could we have prevented the inconveniences she experienced? These sorts of questions can be addressed through the way we design, operate and present our self-storage product.

What Is Good Customer Service to You?

My objective is to provide the best product and service to all of our customers, all of the time. How do you, as a customer, determine whether you are receiving quality service? Each of us defines quality service based upon our values, needs and, perhaps, moods on the day we are buying or using a product or service. What do customers need and value?

• The matching of their needs to a specific product.
• Availability of the product best fitting their needs.
• All the conveniences provided in the use of a product.
• Fair, friendly, helpful people or systems to help with the selection and purchase of a product or service.
• The purchase process should be simple, fast and organized for the consumer.
• Customers need confidence in the outcome of their purchase. The product and service must meet their stated and unstated needs.
• Problems encountered must be fixed so the consumer sees the value in their purchase.
• Your price must reflect the value you deliver from beginning to end of the customer's experience.

Whom Do You Count on to Provide Customer Service?

I count on everyone and everything I come into contact with at the place I buy a product to provide for my needs. I want an inviting environment, which should be clean, safe and organized. I simply want to be comfortable while spending my money. If I need to use the bathroom, I want it clean and stocked. If I need to park my car, I'd like the spaces to be wide enough and close enough to where I must transact my business. I want to feel safe as I drive to the location and conduct my business. When I walk into a facility, I want to feel these people can honor their commitments to me.

I walked into a truck-rental business with friends last weekend and found the employees arguing with another customer. They were then rude to us when it was our turn. The place was dirty, smelly and poorly organized, and my expectation was that this truck-rental experience would be terrible--and it was. Customer service is not just the way your staff treats your customers or how you resolve problems. Quality customer service must be designed into your product, services and procedures. Customers will notice if it is not.

Provide Customer Service in Your Storage Business

The above letter demonstrated that we failed to provide the customer the value she expected in several areas of her experience. First, there was the broken elevator-security system, then the elevator closing time and the ongoing inconvenience of construction. The customer then pointed out that we failed to adjust our prices to reflect the diminished value she experienced or perceived in our product.

There is a difference in some customers' experiences and perceptions of value. We've received very few complaints in our three years of operation. This suggests to me that customers do think our product consistently provides value--or they have not taken the time to let us know differently. Remember, though, that every customer is entitled to his opinion whether we as business owners agree with his conclusions. We must try to meet every customer's highest expectations.

Customer service is both designed into a product and delivered through quality operations. The complaints in our customer's letter can be summarized in the following categories: From an operating standpoint, the issue is the security system and how we managed the construction of the building adjacent to our existing storage operations. From a development standpoint is the type of elevator and door system we use. Finally, our opportunity to deliver value back to this angry customer occurs in how we choose to resolve the problems she's addressed.

Operating Features Provide Customer Service

All contact with the customer must emphasize his needs above those of the company. If you provide for the former, the latter will be met. When using or writing a telephone script, ask questions that show your interest in meeting customer needs before listing the fees and limitations associated with your product (i.e., hours of operation). Even if they store elsewhere, you will have delivered value to them by listening and offering solutions.

Procedures and related paperwork must be simple, professional and well-organized so the customer doesn't feel burdened. I use a tool that summarizes the key points (foreclosure, written notifications, rents and fees) in my lease. Most customers want to move quickly through the lease presentation, and this allows us to cover the legal issues if they insist on abbreviating the explanation of lease terms.

Do you make it easy for customers to vacate? Can they fax their vacate notice? Do you require a specific form? Remember, you are looking for certain information so you can properly update your records. If they want to send it in their own format, accept it. They shouldn't have to deliver it in person, either. A fax is a legal document and, in some cases, so are e-mails. Make it easy for your customers to work with you. Recognize that they may not follow your standard procedures. Be flexible and responsive.

Some customers want to do the rental paperwork for one location at another location. At first I resisted on this point, but I lost sales due to strict adherence to this procedure. Now they can complete the paperwork wherever it is convenient, and I will transport it to the proper storage center.

Do you take the American Express card? Many businesses don't because they don't like the fees charged to the business. Perhaps the customer will pay a slight fee to compensate you for taking the card. I've found nearly one-third of my customers want to use AMEX for its mileage program. Their fees are the same as those charged by VISA when you incorporate all the bank charges. I've listened to my customers, and now allow them to pay the way that's most convenient for them.

Develop and teach your employees guidelines--not policies--to follow. Allow them the flexibility to change some procedures to meet different customer needs. Teach your employees the power in saying "yes" vs. "no" to customer requests. Create a compensation system to reward them for responsible decisions that deliver customer service. Define quality, and reward its consistent delivery.

Development Features that Provide Customer Service

My customer found our elevator doors were closing too quickly. My type of elevator requires that the doors close, and the rate can only be modified slightly. Next time, I will look for a different system. The process of loading and unloading goods is paramount to making a customer's move easy. Execute the following and you will be providing good customer service:

• Provide staging areas to unload vehicles prior to moving belongings into a hallway or elevator.
• Be sure these areas are protected from the elements.
• Driveways must be a minimum of 25 feet wide.
• Carts, dollies and hand trucks must be available at all times for customer use. Don't restrict them to office hours.
• Hallways must be at least 5 feet wide.
• Storage unit doors should be as wide and high as possible.
• Lighting must be placed to minimize dark areas in units or outside.
• Restrooms and vending machines must be available during access hours.

I recently helped a friend move into my storage center. I learned that our access doors to the elevator lobby were a foot shorter than the elevator doors and hallway height. This requires customers to tip their belongings to the side to go through the first set of doors. This condition is a hassle for the customer and a simple oversight in development. Next time, a different design will provide better a product for our customers.

Communicating With Customers

How you communicate with customers creates value for your business. Invoices, late letters, telephone calls, e-mails and signs should all be professional. This should also hold true for all internal communication, such as memos between departments. A professional look signals to your customers they are dealing with a quality operation dedicated to providing them value for their storage dollar.

When I communicated with my angry customer, I listened, empathized and apologized, offering a partial refund for the inconveniences she experienced. I'm sure it will mean referrals in the future. Think like a customer, not the owner, when you develop and operate your facility. You'll then be making choices that make you money and maximize the value of your services. Ultimately, this will maximize your income and the related value of your business.

Jim Kane is the owner of Meridian Storage in Atlanta. His career began as a CPA in Seattle, where Shurgard became a client of his accounting firm. Eventually, he went to work for the company as its Eastern Region operations. For the past nine years, he has operated and developed storage facilities for his own company in addition to serving as consultant to numerous other owners across the country.

By Jim Chiswell

If you are not measuring results, can you really be certain you and your management team are as successful as you think? I have asked that question of many self-storage owners over the past 16 years. The usual response is they measure their success in unit occupancy or gross income.

In today's competitive environment, these standards of measurement are not enough. You should be constantly examining your operations and seeking out every advantage to enhance your competitive position in the marketplace. This is especially true when it comes to a manager's effectiveness on the telephone. By objectively measuring performance on the phone and during the in-office sales opportunity, you can obtain a more accurate measure of your manager's quality. This can help both of you achieve greater levels of success.

A new company supplying these types of objective measurements for industries such as self-storage is A Top Shop!, owned by Lori Niemczyk. The company, formerly known as Double Check, was instituted in 1992. It is national, not only in its client base, but also in its shopper base.

"I started the company as an alternative to other shopping companies that were in business at the time," says Niemczyk, who describes her company as taking the concept of "mystery shopping" to the next level. "A Top Shop goes one step further than any other company in that it offers mystery-caller, shopping and renting services."

"Mystery calls are a must in every industry. Phone calls are the lifeline for most businesses, especially self-storage," Niemczyk explains. "It costs a self-storage owner an average of $9 to $14 in advertising costs to make the phone ring just once. If the manager on duty doesn't do a sufficient job in selling his product, that money is wasted. Mystery calls are a way of ensuring owners their ad dollars are paying off. These calls are also a way for managers to improve their phone-sales skills. We invite feedback from managers about their evaluations."

According to Niemczyk, the biggest shortcoming that managers convey on the telephone is lack of enthusiasm. "Managers usually try to get out of the phone call by saying, 'It would be best for you to come and take a look,' without even giving the features or benefits that would motivate the caller to make a visit. If the manager is not enthusiastic and motivated, it is reflected in his tone of voice. This is picked up by the potential customer. No one wants to visit a dull person--or place for that matter."

Mystery calls are not the only service offered by A Top Shop. Mystery shoppers will also make a physical visit to a facility, calling the location first, documenting the telephone greeting and getting directions from the manager. The visit must include a tour of the facility, trip to the restroom and validation of the visit by obtaining either literature or a business card from the manager. Mystery renters start out as shoppers, but actually rent a unit. They then visit the facility on a regular basis to check the unit and pay their bill in cash. This is a particularly great service for owners because there are so many items that can be monitored and tracked each month, i.e., cash deposits, delinquent tenants, lien sales, etc.

Niemczyk emphasizes that the intent of the services she provides is not to shed negative light on the manager. "We are not 'out to get' the managers. Our main goal is to make businesses look good and improve their bottom line. We want to ensure that every potential customer is treated with respect and courtesy," she says. And clients consistently claim the benefit of these services.

For example, one New Jersey client could not figure out why his facility was losing so much money. A Top Shop sent its mystery shoppers to the site. One noted on his evaluation form that the office was old and run down. A second shopper confirmed this. As a result, the owner made the commitment to refurbish the entire facility to upgrade its image and professionalism. In less than two months, the facility's occupancy had increased and comments from customers were overwhelmingly positive. "The owner knew something was missing but couldn't put his finger on it until some independent shoppers gave him their opinion," Niemczyk explains.

Another client had a manager who refused to collect late fees. The mystery renter program helped that facility get back on track with its collections. Many clients ultimately discover managers who are unwilling to sell their product. A Top Shop's telephone evaluations have assisted owners in establishing a reward system to motivate managers to perform on the phone and get prospective customers to their facility.

A Top Shop doesn't only provide services for its clients' facilities. Some customers ask to have their competition "mystery shopped." In doing this, clients can find out if the competitor's employees wear uniforms, what size spaces they offer--virtually anything they would like to know. This information, combined with the talent and enthusiasm of their own managers, streamlines the facility's success. "I shop my own competition as well--hence our new name," says Niemczyk. "The bottom line is that every business has room for improvement."

For more information, call (303) 888-0602; visit www.atopshop.com. 

 

By David Wilhite

Are you ready for winter? Freezing temperatures, blustery winds, ice, sleet and snow can all cause severe damage to your self-storage facility and property, especially if you are not prepared for them. Winter conditions can present severe exposures to your building and the systems necessary to keep your self-storage facility running. Wet and icy conditions can also increase your liability risk by presenting greater potential for your tenant to slip or fall.

To give you some idea of just how damaging cold temperatures and heavy snow can be, consider the blizzard of 1993, which was the fifth most costly insured catastrophe in the history of the United States and caused an estimated $1.75 billion in damage. Much of the damage attributed to this storm was from frozen pipes, roof collapse due to the weight of snow, and interior water seepage due to blocked roof drains--most of which could have been reduced or eliminated had business owners been properly prepared. Unfortunately, due to the late date of the storm (mid-March) and its unusually wide geographic coverage, many unsuspecting business owners found themselves either unprepared or uninsured, and suffered major losses.

When considering the risk that winter weather poses to your self-storage facility, keep in mind that significant property damage may not necessarily occur only in those states that experience the harshest winters. Regions in which cold weather is the exception may suffer even greater losses. For example, an Arctic cold wave hit the Deep South in December of 1996, plunging temperatures toward record lows. At that time, below-freezing conditions extended from the citrus country in Florida, all along the Mexican border, reaching far into Texas, causing major losses. (Of course, Northern locations are most likely to be hard-hit on a regular basis. That same year, Minnesota and Iowa experienced record blizzard conditions, with wind chills reaching 55 degrees below zero; and many residents of the Dakotas were stranded after two days of heavy snowstorms left drifts at rooftop levels).

Don't wait until disaster strikes--now is the time to take preventive action to minimize your risk exposures and reduce your damage claims. The following checklist can help you you get started on a safe, loss-free winter.

Winter Weather Precaution Checklist

Buildings

• Maintain indoor temperatures above 40 degrees in heated areas to prevent pipe freeze-ups.
• Ensure that doors and windows are weather-tight and secure any unnecessary openings.
• Inspect remote areas for possible freezing and keep portable heaters on hand.

Roofs and Gutters

• Assess (with the help of a structural engineer) your roof's capacity for excessive snow loads and keep levels within safe bounds.
• Monitor snow levels in roof areas susceptible to large drifts and clear excess accumulation immediately.

Heating Systems

• Examine the entire heating system on a weekly basis during cold weather and repair any deficiencies immediately.
• Ensure heating equipment is capable of maintaining building temperatures above freezing at the coldest point within the building.
• Boilers: Completely drain idle equipment, elevate low points and dead ends, and check all service lines for freezing. Install heat tracing around control-line transmitter boxes and piping that carries water.

Water Lines

• Regularly clear snow away from sprinkler control valves, vents and other vital equipment.
• Leave outside water faucets open to drain.
• Install snap-on insulation on pipes subject to extreme wind chill.

Fire Protection Equipment

• Establish a regular maintenance program to ensure that snow and ice are cleared away from hydrants, sprinkler control valves, smoke and heat vents, and other essential equipment, so that all equipment is accessible during emergencies.
• Lubricate all sprinkler-control valves and locks to prevent freezing.
• Label location of outside sprinkler-control valves and hydrants for easy visibility.

Miscellaneous

If you do have a loss, take steps to control the damage. Move property out of harm's way and protect it from the elements. Contact your insurance agent or broker as soon as possible. Remember, no matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480) 970-6240; e-mail uif@vpico.com;  www.vpico.com/universal.

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Winter-Weather Terminology

Know the terms used to forecast winter weather conditions:

Winter Storm Watch: Severe winter weather is possible in the affected area which may include snow, ice or dangerous wind chills.

Winter Storm Warning: Severe winter conditions have begun or are about to begin in your area.

Blizzard Warning: Snow and strong winds (generally above 35 mph) will combine to produce a blinding snow (near zero visibility), deep drifts and life-threatening wind chill.

Heavy Snow Warning: Snow accumulations of 6 inches or more in 12 hours or 8 inches or more in 24 hours is expected.

Freezing Rain Warning: Significant, and possibly damaging, accumulations of ice are expected.

Snow Advisory: New snowfall of 15 inches is expected.

By Neal Gussis

The title of this article says a lot more than it's initial implication, because the financing "store" has changed quite a bit since this publication's last annual finance issue in November 1999. Banking relationships are different. There has been further shakeout in the conduit marketplace. And mortgage bankers are playing a larger role as self-storage owners find themselves focusing more on their operations with less time to shop the financing store.

Most owners have first-hand experience in some form of real-estate financing, starting with construction and development loans. For the past few years, there has been an unprecedented amount of construction and development financing available at rates that make investment returns attractive. We've also seen a vast array of permanent financing options that were just too good to pass up. Undoubtedly, the financing markets in recent years have opened the door to rates and terms not seen before in the industry.

Yet with the financing bonanza comes new lender expectations. The days of loans by handshake are well past us. At today's financing store, lenders look at all aspects of the transaction prior to committing and funding loans. There are also new terms and conditions that are new concepts to borrowers. The financing activity flurry started to slow down in the past 12 to 18 months as interest rates increased and underwriting standards adjusted. We have also seen significant changes in who is lending in this marketplace.

So with all our experiences, there's only one thing we can do, and that is move forward. We're all better informed and able to match our business financing objectives with available lenders and programs. And, although the financial marketplace constantly changes, owners are now in a better position to control their next financing transaction.

Let's take a look at your options at today's financing store and see what makes sense for your property needs. As you know, leverage or debt comes in many forms. The most commonly sought loans are construction and permanent or end-loans. For owners with larger property portfolios, you can obtain higher leverage through mezzanine debt and equity participation programs. Let's focus on construction and permanent financing and look at who we can turn to for our next financing transaction.

Banks and Savings & Loans

Banks and savings and loan associations have traditionally been the largest self-storage financing source. However, most have ceased to exist. Bankers generally like to lend on transactions with which they have a wealth of experience and the credit decision can be easily supported. However, self-storage understanding varies dramatically among banks based on the loan officers' and credit committee's exposure to our industry. The bank's loan committee also must understand that although self-storage properties do not have long-term leases, future operations can and will be stable. As the self-storage industry has grown and matured, more banks than ever are considering self-storage loans for their portfolios.

Many bank loans are "relationship" loans. What this means is that much of the credit decision is based on the strength of the borrower and past banking transactions. Traditionally, most bank loans have been recourse or partial recourse. Banks generally hold the loans they make in their own portfolio. This gives them more flexibility to negotiate loan terms. In some cases, even more importantly, they can modify loan terms even after the loan closes. If the bank intends to keep your loan in its portfolio, you will have the benefit of lower closing costs since they may have fewer third-party report requirements. Also, a bank's loan documents are typically less complicated and onerous than those of other lenders. Banks will also oftentimes waive "capital reserve" requirements.

Local banks are still one of the only sources for construction financing. The local bank is best equipped to understand the local real-estate market's dynamics. These loans are typically three years in term, and are designed for helping the borrower through the construction and lease-up period. Construction loans are recourse loans requiring personal guarantees, and are generally "interest only" with no principal pay-down for the construction loan period. Many banks will provide a mini-perm that allows the borrower to roll his loan into a permanent or end-loan. These loans will generally have a 20- to 25-year amortization with varying term lengths, although a five-year term is most common.

The banks are still the largest providers of end-loans or permanent financing. For loans under $1 million dollars, banks are the primary funding source. Typical loans have five-year terms with a 15- to 25-year amortization period with minimum debt service coverage (DSC) of 1.30 to 1.35 to 1. The maximum loan-to-value (LTV) varies; however, it typically does not exceed 70 percent. These loans can be recourse or partial recourse. The interest rates they charge are generally not the most aggressive, but if you have a "relationship" and keep deposits or have other loans with the bank, you may have more leverage to negotiate a better deal.

One of your newest options in financing "stores" is a hybrid of banks and conduits. Many banks have the ability to provide securitized loans. In this scenario, they will provide the same terms offered by traditional conduits or Wall Street capital sources. They are able to fund the loans from internal capital. Based on the market, the banks then have the option to sell the loan to be securitized on Wall Street or keep it in their portfolio.

Conduits

Conduit lenders provide loans through capital sources. These sources will include your loan in a pool of loans to be securitized through commercial mortgage backed securities (CMBS). Conduit lenders consist of banks, credit companies, Wall Street firms and mortgage lenders that underwrite and close in their name, but simultaneously sell the loan to one of the previous sources at closing. The securitization proceeds then replenish the capital source's outlay for funding your loan. Conduit loans are pooled and sold as debt securities (bonds) to institutional investors. The pooling reduces risk to the bond investors and facilitates the more aggressive interest rates.

Many owners have chosen to finance their properties through securitized loans in recent years. These loans offer attractive financing alternatives to owners seeking long-term fixed-rate financing and who are unlikely to pay the loan balance off prior to maturity. Today, the most popular loans have a 10-year fixed-rate term with a 25-year amortization period. These loans are all non-recourse (with standard carve-out exceptions). As of early September, loans supported by stabilized properties were being quoted at the low to high 8 percent range based on the deal's credit strength. The primary underwriting parameters are generally based on a 75 percent LTV and a 1.30 DSC. These loans consider historic operational cash flow, and most programs will underwrite your loan based on the previous 12 months of operations. Loans on lease-up properties are generally quoted on a case-by-case basis. Securitized loans usually have very restrictive prepayment provisions, but do allow a purchaser to assume the loan (generally for a 1 percent fee).

With owners demanding prepayment flexibility and the ability to increase loan dollars in the next two to three years, many conduit lenders now offer variable rate loans or float-to-fixed deals. The floating rate deals are generally about 1 percent higher than fixed-rate deals. Several conduit programs may not be available since many securitized lenders have minimum loan requirements of $2 million to $5 million.

Notably, the CMBS lending market has been in a "shake-out" period. With decreased loan volumes and profit margins, several lenders have left the self-storage market, including two of the industry's largest. It is likely that others will follow. Industry watchers insist that those who remain will be the stronger players, the ones most likely to remain the dominant lenders for the long haul.

Conduit lenders have little flexibility in their ability to negotiate terms since all loans in the pool need to have similar structures. Although conduit loans still offer the most aggressive loan terms, underwriting guidelines have become more conservative over the past year. The pools are ultimately examined by Wall Street bond-rating agencies and are rated as to the likelihood of default. There is also a growing concern that badly underwritten loans are under deeper scrutiny and being withdrawn from the pools at the demand of riskier bond purchasers (i.e. the B-piece buyer).

Choosing this option entails a trade-off between obtaining a loan with maximum dollars, longer terms, non-recourse and longer amortization periods vs. inflexibility in loan document negotiations and restrictive prepayment penalties. Closing costs are higher than bank loans. Remember, non-bank permanent loans generally have terms of 10 years or more, which translates into fewer costs over time.

Life Insurance Companies

Life insurance companies are portfolio lenders and often the choosiest lenders in the financing store. Typical minimum loan amounts are $3 to $5 million. They also look for facilities built within the last five years that are state-of-the-art and have stabilized operations. They are typically less aggressive with leverage, many times requiring a maximum of 70 percent LTV and 1.35 DSC. The loan terms feature 10-year terms and a 25-year amortization period, and tend to be non-recourse. Since they do keep the loan in their portfolio, life companies can negotiate loan terms, but have limited flexibility since the loans are non-recourse. The good news is that if you meet these requirements and are seeking a lower leverage loan, a relatively aggressive interest rate awaits you.

Mortgage Bankers

Given their many responsibilities in operating their businesses, self-storage owners oftentimes need a specialist who can communicate with lenders on their behalf and get the best deal possible. These mortgage bankers, or loan brokers, understand the market's capital sources, lenders and their many programs. Mortgage bankers frequently arrange with capital sources for the financing fee to be paid to them.

Mortgage bankers play a unique role in our industry at this time. Clearly we are seeing few, if any, lenders currently advertising in the monthly industry publications and a large reduction of lenders exhibiting at our trade shows. The majority of capital sources, including GE and Heller Financial, currently the most prominent self-storage lenders, have limited marketing personnel and look to mortgage bankers to procure a majority of their permanent loan business.

The mortgage banker assists you in preparing a financing package for distribution to likely capital sources. The mortgage banker adds value by preparing a package that tells your story and request in an organized and realistic manner. While we're deeply immersed in our industry, we sometimes forget there are still many lenders with limited self-storage knowledge who need education. Therefore, when choosing a mortgage banker to represent you, you should seek someone with self-storage financing experience.

Mortgage bankers help you cut through the typical delays and mazes of a large lending institution. You may also get better response time, since the mortgage banker and his firm may have done several deals with the lender. The mortgage-banking professional is assuming an increasingly important role in helping owners understand their options and shopping their deals throughout the many stores in the financing mall.

The Internet

Everybody's talking about the Internet as the next big shopping tool, whether you're looking to buy a house or computer or negotiate a loan deal. It's probably the most organic form of retailing available today, literally changing on a daily basis with new concepts and websites.

There are several loan websites that attempt to unite you with lenders offering the best rates and terms. Many people I meet think these sites are valuable for gathering information, but are not currently the answer to their self-storage financing needs. These websites are still at a very early development stage and most likely will go through a "shaking out" period, leaving a limited number of available options.

It is reported that literally thousands of deals are presented to these websites, but only a few handfuls of them are actually closing to date. Also, remember where you might fall in the pecking order of the deals they are reviewing. Many of the deals are mainstream real estate (i.e. office, retail, multifamily properties) with larger loan requests. As these websites improve, they will certainly change the financial landscape and create completely new storefronts for self-storage financing.

Summing Up

While the self-storage financing store continually changes, some things stay the same year after year. Please keep these thoughts in mind as you consider financing:

1. Make sound financing decisions based on your short- and long-term goals.
2. Choose the lender or mortgage banker best suited to your needs.
3. Daily business transactions are generally conducted with people you know and trust, and with whom you have an ongoing relationship.
4. Accountability is key, especially on large transactions.

There's no doubt that self-storage financing depends on solid relationships and personal attention. No matter which store you choose for your loan, look for that personal touch in any transaction.

Neal Gussis is a senior vice president at Beacon Realty Capital Inc., a financial services firm that arranges debt for self-storage and other commercial real-estate owners. Mr. Gussis has funded more than 250 self-storage transactions totaling nearly $500 million. He can be reached at (312) 207-8240 or at ngussis@beaconrealtycapital.com.

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Glossary of Commonly Used Terms
Understanding your loan application

Amortization--The number of years necessary to pay the loan balance down to zero. This includes principal and interest payments. A typical fixed-rate loan is amortized over 25 years.

Assumption/Transfer Provision-- Most lenders will allow a one-time assumption of the loan subject to the lender's approval and payment of a 1 percent fee.

Debt Service Coverage Ratio (DSCR)--A ratio used to express the relationship between annual net operating income and annual debt service. Most lenders require a minimum DSCR of 1.25:1.00. For example, if the annual debt service is $100,000, the annual net income has to be equal to or greater than $125,000.

Impound/Escrow Account--An account used for the deposit of valuable considerations such as money. The most common use is for the collection of property taxes and insurance premiums.

Index--The instrument used in determining the base for the cost of money. The Treasury rate is most commonly used for fixed-rate loans while the LIBOR index may be used for variable-rate transactions.

Loan-to-Value (LTV)--The percentage amount borrowed in the acquisition or refinancing of a property. The value of the property is determined by a third-party appraiser.

Margin--The spread between the index and interest rate.

Mortgage Constant--An equal annual payment, expressed as a percentage, that will amortize the principal and pay interest over the life of the loan. It is important to look at the application and determine if there is a minimum constant required by the lender.

Prepayment Premium or Penalty--A penalty for an advanced payment on a mortgage. The most common penalty is known as defeasance, which is the substitution of Treasuries for the remaining payments on the loan.

Securitization--A securitization involves a lender bundling similar mortgages that are analyzed by rating agencies and then used as collateral for bonds purchased by institutional investors. This type of financing is ideal for borrowers looking for low fixed-rate financing.

Reserves Account--An account to collect reserves for capital improvements. Most lenders will require that an account be established to collect reserves in accordance with the report prepared by a third-party engineer. In most cases, there will be a minimum collection of 15 cents per square foot, regardless of the results of the engineering report.

Single-Purpose Entity--A requirement by all CMBS lenders, a single-purpose entity restricts the borrowing entity from owning any other facility other than the property being financed.

Term--This is the period of time between the borrowing date and due date. In most cases, the term of the loan will coincide with the Treasury bill. For example, a 10-year loan will be priced over a 10-year Treasury bill.

By Cary F. McGovern

All markets, regardless of size, are good records-management markets in our paper-intensive environment. The only difference between markets is volume. The single best market opportunity for new start-ups in records management services is the 100,000 to 250,000-market range in North America and Europe. There are several factors that make this possible.

The Expanding Records-Management Market

Over the last 40 to 50 years, commercial records management has centered itself around the major world market cities. The need arose shortly after World War II as business expanded like never before in history. North America led the way as Europe and Asia rebuilt their plant and facility capabilities. During this time, government--particularly in the United States--began to impose regulations on businesses. It has since become complex and difficult to find our way through the maze of regulation.

If you are a multinational company, you will find the maze even more frightening. Heaped upon that, the United States and other Western countries have become increasingly litigious. Lawsuits abound. Although it took several decades for the rest of the world to catch up with the complexity of records management in the United States, it is true to say that everyone suffers from the same problems of data management throughout the free world.

I wrote this article upon returning from Europe, where I presented a paper on records management to the PRISM International (the association of commercial records centers) European group. Commercial records centers throughout the world discuss the same problems and opportunities we address in North America. One of the prime issues is growth. I ate lunch one day at a table with several operators from Budapest, Copenhagen and New Castle, U.K. We shared the same discussion about unparalled growth in our marketplace.

Companies Worldwide Share Experience

It seems that regardless of the size of the operation, problems abound in records management. Paper growth in the industry--even during a period experiencing more and more digital documentation--consistently outpaces the previous year's volume. Cities large and small have traditional paper records-storage growth doubling each four to five years on average.

The issue of records management is not simply a technological issue, but a sociological one as well. Research across North America, Europe and the Pacific Rim shows no real difference in records growth from city to city, except for pure volume based on population size. The one obvious component is that the smaller the market, the less competition there is.

The Ideal Population Market: 100,000 to 250,000

Business growth throughout the world has been moving out of the major city markets into the smaller, suburban markets. This was observed early on in the United States as major urban centers built broad traffic rings around their cities. Business and office parks followed. More and more people have become aware of the quality-of-life issues outside the hectic city centers.

As these markets have shifted, so have the service industries they require to operate. Commercial records centers in smaller markets have several advantages over the big center city operations. A recent survey of pricing reveals that the smaller the competition, the higher the average pricing usually is. It is also true to say that smaller community expenses are somewhat lower than large center city operations. The result is higher net margins on storage and retrieval services.

Advantages of Records Centers in Smaller Markets

Higher yield in storage revenue--Prices are higher since accounts with lower volumes are generally priced higher than large accounts, and "under-the-minimum" accounts are more common. These amount to net higher storage revenue margins per carton in storage.

Very little or no competition--Many markets of this size offer no records-management services. Those that do are very unsophisticated and easy to compete against.

Service levels can be dictated--Since you are the only player in town, you can set the service levels for your community. Whatever you set will become the benchmark for any future competition.

Some Issues to Consider

Customer education--Since your customers are not familiar with the benefits of records-management services, you become responsible for their education. Although this is not difficult, it is something that should be planned as part of an overall marketing strategy. In larger markets, the existing level of understanding records-management makes the sale more complex. Customer education can be a value-added service provided by your center to your customers.

More limited outsourcing options--In the smallest communities, you may find it more difficult to find resource partners to whom to outsource some of the activities. However, commercial records centers in many smaller communities can actually assist in the development of these outsourced service providers.

Smaller overall volume--Generally, there is less volume in smaller markets than in the large markets. Large market centers usually have to compete for the business and smaller markets simply have to justify their service. Even in smaller markets, there are large numbers of boxes that must be maintained as business records.

Marketing is Still the Name of the Game

Regardless of whether you are in a large or small market, marketing is still the most important ingredient in developing a commercial records-management facility. The business does not just roll in. You must market your offering. Remember that financially the model this best fits is an annuity. You should aspire to a volume of 100,000 cubic feet of storage in your market. If you do generate that volume over your first four to five years, the growth factor will double your business in the following five years. For example:

Computing Gross Storage Revenue for 100,000 Cubic Square Feet

• Start with 100,000 cubic feet of storage.
• Multiply by an average of $.25 per month.
• You end up with monthly storage revenue of $25,000.
• Multiply by a service revenue factor of .65 for each dollar of storage (1.65).
• You end up with monthly storage and base revenue of $41,250.
• Multiply by 12 months and you end up with gross operating revenue of $495,000.

Regular columnist Cary F. McGovern is a certified records manager and the principal of File Managers Inc., a records-management consulting firm specializing in implementation assistance and training for new, commercial records-center start-ups, as well as marketing support for existing records centers. For more information, visit www.fileman.com.

FileMan Records Management is developing a model for selling records-management services on the Internet. The company will soon be piloting several versions of its method. If you are interested in becoming a FileMan Pilot participant, e-mail fileman@fileman.com or call toll-free (877) FILE-MAN.

By R.K. Kliebenstein

What should an owner do before refinancing or applying for a construction loan? What are the expectations? Are you ready? This article will help prepare you to work with a lender so he can efficiently process your financing request and make the process as simple as possible.

I remember the days of the dreaded "site inspection" after talking to a client who was clearly not prepared for any audit or examination of his facility. In fact, those transactions went less smoothly because it was obvious funding was going to be an uphill battle, and that much of the work the borrower should have done would have to be done by the lender. In fact, the pricing will usually reflect this added work. I won't go so far as to say that you will always get a reduced interest rate if you make proper preparations for your lender, but I would take a gamble and make the process as efficient and easy as possible.

The Process Begins Before You Make Application

Long before you pick up the phone to inquire about financing, you should be preparing yourself, your store and your records for scrutiny by a lender. Even the most sophisticated of borrowers can be surprised by a lender's needs, and by the fact that the anticipated loan amount is not realistic because of a failure to prepare for the underwriting process.

Site Computer Bookkeeping

A full year before the application, begin a file with clean, crisp printouts from your site computer of the following:

• Rent roll for last day of the month (end of month or EOM): A tenant-by-tenant list, in unit order, accounting for the status of each space.
• Management summary: The EOM report showing the cash, credit and occupancy summary for the month. Make absolutely certain you have monthly amounts collected for the following categories: rent, late fees, security deposits, administrative fees and merchandise sales.
• Unit mix and potential income report: EOM report by size category with the gross potential rent and scheduled rent for each size.
• Occupancy report: EOM report showing by size category the physical occupancy and economic occupancy.
• Accounts receivable or aged receivables report: In two formats, the EOM unit-by-unit listing of tenants and the delinquent or current status, and a summary of the facility's receivables indicating the dollar amount of delinquent tenants for less than 30 days past due, 30 to 60 days delinquent, 60 to 90 days in arrears and more than 90 days past due.

Financial Statements

Collect clean, unmarked copies of the following:

• Month end income and expense statement
• Detailed general ledger
• List of accounts payable and receivable

Miscellaneous Documents

• Bank statements
• Utility bills (last six months)
• Most recent property-tax bill
• Most recent insurance policy
• Competition and rent survey
• Copies of building plans
• Copies of formerly completed appraisals
• Copies of formerly completed property survey
• Copies of formerly completed property environmental reports, including all test results (if any)

Prepare Yourself for the Process

You are likely to have several visitors to the property:

• First, if you are working with a broker or correspondent, it is worth the expense to have them spend (at your cost) a few days understanding your property and the market. This will typically cost $2,500 plus expenses.
• You are likely to have a visit from one or two representatives of the lender. One is likely to be a senior member of the team who will be presenting your deal to the loan committee or investor. The other is likely to be an auditor, who will be examining the records, and taking an in-depth look at the market and property. These visits are often called site inspections and are normally paid for by the borrower from a required deposit.
• There will likely be an environmental consultant who will be interested in the on-site activities (they really get concerned over business activity from tenants, with great attention paid to painters, automotive-related activity and the appearance of prolonged on-site activity). This is normally paid for from the third-party deposit account, funded by the borrower.
• A survey will likely be performed. This may be an update to an existing survey or a new survey. Again, this is normally paid for from the third-party deposit ... Are you beginning to see a trend here?
• Many lenders require a structural or engineering report. These folks will need a set of plans, preferably "as-built."
• Some lenders have third-party auditors examine the books and records. They will need copies of the financial statements, tax returns and bank statements. Make available to them the paid invoices. This cost may be passed through to the borrower.
• Appraisals are often an integral part of the process. I do not suggest ordering one ahead of the lender as not all appraisers are acceptable to all lenders, and sometimes there are in-house appraisers. After the former, you know who is going to pay for this. Make certain the financial statements, building plans, survey and competition study are ready to be shipped to the appraiser.

Treat each of these visitors cordially. If you are working with a correspondent or broker, offer as much information as you can. With each of the other visitors, answer questions as completely as necessary. Be honest. Do not hide the negative facts when asked, but unless it is a material fact, omit the details, particularly opinions or emotional thoughts. Offer to spend the time they need, but let them work independently. Inform your staff to answer questions that are asked. Again, dispense with nonfactual comments. If you do not know an answer, do not make something up. Simply admit you do not know and, if you think you know how to find an answer, volunteer to find out. If you have no idea how to get the answer or do not want to take the time to investigate further, do not commit to getting the information.

Here is an example: The visitor asks, "What percent of your tenants are business (not residential consumers)?" How do you respond? A guess? Go to the rent roll and count each of the names that are business names? How do you account for business units that are rented in a person's name, but are actually used for the sole purpose of business storage? How do you accurately assess space that is part business and part personal storage? In my personal storage units, I would guess that 80 percent of the junk (and I do mean junk) stored is old business records or materials, but my space is listed under my personal name. It is tempting to say, "Most of my customers are businesses," but if you cannot back it up with factual data, it may be an inaccurate statement.

If you do not have or cannot generate a detailed competition survey and market study, then pay to have one done. You can use consulting firms, or often real-estate appraisers who specialize in self-storage projects. The cost is usually around $2,000 to $2,500 and should include maps of each competitor, color photographs, rates and an evaluation of each property. The survey should address occupancy, the number of units and square footage.

Prepare the Property for Inspection

This is a great opportunity to give the place a little facelift. Make certain that the landscape is fresh, bare spots in the grass patched and that everything is clean. If you cannot afford to repair or replace it, make certain it is at least clean.

• All signs should be computer-generated or printed. There should be no handwritten signs inside or outside the office.
• The managers' personal effects are not appropriate for the view of customers or visitors.
• Clean up the office. Get rid of dead files and broken furniture.
• Clean all glass and windows (remember the glass on the fire extinguisher covers).
• There is no place for a television in the office. Watching Days of Our Lives during business hours is an absolute sign of unprofessional management.
• If you cannot repair or replace broken equipment or fixtures, then have at least three estimates from solid contractors to present to the lender for completion after funding. Prepare for large expenses such as roofs, paving or major repairs--an escrow account may be established to make certain these are done as a condition of the loan. If you do not want the lender to make his own estimates (and I can almost guarantee they will be high), then have the three estimates or proposals ready.
• Patch holes in the driveway smaller than one foot in diameter.
• If you can paint it, do so. A fresh coat of paint shows attention to detail.
• Let the correspondent or broker make suggestions on what can be done to make the property look better. Remember, after something is 90 days old, it is typically out of our eye to memory processing.
• Pets are great and sometimes cute, but they have no place in a professional office.
• Children of customers are enough to deal with. The owner's or manager's children should simply not be a part of the daily activity of the property. Their safety is much too important to risk them being hit by a car in the parking lot or being a nuisance in the office.

Only you can control the presentation of the property. Remember, you only get one chance to make a first impression. Consider a lender as a silent partner. Treat them as though they are making a direct investment in your property. Be informed about your property, the competitors and the neighborhood. Do you see new construction within a half-mile of the property? If it is not obvious what the construction is for, take the time to find out. Visit the local chamber of commerce (of course, you are an active member and your manager has attended the last three meetings), and get the inside scoop on new businesses to the area. Doing your homework, though it can be tedious, will more than pay off in the end.

R.K. Kliebenstein is president of Coast-To-Coast Storage, which provides construction financing and refinancing for quality self-storage projects, as well as feasibility and market studies for new and existing facilities. Mr. Kliebenstein can be reached at his South Florida office at (877) 622-5508 (toll-free) or visit www.self-storagemortgage.com,  www.askRK.com or www.realestateinvestor.org.

By Scott Lee Shabel

In this booming economy, you may be interested in refinancing the debt on your self-storage facility. If you are fortunate, you have contacted one of the handful of mortgage brokers who specialize in refinancing loans to self-storage operators.

Your first concern, of course, is: What interest rate is being offered? And what are the repayment terms? Can you get cash out of the loan? How can you qualify for the loan? These basic loan considerations should only be the beginning of your inquiry. Once you have approved the basic financial terms of your loan, you (and, hopefully, your attorney) will receive a rather voluminous loan package, containing numerous documents drafted by the lender's sophisticated attorneys. These documents contain many traps for the unwary borrower. Buried deep in this documentation are hidden features and charges, as well as restrictions on the manner in which you may conduct your business during the term of the loan.

Even if you consulted with a loan broker to obtain your refinancing loan, remember that he is usually working for the lender and receives his commission only if the transaction is consummated. The broker may not be motivated to negotiate on your behalf with respect to these hidden fees and charges, or the legal pitfalls in the loan documentation. The following is intended to constitute an overview of a typical refinancing loan. It is not--and should not be construed as--legal advice for your particular situation. You can consult with an attorney to assist you in understanding and negotiating the terms of your particular loan.

Your Loan Application

The first step in obtaining your refinancing loan, whether through a broker or directly with a lender, is a submission of your loan application. Warning: This is the most important document in your loan transaction. It is also the most often overlooked. The loan application may be presented to you as a mere formality, but its language--more importantly, what is missing from the application--may serve to undo much of what the borrower seeks to accomplish with the loan.

The borrower is generally required to invest significant sums of money at the time the loan application is submitted, including the expense of appraisals, engineering reports and environmental studies. These expenses can often run tens of thousands of dollars. Before committing this money and submitting your loan application, you and your counsel must be sure that all of the follwing issues are addressed:

• Loan Terms: The financial loan terms, including principal amount, interest rate, payment date(s), grace period, late charges and the default interest rate.
• Rate Lock: The borrower should negotiate a "rate lock," the lender's promise that the interest rate shall be fixed, provided the loan funds by a specified date.
• Costs and Expenses: All of the costs and expenses the borrower is expected to pay in connection with the loan-approval process should be set forth in the loan application. Depending upon the situation, the borrower may be able to negotiate a cap on the amount of some or all fees and expenses.
• Security/Recourse: In most cases, the facility itself will secure the loan, either by way of mortgage or deed trust. Additionally, the lender may require the owner to assume personal liability for the loan. It is a crucial aspect of the loan negotiations. In many cases, it may be possible to negotiate the personal liability of the business owner for the loan, limiting such recourse to specific situations.
• Loan Assumability/Transfer of Interests: Whether the loan is assumable, or whether the owner is permitted to make certain transfers (i.e., to family members or other investors) should be specifically addressed in the loan application.
• Prepayment Issues: If the lender intends to securitize the loan--and in certain other cases--he may require a prepayment penalty in the event that the loan is paid prior to maturity. In such cases, careful attention must be paid in the loan application as to the terms of the prepayment penalty clause. Consideration must be given to prepayment, not only in the event of a sale or transfer of the facility, but in the event of a casualty that results in the payment of the insurance proceeds.
• Loan-to-Value and Cash-Flow Verification: Inevitably, your loan will be subject to the lender's verification of the loan-to-value ratio of your property and the prospective loan, as well as verification that your facility satisfies the lender's debt-service coverage ratio. The better these members are, the better able you will be to negotiate more favorable loan terms. It is essential that you and your counsel review and understand the formulas used by the lender to determine your facility's loan-to-value ratio and cash flow.
• Insurance and Impound: The lender's requirements for coverage and impounds for taxes and insurance should be spelled out in the loan application. Often times, this aspect of the loan is overlooked, and the borrower receives several nasty surprises in the loan documentation submitted by the lender.
• Supporting Documentation: In order to hold the lender to its obligations under the loan application, particularly in the event that the negotiated and locked interest rate does not change, the borrower should insist that the lender include, as part of the loan application, a detailed list of the documents and conditions that must be satisfied before the lender will issue its loan commitment. This will prevent the lender from later making necessary and unjustified demands for additional documents and/or conditions, as well as from attempting to change the loan terms or simply refusing to fund the loan.

Appraisals & Reports

To the extent possible, the borrower should attempt to negotiate fixed amounts, or at least "cap" the fees to be paid to the various appraisers, engineers and consultants to be employed by the lender. In many cases, it may be possible to participate in the selection of appraisers, engineers and consultants.

Review of Loan Documentation

Congratulations! Your carefully negotiated loan application has been accepted by the lender. The lender and its appraisers, engineers and consultants have verified that your facility meets the lender's qualification requirements; and you and your counsel have received the lender's rather hefty loan package and its voluminous legal documentation.

The package will include your promissory note and the deed, trust or mortgage documents securing the loan. Depending on the nature of the transaction, the package may also include a hazardous substance indemnification agreement, a proposed attorney opinion letter, financing statements and escrow instructions. These documents must be carefully reviewed by an attorney to ensure they comport with the terms of the loan application. Your loan documents will invariably contain a clause that states they are the final agreement of the parties. If there is any variance between the terms of the loan and the terms of your final documentation, the latter will prevail. It is not uncommon for the loan package to vary, by inadvertence or design, from the terms of the loan.

Scott Shable can be reached at shabel@labusinesslawyer.com. Visit www.labusinesslawyer.com.

I hate money.
But I love money.
Know what I mean?

I often wonder what the social and political structure of this nation would look like if we reverted back to a simple, primitive system of barter. What if we could trade our talents, belongings or services for the things we need? How would that alter the present system of power and commerce? I think we would all be amazed by how much peripheral product would fall by the wayside if it couldn't simply be bought with currency, if it had to be earned with elbow grease or aptitude, if it required the sacrifice of something with more than monetary value. It's an interesting concept. Of course, we're all too terribly attached to luxury to ever allow such thing. But imagine the possibilities.

In and of itself, of course, money has no value. It's just paper and ink. But we have assigned it vast significance. People live and die by the mighty dollar. We aren't really given much of a choice. Especially if you own or operate a business--your survival depends on your fiscal well-being.

This issue is officially our Finance Issue. Each year at this time we attempt to provide some insight into the state of financing for self-storage, as well as practical information on topics such as putting a loan package together, where to find money to buy or upgrade a facility, whether or not to use a broker or how to choose a lender. It's no secret that the financing landscape for this industry has changed dramatically over the past few years. As pointed out in our September issue ("When Lenders Disappear"), access to capital still exists--the problem is simply finding it.

This year, Neal Gussis, now with Beacon Realty Capital, addresses "What's in Store" for self-storage finance, examining the various funding sources available today, from conduits to mortgage bankers to savings and loan associations. Michael Parham provides us with the "Big Financial Picture," through a demonstration of cashflow analysis as well as a multistate survey. R.K. Kliebenstein helps prepare you to work with a lender, and business lawyer Scott Shabel shares some insight on pitfalls to watch for when refinancing a facility.

Since you probably won't ever be able to trade in those valuable baseball cards for the facility of your dreams, prepare yourself to work within the paradigm. We may hate the process of securing financing, but we all love the result. Learn to make the best financial decisions for you and your project.

Happy Thanksgiving to you all,
 
Teri L. Lanza
Editor
tlanza@vpico.com