By now, you’ve read dozens of articles recapping or reminiscing about the state of self-storage in 2004, and New Year’s resolutions may have come and gone. Nonetheless, I would be remiss in my duties as this publication’s legal columnist if I did not summarize some of the big issues in the industry and address possible matters arising in 2005.

Looking back, I will always think of last year as the one in which self-storage finally rose above the “low fly” zone and ended up on many legislators’ and regulators’ radars. I fear more government interference is on the way; but let’s start by looking at where the industry stands.

State Legislation.

Forty-six states now have some sort of statute that at least, in part, discusses the lien rights of a self-storage operator. Some have full chapters devoted only to self-storage, while others still lump it in with other lien rights. Only Alaska, Montana, Nebraska and Vermont do not have some sort of industry ruling. However, many of the current laws are in need of a good overhauling and modernizing. In some cases, they’re more than 30 years old and fail to reflect what the industry has become since they were written.

Eight states—Arizona, California, Maine, Maryland, Missouri, North Carolina, Ohio and West Virginia—have some type of law governing the late-fee amount that can be charged in a self-storage owner/tenant relationship. Most of these bills are favorable to the industry, and self-storage associations of the remaining states recognize the value of legislation to set a reasonable late-fee law that will protect operators from potential litigation. Several states have introduced legislation to impose sales tax on rents charged by self-storage operators. A few, including Ohio, have even been successful in passing on this new tax to industry consumers.

Homeland Security.

Storage operators have continued to receive nonspecific warnings from the Department of Homeland Security that their facilities might be used to store materials that could be unleashed in a terrorist attack or stolen property intended to raise money to fund terrorist organizations or opportunities. As a result, many have begun to use employee and tenant screening, sometimes in the form of credit reports but more often criminal histories.

In late 2004, the Self Storage Association introduced its first attempt at a criminal-screening package known as “Counter Measures.” Several vendors are also making screening tools available that will allow operators to instantly check criminal and credit backgrounds.

Many software providers are working to meet the demand by integrating screening abilities into their programs. I sincerely applaud those who have heeded the warnings of industry experts and the Department of Homeland Security, not only because it’s smart from a business perspective, but because it’s our patriotic duty to make sure we know who is renting at our facilities.

Overtime.

Last year, the government revised its overtime regulations. However, as many states have policies that are stricter than federal guidelines, the new rules do not apply. Further, the new law doesn’t really answer questions about whether a selfstorage manager is an exempt or nonexempt employee, nor does it clarify the definitions of these terms.

We at least know that any full-time employee earning less than $455 per week cannot be exempt and is entitled to overtime. There are many storage operators concerned they may be facing a potential overtime claim because of having treated their managers as exempt employees. I have seen a small number of class-action suits by employees against midsized operators claiming back overtime and other damages. A great summary from the U.S. Department of Labor is available at www.dol.gov/esa/regs/compliance/whd/fairpay/side-by-side_PF.htm. 

Zoning and Eminent Domain.

Zoning also continues to be an issue for new and expanding facilities around the country. Now that zoning boards tend to lump mobile-storage facilities in with self-storage, it is becoming increasingly difficult to get approval. Part of the problem is when the industry started, it gravitated toward high-visibility areas such as expressway exits or large intersections. This normally wouldn’t be an issue, but unfortunately, there are some unattractive or poorly maintained facilities out there, and public perception is hard to change.

I have even seen cases in which self-storage was challenged through eminent domain to be taken and redeveloped by the government or private developers for a “higher and better use.” Eminent domain is also taking part of the yards, driveways or corners of storage sites for the widening of a road or to add a new highway ramp.

Negative Publicity.

Finally, as the industry has proliferated, we are seeing more negative media coverage about the industry pertaining to burglary, property damage or misuse, and drugs. I see more articles than ever about the use of self-storage units to house methamphetamine labs, hide stolen propertyand gain access to a site with the intent of theft. I’m also seeing articles about people trying to live in what are often unheated, unventilated units or using them for some other inappropriate purpose.

Hot Issues in 2005

Do-Not-Fax Regulations.

Looking ahead, in June we expect reinstatement of the do-not-fax regulations (similar to the National Do-Not-Call List) that were placed on hold earlier in 2004. If you don’t have a provision in your lease agreement, you should immediately insert language that allows you to fax and email current tenants from the date they sign their lease until final move-out (including full payment of all amounts due). If you don’t, you will lose opportunities for marketing and lease enforcement/collection that you are probably already using.

For existing leases, do as banks, insurance companies and other providers have been doing—send out a notice amending your lease to include this language effective 30 days after the next rent payment is due. I predict that some time in the next several years, a facility that fails to make these changes will end up charged with a do-not-fax violation. Enforcement of spam will be tightened too, so also include e-mail language in your new permission clause. Do-not-call regulations are generally not an issue, however, because of the definition of “business relationship” they contain. In this case, there is no permission clause necessary.

Unit-Size Litigation.

One trend I can predict with some certainty is the continuing and spreading litigation regarding the size of rented space. Particularly in California and Maryland, class-action lawsuits have already been filed against several operators. The filing tenants have claimed that while they thought they were renting a certain size unit, in actuality, it contained less rentable square feet than advertised, stated in the lease or shown on a floor plan, and they’re looking to recoup a certain amount of money in back rent, plus other fees and legal costs.

While we may be talking about a small amount of money per each individual tenant, when the amount is multiplied by several tenants over many years, the bottom line becomes significant. Further, attorney’s fees are often awarded as part of the judgment, so while a claim may settle for little or no actual money to the customer, there may be a large payment in attorney’s fees to the class-action law firm.

There are several obvious ways to fix your potential exposure in this issue, including making sure all information that discloses the size of a space (leases, brochures and floor plans) clearly says the size is approximate and the tenant is not entitled to a rent adjustment if the unit contains more or less square footage than stated. You may also want to stop referring to units by size (i.e., 10x10) and refer to them instead as a “one-room unit,” “two-room unit,” “small-house unit,” etc. This is a bizarre concept, but it will protect against this ridiculous litigation. Adding language about approximate size is another change you must consider making to your lease, as I think we will find a lot more of these space-size lawsuits before they run their course.

Advertising.

I foresee more lawsuits relating to advertising. Many storage operators use statements in their marketing they cannot support in a court of law. For example, looking through the Yellow Pages, I have seen statements such as “Manager on site—24-hour monitoring of the premises.” While the facility may have a manager on site, he is not really watching out his window 24/7. Similarly, if the manager goes on vacation or the facility is without a manager at one point for any reason, the owner cannot back up his claim.

In past columns, I have discussed use of the words “safe,” “security,” “secure” or others that imply a facility is more safe, more secure or better protected than its competition. Unless these claims can be fully documented and supported, they can come back to haunt a self-storage operator.

I also continue to see questionable advertising, particularly in the offering of specials. If a promotion is too good to be true and has a catch, or if a facility is not really offering exactly what the public believes it to be, an operator may find himself in a lawsuit or charged by the state’s Attorney General for deceptive sales practices. For example, I have seen offers for “first month free” with no footnotes or restrictions stated, and it turns out the first month is only free with the signing of a six-month lease. Now that the industry is on the legislative radar, these sorts of advertising tactics are going to be judged with greater scrutiny.

Reliance.

Which brings us to the discussion of “reliance,” an argument being used more frequently in lawsuits against self-storage operators. The basic line of reasoning goes something like this: Because of something said, done or implied by the agent at the facility, or the advertising or marketing materials of the facility, the tenant relied on the facility to (fill in the blank): have more security, maintain a climate that would prevent mold, prevent theft, etc.

The reliance argument has multiple applications, but there are two significant ones pertaining to self-storage. First, if a facility’s advertising implies or states it is “safe and secure,” and a tenant’s unit is burglarized, the site owner may find himself in a lawsuit that alleges he is liable. The assertion is that because of statements made in the facility’s advertising, the tenant relied on the facility to be secure and chose to rent a unit.

Implied activity is the second area where storage owners run into trouble. For example, if you have dummy or nonfunctioning video cameras on your property, you could find yourself in the midst of a reliance argument that goes something like this: “Because of all thevideo cameras I saw on the property, I relied on the fact that my goods would be safe or, if it they were stolen, there would be a videotape to help police find the culprit. Therefore, I want to hold you liable for the loss, even though your lease says you are not otherwise responsible.”

Business Records.

In the upcoming year, you are likely to see more state and federal restrictions on the disposal of business records that contain tenant information, such as leases, applications and credit-card forms. Eventually, shredding will be required for disposal of almost all records.

Insurance Programs.

You will see more requirements imposed on pay-with-rent and mail-order tenant-insurance programs by state insurance-licensing departments. Some industry insurance companies have stopped writing new pay-with-rent policies and are even withdrawing existing policies in states where it is unclear whether an insurance license is required to collect premiums. Several states, including California, have begun providing guidance or issuing limited licenses for the purposes of allowing a self-storage operator to offer pay-with-rent insurance. I expect to see more of this type of licensing in other states.

State Advocacy.

My final fearless prediction for 2005 is we will see more legal advocacy by the state associations. We’ve already seen a good bit of fighting on the issue of sales tax in a few states as well as industry-sponsored late-fee bills. I think the associations will become more active in lobbying for industry rights, including updated self-storage statutes and changes to the lien-sale notice requirement. For example, several associations are already pushing for a switch in their state statutes that allows for a post office-issued certificate and proof of mailing rather than a signed certified-mail card when contacting delinquent tenants. This makes sense, as certified-mail notices are not only expensive, tenants rarely accept them.

Finally, I think the state associations will offer more local training and certification classes to self-storage managers and employees. They may also start issuing standards of practice and other guidelines.

Of course, if I had a working crystal ball, I would be playing the lottery from a beach in the Caribbean. But one fact remains: This is a relatively straightforward industry that can do a lot to self-regulate, keep operations simple and resolve tenant situations fairly. If you conduct business in a clean, careful, honest manner and support your state association in its endeavors to educate owners, members of state legislature and the public, 2005 should be a year of continued progress and growth for the industry.

This year, I will focus my columns on issues discussed in this article. Please keep your suggestions coming, and I will write about that which interests the majority.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to

Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151.

Its official: HI-Tech Smart Systems Inc. lacks the ability to sit on its laurels, or even loll briefly on a single laurel. Already well-known for its popular RentPlus Windows self-storage software, the Kailua, Hawaii-based company has developed three major improvements for release in 2005.

Self-storage owners now have the opportunity to instantly enjoy web-commerce capabilities through RentPlus technology. Facilities simply link their own website to a secure HI-Tech site that retains the design, colors and feel of the original web page. Customers who go online can rent units, look up account details and make paymentswithout ever knowing theyve left the facilitys actual site.

Whats nice is it doesnt require owners to create an e-commerce secure site, says company President Mike Richards. They just have to have the links and an Internet connection that is always on. Also required, of course, is RentPlus software and the module that enables the web program.

An additional perk for facility owners is the softwares real time aspect. When customers pay a bill online, payments are immediately posted. The manager doesnt have to get an email saying something was paid, and then have to enter the information in the system, Richards explains. To access their account, tenants provide their unit number and gate code.

Rentals likewise occur in real time, transforming storage facilities into virtual 24-hour convenience shops. Potential customers go to the website, choose the rent-a-unit option, and navigate a series of pages that allows them to select a size and enter personal information. Once the unit is booked, it cant be rented by another person. The e-commerce abilities are like those available at onsite SAM kiosks, a product for which HI-Tech continues to develop supporting software.

Security should rightly be a concern for owners considering web commerce. HI-Tech uses the latest Internet technologies in crafting a program with excellent reliability. The technology, says Richards, evolved through collaboration with a Microsoft development program called Empower. Its basically a very secure way for programs to interact with each other. Its very efficient; things like encryption are built into its capability.

Fully Hosted RentPlus

Last fall, HI-Tech released the Terminal Services Edition (TSE) of RentPlus, which empowered companies to manage any site from one location with an Internet connection linked to their respective home servers. Now the company has gone one step further with a completely hosted version, tentatively titled RentPlus Online.

Our server will host your entire program and data, Richards says. You dont need to install any software at all on your local computers. You can run RentPlus Online through a browser or a special program. Server updates are automatically completed, and subscribers dont have to worry about performing backups.

HI-Tech designed the service to appeal to owners of smaller self-storage operations. If you have 10 or more facilities, its probably more effective to put TSE on your own server, Richards explains. But if you have only one or a few facilities, it makes sense to go with the hosted solution because you dont have to buy the server for $4,000 to $5,000. The main advantage is its a very inexpensive way to get in and get started on the software. Since you dont have to do installation, downloading or anything like that, its very easy to get started, too.

Rather than face a substantial licensing fee upfront, RentPlus Online subscribers pay a monthly charge that includes hosting of data, software licensing, tech support and updates. If the facility is to be sold, owners may transfer or cancel the service. The equipment requirements are also attractively inexpensive: Just about any beat-up computer lying around the office can be commandeered as host terminal as long as it has Internet access.

Found in Translation

HI-Tech has international clients in 22 countries that use the English-language version of RentPlus. This year, the company released its first fully translated version of the program, with all screens and reports presented in additional languages. The enhancement will give clients who have been dependent on English-speaking staff a wider pool of employees from which to choose.

In the past, weve had the ability to translate everything that went to customers letters and receipts, for exampleinto 10 different languages. Now our screens and reports will be translatable as well, Richards says. Our goal is to have four languages done by the end of 2005.

The company has a major office in the Netherlands, so Dutch was selected as the first language to target. HI-Techs own employees as well as current customers offered their input as official guinea pigs. It took almost a full year of programming to make it possible within the software, then we hired translators to do the actual work, Richards says. Within each language, there are about 20,000 words and phrases that have to be translated.

Richards expects the translations to give HITech a big business boost overseas, especially in places that arent flush with English-speaking workers such as France, Mexico, some Eastern European countries and all of South America. Spanish likely will be the next featured language.

For more information, call 800.551.8324; visit www.hitechsoftware.com.

There's no end to the tangible and ethereal dangers we face in this day and age. It's a wonder we endure as a world culture, thriving where we should realistically fail, escaping castigation where it is often warranted, mercifully slipping through the hands of jeopardy. If ever you feel unlucky, put out or unaccomplished, it's easy to gain perspective: Simply sit back at the end of a long day and give thought to all the perils you managed to avoid in the preceding 24 hours (keep in mind these lists are by no means exclusive):

• PhysicalDisease, illness, criminal attacks, accidents, crossfire, natural disasters and (my personal favorite) basic mortality.
• EmotionalLove, betrayal, fear, love, distrust, anger, love, sadness, grief, love, frustration, disappointment, despair, etc. Did I mention love?
• MentalOverwork, underpay, familial stress, financial stress, health-related stress, low self-esteem, a full gamut of diagnosable disorders, sleep deprivation, bad relationships (personal and professional) and general demoralization.
• IntellectualLost brain cells from too many controlled substances (preservatives, additives, alcohol, drugs) and uncontrollable substances (radio waves, microwaves, radiation, pesticides). Poor information, misinformation, lack of information, lack of desire for information. And finally, evolution, which aims to make Mankind more skilled and less gifted with each passing year.
• FinancialIdentity theft, virtual theft, credit-card fraud, unstable investments, a fluctuating economy, lay-offs, costly accidents, losing (or lost) lottery tickets, and other unpredictable tragedies.
• SpiritualLack of faith. Too much faith. Lack of answers. Oversimplified answers. Lack of conviction. Zealousness.
• MoralA shortage of working ethics and guidelines (and respectable bodies to educate and enforce), and too many laws upheld by corrupt power-holders.
• TechnologicalViruses, hackers, spam, crashes, breakdowns, meltdowns andthe letdown of all letdownsthe television show missed thanks to poor VCR/DVR/TiVo performance. The only thing worse is the eBay auction lost due to a poor network connection. Ouch!

Notice I failed to address business in this list of hazards. There's no need: This month's authors have duly covered the topic. Industry experts in the field of law and insurance will explain your liability exposures and how to rectify them, as well as how to protect yourself from threats outside your control. Today's self-storage operators not only face the dangers of natural disaster and breached homeland security common in every industry, they confront specialized risks as well.

From tenants who won't or can't pay to those who sue for damaged goods or the unlawful sale of their property, you're fortunate to shut the books on an average business day and be well in the black. Add the increasing need to verify customers' identity, make available tenant insurance and consistently modernize your rental agreement, and you've got even greater impetus to count your blessings.

Every day, you face a whirlwind of business risk. But appropriate insurance coverage coupled with proactive legal measures will keep you in the clear. Some days it's a miracle just to be alive, healthy and (mostly) sane. Why add a list of liabilities to an already full supply? Don't let fate hit you where it hurtskeep your business covered, and thank whomever you thank for small marvels.

Bright blessings,

Teri L. Lanza
Editorial Director
tlanza@vpico.com

Leading into 2005, the outlook for self-storage commerce remains positive. The industry is growing into an increasingly sophisticated and customer-oriented business. The bad news is legal claims against self-storage facilities are also on the upswing. Self-storage businesses nationwide are seeing an escalating number of liability claims. Some are quickly resolved but, unfortunately for facility owners, the current trend points to more litigation on the horizon. With this increase in lawsuits come higher business costs, particularly legal expenses. Now, more than ever, wise self-storage owners are reviewing their insurance policies to ensure they are adequately covered.

While self-storage shares many types of insurance exposures with other industries, it also faces unique risks. To ensure adequate protection against liability claims, you must have specialty insurance coverages, the most important which are customers' goods legal liability and sale-and-disposal legal liability.

Customers' Goods Legal Liability

This coverage protects against loss or damage to customers personal property for which you may become legally responsible. As a general rule, self-storage businesses are not accountable for items stored by tenants. Customers are responsible for providing their own insurance to cover the contents of rented space, and specialized customer-storage insurance programs are readily available to provide it.

However, the reality is not all tenants insure their goods. At some time, an incident may occur wherein your facility is accused of being liable for damage to or loss of a customer's property. Some tenants, particularly those lacking insurance, will insist on seeking financial damages from your business, whether or not you are truly responsible.

A key feature of customers' goods legal liability is defense against such allegations. Your insurer provides the protection you need from claims based on this type of exposure. As legal expenses rise and lawsuits become more common, it is not unusual for legal costs to exceed the amount of an actual claim. Self-storage businesses without customers' goods liability coverage may feel forced to pay damages for which they are not liable just to avoid the legal expenses that could be even more costly.

Customer-Storage Insurance

Customer-storage insurance (also known as tenant insurance) may play a key role in enhancing customers' goods legal-liability coverage. When tenants clearly understand their responsibility to insure their own stored goods and have access to a program at the time of lease, they are more likely to purchase insurance. In the event of damage or loss to their goods, they will be less likely to pursue a claim against the facility.

When selecting a tenant-insurance program for your business, it is worthwhile to consider the program offered by your commercial insurance provider. With commercial and tenant products from a single company, your facility may benefit from more consistent coverage. Plus, in the event of a tenant claim, you have a relationship with the administering company, making subrogation less uncomfortable.

Sale-and-Disposal Legal Liability

Sale-and-disposal legal liability has received a good deal of attention in recent years. This specialty coverage protects self-storage operations against liability claims by customers for loss due to the sale, removal or disposal of stored property as a result of a lien sale. Recent, well-publicized incidents, such as the sale of Malcolm Xs private papers during a self-storage lien auction in 2002, have raised awareness of the importance of this coverage within the industry.

As with customers' goods legal liability, sale-and-disposal coverage should include defense against allegations. Legal expenses are often outside the limit of the coverage, so its importance cannot be overstated. Regardless whether you strictly follow the letter of the law during every lien sale conducted by your facility, people get upset when their property is auctioned. The odds are good that your facility will eventually be named in a lawsuit by a tenant whose possessions you sold. Expenses for these suits can be costly, so make sure your facility is adequately covered.

Limited Pollutant Removal

Self-storage managers work hard to prevent customers from storing hazardous materials in their rented spaces, but occasionally the worst does happen. From old tires and paint to the truly scary toxic chemicals used in illegal drug manufacturing, hazardous materials may find their way onto your self-storage property, and getting rid of them legally and safely can be an expensive and time-consuming proposition.

Limited pollutant-removal specialty coverage pays for the cost to remove pollutants from storage spaces. When reviewing this coverage for your insurance policy, confirm that it will be afforded to all units at your self-storage site, not just those rented after the effective date of the coverage.

Manage Your Risk

Once you are assured your insurance policy is providing adequate coverage for the risk categories described, consider one more key factor in helping to reduce your liability exposures: risk management. This refers to those counteractive measures business owners and their employees can take to prevent loss, including loss from claims against a storage facility. Effective risk management helps reduce insurance costs by decreasing the potential for hazards. It also includes coverage design, which relates to limits and values and types of coverage based on identified exposures.

For example, efforts to prevent customers' goods legal-liability claims may include implementing a tenant-insurance program; carefully explaining the need for insurance to each customer during the lease process; and including an addendum in the lease agreement each tenant must sign, stating that he understands his responsibility and has been presented information on purchasing tenant insurance. Facility maintenance also contributes to reducing these types of claims. Regular inspections and prompt repairs may help to reduce the potential for damage to the customers stored items.

In the case of sale-and-disposal claims, one of the most important risk-management tasks is creating a standardized process for dealing with customer delinquencies that meets or exceeds the laws governing your business. Taking consistent and correct legal action before a lien sale may help reduce the potential for liability claims subsequent to the auction.

The industry continues to evolve, and with new developments come increased liability exposures. Self-storage risks require specialty insurance coverage. Operators should seek professional counsel from independent insurance agents who have knowledge of these hazards and can offer programs to address them.

Mike Schofield is vice president of Phoenix-based MiniCo Inc. Established in 1974, MiniCo is a national provider of specialty insurance programs for the self-storage industry. It offers commercial insurance programs and specialty coverage, including customer goods' legal liability, sale-and-disposal legal liability, limited pollutant removal and systems protection. MiniCo also offers TenantOne customer-storage insurance and renters insurance programs. For more information, call 800.528.1056; visit www.minico.com.

The elections are behind us, and the Fed is going to inch up interest rates. How much do the resulting political, social and economic gymnastics affect car washes? Very little. During the 40-plus years in which Ive been a participant in the car-wash industry, Ive witnessed countless boom times as well as moments of Where is payroll coming from? Through it all, we have beenand still arevery fortunate, as car washing is almost recession-proof.

When I first decided to make car washing my career, I spent some time pondering my choices with my Uncle Bill, who was a Princeton University trained economist and one of my early mentors. I remember asking him, Bill, you could have done anything. You had a great education and great connections, and you chose to be a car washer.

Why? Without missing a beat, he replied, You know, there are many choices in life. I figured I could be a big fish in a little pond or a little fish in a big pond. For me, the choice was simple: I chose to be a big fish in a little pond. Bill never had any regretsmaybe some anxious moments, but no regrets. His vision for our industry is still unfolding.

Like my uncle, I chose a similar path. Thinking back on my career, I believe there was another message behind Bill's words of wisdom. He clearly saw the opportunity and challenge of being his own boss as well as being a pioneer in a growing and exciting business.

The Right Model

In the long run, education can save you from making some wrong choices; but when the buck stops with you, you cant help but make some mistakes. It goes with the territory. You can study, theorize, and apply reason, statistics or just about any discipline you can imagine, and sometimes youre still going to come up scratching your head, looking for answers.

The simple truth of our very complex economic models is they are detached and based on history. Every day, we break the mold and new models are formed. But markets are made up of buyers with wants, needs and expectations. As long as emotion plays a role when dealing with the public, finding the right economic modelone that workswill be doggone near impossible. Let's face it: As citizens, we are part of the global economy, but as car washers, we live, work and prosper in a three-mile world.

Creating Scarcity

There's an old story about a man who had a very successful hot-dog stand. He paid all the bills, grew his business and was eventually able to send his son to college. Business was booming. Customers came from miles to buy the man's wares.

One day, his son came home from college and said, Dad, dont you know there's a big economic downturn? People are losing their jobs. Businesses are closing. You have to be more cautious, cut back on inventory and slow down on the marketing. The man thought, Well, my son is pretty smart. He goes to college. Id better listen. Sure enough, he cut back on supplies, was more careful in his marketing and expenses and, in general, became conservative. Not long after he made these changes, he noticed his business slowed down, eventually to the point where he wasnt meeting his financial needs. Shortly thereafter, he closed his business, fulfilling his son's prophecy.

The moral of the story is you cant stand in front of a moving snowball. You get out of the way and let it grow, or you try to stop it and break it apart. The sons economics teacher might have been right about the existence of a downturn, but what he didnt know was buyers and sellers' emotions often fuel the success of a business, not logic.

A Little Rain

As I said earlier, the car-wash business is almost recession-proof, but the effects of the national economy vary from city to city and state to state. If you are a full-service car washer in a market that has been hit by major layoffs, you may feel some impact. If you are a petroleum company that owns car washes, youll probably find wash sales will have a correlation to gasoline volume. If you are a self-serve or stand-alone automatic, you may be positively affected.

Car washing is a relatively flexible business, and its elasticity is driven by many factors, primarily weather. How you run your operation and what you do to react to market conditions is the difference between being profitable and really successful. The story of the hot-dog vendor is truebelieve strongly that you will fail, and chances are you will. If you properly plan, execute strategies and establish meaningful, realistic goals, you are headed in the right direction.

To ensure the success of your car-wash business, it is critical to match your choice of real estate, building style and equipment to the type and size of revenue stream you have available. If you are working with the right suppliers and other professionals, the only rain youll experience will be weather-driven, not economic. Good financial planning, as Uncle Bill used to say, is almost as simple as saving for a rainy day.

Fred Grauer is the vice president, distributor network, for MarkVII Equipment LLC, a carwash equipment manufacturer in Arvada, Colo. He has made a life-long career of designing, selling, building and operating car washes. He can be reached at fgrauer@markvii.net.

In addition to defending buildings and equipment against common hazards such as natural disasters and crime, you need to guard against lawsuits filed by persons who may have been injured on your premises and damage to tenants' property. You also need to protect your income against business interruptions that occur after a loss. There are many important insurance packages of which you should be aware, such as workers' compensation and flood insurance. Following is an overview of some coverage you need to adequately shield your self-storage operation.

Business Property

This coverage protects your property from direct physical loss or damage from covered causes of loss. Look for a policy that includes replacement costs on buildings and business/ personal property with no co-insurance. Most property coverage requires a deductible. Keep in mind that while a higher deductible will help keep your premium down, you want to make sure you can afford to pay the amount in the event of a loss.

Business Income

Business-income coverage, or loss-of-income insurance, is designed to minimize your risk in the event of a loss. "Loss of income" refers to the suspension of your operations by direct loss or damage. "Extra expense" refers to any extraordinary expenses you incur during the period of restoration, which begins with the date of a loss resulting from any covered cause.

As a rule of thumb, it's a good idea to secure a full 12 months of this coverage to protect against business interruptions. While it may only take three to six months to actually rebuild your business after a covered loss, you will first have to remove debris, obtain bids and building permits, and perhaps face ordinance and zoning requirements before starting.

Since most conventional coverage ends when rebuilding is complete, you should ask your insurance agent about an extended period of indemnity, which provides for loss-of-rental income during a specific period following reconstruction. While an average retail store or restaurant can begin generating profits as soon as it is reopened, self-storage facilities may take several months to generate enough new tenants to be fully profitable.

Business Liability

Owning and operating a storage facility comes with plenty of accountability. Even if you operate with the utmost care and provide the best service, a tenant can find you at fault for a personal loss. Business liability provides coverage for bodily injury and property damage that occurs on your premises and protects your facility in the event of a related lawsuit. It will usually cover damages from the suit as well as legal fees.

Depending on your needs, liability insurance can be purchased in many forms. Additional coverage available in a self-storage business policy includes:

• Sale and DisposalThis coverage provides broad-form coverage to protect you against negligent acts that arise from the sale, removal or disposal of customers' property when reclaiming space for which rental or other charges are delinquent or unpaid.
• Customers' GoodsThis provides coverage against loss or damage to your customers' personal property, if you are legally liable. It might also provide defense and legal costs, even if the suit is groundless or fraudulent.

Flood Insurance

Self-storage insurance, like most commercial policies, does not include flood insurance; and many facility owners don't realize their standard business policy doesn't protect them until it's too late. As a matter of fact, only a small portion of businesses exposed to the risk of flood damage are insured.

Fortunately, it's easy and inexpensive to protect yourself against flood through the National Flood Insurance Program (NFIP), which is backed 100 percent by the federal government. The NFIP divides risk areas into three basic groups: low, medium and high. Less than one-third of all reported flood claims come from high-risk areas, and more than one-quarter come from low-risk areas. That's why most business-insurance expertsstrongly recommend flood insurance, even if you are at low risk.

You can get good and affordable coverage even if your facility is in the boundaries of a flood plain. It costs an average of just a few hundred dollars per year for businesses in less-hazardous areas, and the NFIP and its write-your-own servicing companies guarantee coverage for a anyone in a high-risk area.

Depending where you are, it may not be necessary to purchase flood insurance at maximum amounts. If you are outside a designated high-risk area, you can purchase partial coverage and receive an actual-cash-value payout for damages up to the purchase amount. However, if you have a lot of equity in your buildings and property, you may want to consider purchasing excess flood protection, which is available up to twice the regular limit. This extra protection may be prudent given inflation and construction costs.

Workers' Compensation

In nearly all 50 states, you are required to cover your employees for workers' compensation. Regardless, it's sensible to carry this coverage. If you fail to warn employees of any existing danger on your premises, you can be held liable for damage suits brought on by an employee under common and workers' compensation laws. Therefore, this very important coverage must be considered a mandatory part of your insurance portfolio.

Choosing the Right Company

As a responsible self-storage owner, you know securing the right insurance can help reduce operating risks and guard your assets. That's why you've evaluated your exposures and worked with an agent to choose the coverage you need to protect yourself in the event of a loss. But if you want to get the best defense, you need to do more than just choose the right insuranceyou need to choose the right insurance company.

Why is this so important? If you fail to do your homework, you won't know how a particular company is going to perform until you have a loss, and by then it may be too late. You don't want to discover after a disaster that your carrier has a history of poor claims handling or its financial standing is in jeopardy. And there are other advantages to choosing the right company that can save you money and get you the specialized coverage you need.

Choosing the best insurance provider for you is easy when you have the right information. Here are the three most important things you need to know:

• The company's financial strength
• The company's claims performance
• The company's specialized knowledge of your business

Financial Strength

An insurance company's financial strength reflects its ability to meet obligations to its policyholders. In fact, financial strength is the very cornerstone of the promises on which insurance companies are built. To determine if a company will be able to meet your claims, make sure it has a solid balance sheet. The easiest way to do this is to check the rating report of an independent industry analyst, such as the A.M. Best Co.

A.M. Best has been reporting on the financial condition of insurance companies since 1899 and ranks as the oldest and most experienced rating agency in the world. Its rating is assigned to every major insurer in the United States. The company carefully evaluates each provider's performance in five critical areas: profitability, leverage, liquidity, reserve adequacy and reinsurance.

Best ratings range from A++ (superior) all the way down to F (in liquidation). Although a solid rating is not an actual guarantee of a company's financial strength, it is a strong indicator that you will receive prompt and fair claims handling today and in the future.

Claims Performance

Claims performance is the make-or-break factor that separates a good insurance company from a great one. Every year, millions of business owners file insurance claims that may be subject to careless handling and needless delays. As anyone who has ever suffered a loss can tell you, the trauma of a fire or theft is stressful enough without having to worry about your insurance company's performance.

What should you expect from a reputable insurance company? Fast, fair claims handling and courteous service. First, a responsive company should contact you within 24 hours of receiving your report to begin the settlement process. Second, the company should make every attempt to dispatch a claims adjuster to inspect any property damage if necessary. Third, and most important, the company should attempt to make the claim-settling process as smooth aspossible, avoiding unnecessary questions and issuing payment without delay once coverage has been confirmed.

Specialized Knowledge of Your Business

To protect your assets, an insurance company (and its brokers and agents) should have specialized knowledge of the self-storage industry, as well as a commitment to stay abreast of industry changes through education and training. Moreover, a concerned company will also be able to recommend measures that will help you safeguard against losses.

Some insurance companies have developed specialized coverage for the self-storage industry that can actually contribute to lower premiums. A company familiar with current construction costs or with in-depth knowledge of the latest security systems, for example, can more realistically handle any claims you may have as well as provide the proper coverage. Look for a company that will work with you to reduce losses in the workplace, which can help contain your insurance costs.

Understanding and Controlling Losses

Business-liability insurance is designed to protect you against claims that someone was hurt or property was damaged on your premises. As every self-storage owner knows, recognizing and controlling liability exposures is a prime concern in today's litigious society. Merely having coverage in place is not enough. Courts are getting tough on business owners who allow hazardous conditions to exist, and judging by the awards juries sometimes hand out, no amount of protection may be enough.

The single most important key to protecting your facility against lawsuits is awarenessof your responsibilities under the law, potential hazards at your facility and your need to do everything you can to prevent accidents. Court decisions can and do favor those who take proactive steps; and in the case of a lawsuit, an ounce of prevention is definitely worth a pound of cure.

Reduce Potential Liabilities

The best way to limit your liability in advance is to identify and eliminate (or at least minimize) potential risks. Take a walk around your facility and play a game of "What if." Try to imagine what things could go wrong and what you can do to prevent them from happening. For example, you may discover a glaring hazard, such as a large pothole outside of one of your units that needs to be blocked off until it is repaired. Or you may discover a less obvious risk, like a worn or curled floor mat, which was intended to prevent slips and falls but may actually cause them.

Since slips and falls account for the vast majority of liability claims, it pays to be extra careful. Slippery floors from rain and snow are the leading cause of tenant falls. You can reduce your liability substantially when you take reasonable and prudent care to prevent accidents. Begin by keeping floors dry. In bad weather, post "Caution" signs when the floor is wet; install nonskid moisture-absorbing carpet or mats; and keep a mop and bucket handy to control runoff.

A dangerous situation can even be created in an instant by a careless employee in the normal course of his work, for example, leaving a wet floor unattended for a few moments when cleaning. Courts can and will hold management responsible for the actions of its staff in these cases. Once again, a proactive response is the keyin this case, by advising of a specific risk by posting a sign that reads "Caution! Slippery When Wet."

There are other important procedures for reducing liabilities: conducting accident-training sessions with your employees; conducting regular quality-control measures of your facilities and equipment; and keeping documented records of preventive maintenance. Hire competent employees and regularly monitor their performance. If you are not at the facility on a daily basis, make a habit of dropping by periodically without notice to spot unforeseen risks.

When an Accident Occurs

No matter how carefully laid your plans may be, accidents can and do occur. If someone on your premises should suffer an injury, take immediate action by first calling an ambulance, then document all known facts surrounding the accident to accurately reconstruct the events in case of a lawsuit. For safety's sake, be sure to get all of the following information in writing:

• Name, address and phone number of the injured party
• Date and time of the accident
• Name of employees on duty and the names of any witnesses
• Details about what caused the accident (i.e., was it caused by the customer or by a pre-existing hazardous condition?)
• Information about when the site was last cleaned and inspected for hazards

It's also a good idea to take a picture or video of the site where the accident occurred, and to try to get a written statement from the injured party, if possible. If a trip to the hospital is necessary, call an ambulance; don't use a personal or company vehicle. You may expose yourself to a whole new set of liabilities that is much better avoided.

In the Event of a Claim

In the event of an accident, notify your insurance company immediately. Give your agent all of the information outlined above. If you are hit with a lawsuit, the number and nature of available defenses depends on the specifics of the individual suit. In an injury-related action, the underlying claims must be analyzed to determine available defense; while in negligence cases, the owner may be able to assert the claimant's degree of fault, which could reduce or even eliminate his right to recover damages. Assuming the circumstance is covered, your insurance company will come to your defense.

One final note: In today's litigious society, liability limits of $1 million should be considered a minimum. For maximum protection, look for a business-liability policy written on an occurrence basis with no aggregate limit.

Evictions and Auctions

Self-storage is a rental business, and the facility operator acts as a landlord, not a warehouseman. Unfortunately, sooner or later, every owner will be faced with the task of having to evict tenants for failure to pay rent and reclaim the storage space by removing or disposing of the tenants' property. The most common way to do this is to place a lien against the property and hold an auction.

In general, most states give self-storage operators extraordinary leverage against delinquent tenants. However, if the procedures are not followed to the letter, or if there is an error in any step of the sale-and-disposal process, an operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it is not uncommon for a disgruntled tenant to file a claim charging negligence.

Sale-and-disposal legal-liability insurance is a must-have coverage for all self-storage owners. It provides protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the diversity of goods stored and the wide range of values of the property, the penalty for conversion can be extremely high.

Recently, a self-storage operator was held liable for $250,000 in damages by a California court for the wrongful sale of a customer's goods. The court judged the storage owner's notice of intention of sale was defective, since his newspaper ad did not include the delinquent tenant's name, which was required by state law. As a result, the court ruled the operator was in violation of negligence and conversion.

Many such lawsuits are the result of trivial errors, such as reversing the numbers on an address. The chance of a mistake occurring is compounded by the fact most state statutes require that several letters of notification be mailed to tenants with delinquent accounts, and that the self-storage operator publish a legal notice in a general circulation newspaper in the judicial district where the sale will be held. There are, of course, many variations on these procedures, and each must be followed exactly to minimize the likelihood of a lawsuit.

The good news is, in many cases, litigation can be avoided. Start by familiarizing yourself with lien laws. Consult with an attorney about preparing a written procedure that outlines the exact steps for disposing of a delinquent tenant's property. Read and follow all state statutes to the letter. Always double check names and addresses; and don't make any changes to information on the rental agreement, even an obvious misspelling, unless you get a signed change-of-address card. Finally, document every step of the inventory and auction process in photographs and writing. In a lawsuit, you will have to show proof that the disposal of a delinquent tenant's goods conformed to state statutes.

If there is any reason to question the sale and disposal of a tenant's goods, don't hold the auction. Many owners prefer to let tenants retrieve their property at no charge rather than face potential liability. Be absolutely certain you have adequate insurance coverage. Sale and disposal is not normally available through regular business-insurance carriers and generally cannot be added to a standard business-owners policy. However, the coverage can be secured through insurers specializing in the self-storage industry.

Amy Brown is part of Universal Insurance Facilities Ltd., which offers a comprehensive 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, call 800.844.2101; e-mail uif@vpico.com; visit www.vpico.com/universal.

Perhaps the most important step in getting the most for your insurance dollar is finding the right insurance expert to assist you. Though we live in a society that promotes the do-it-yourself approach in most things, insurance is an area where it pays to have professional help. The financial consequences of a business loss can be devastating, and the legalese involved can be difficult to understand, so take the time and effort to find the right insurance company and agent for your operation.

When purchasing your business-insurance policy, working with a licensed agent or broker doesn't add to your out-of-pocket cost and can contribute greatly to your recovery and satisfaction if you have to make a claim. While you could find a company willing to issue a policy without providing counsel, keep in mind the use of an agent does not increase the cost of insurance. In many cases, it can save you money. Finally, if professional service is included in the price of the product, you owe it to yourself to get what you pay for.

Some business owners resist working with an insurance expert for fear of being oversold or pressured into buying insurance they do not want or need. But remember, you choose your agent or broker, so you can select someone you trust and like. The importance of trust is self-evident: You need to know you're getting sound advice and the coverage you need to handle unforeseeable events. When you also have a rapport with your agent, you'll be more likely call, ask questions, and discuss changes in your business that may be important to your insurance protection.

For example, you just bought a new golf cart to use on site, but you don't know if it's insured under your policy. Or youre thinking about upgrading your security. Will that reduce your premium and, if so, how much? You should feel comfortable calling your agent for answers. Unlike when you call your attorney, no little clock will start tallying a charge for advice. Professional service is part of your insurance premium.

But there are a few more things to look for in an insurance agent or team than trust and a compatible relationship. Experience, education and the company's resources should also be considered.

Experience

Although someone new to a profession may be good, experience will make a difference. A seasoned insurance agent will be more likely to ask the right questions to identify your sources of risk. He will also know the insurance products and companies that provide the best coverage for your needs. Experienced agents will have worked with clients during losses and the adjustment process, and that claims experience will have taught him a great deal about how to best assist clients in the future.

Education

The benefit of experience is often enhanced by good education, and this is as true in insurance as it is in other professions. While you will not find many universities offering a degree for insurance studies, the industry has developed its own schools and organizations with the purpose of teaching agents to understand insurance law, accounting, risk management and ethics. Some of the better known designations that demonstrate a commitment to professional service include certified insurance counselor (CIC), chartered property-casualty underwriter (CPCU) and associate in risk management (ARM).

Company Resources

The company resources available to meet your business needs will vary depending on the entities your particular agent represents. Based on the companies with which they work, there are three types of agents available to work with self-storage owners.

Captive agents represent one company only. Allstate, Farmers and State Farm are examples of companies that sell insurance through captive agents. For some business owners, they may be the best choice, as the insurance companies they represent are often large and financially strong. They usually do an excellent job meeting personal and small-business needs.

Captive agents can usually cover all your insurance needs, but are limited to a single company's resources. While the company generally will not have insurance programs or departments specialized for self-storage, it may have developed separate endorsements for sale-and-disposal and customers' goods legal-liability risk exposures. Captive agents will not be able to offer you much choice in price or coverage, but they tend to represent strong, stable firms.

Independent agents and brokers can represent many insurance companies. In some cases, the company with the best product or price for your personal insurance needs will not be the best one for your business insurance. You may find your requirements are best met by several companies that offer different coverages, i.e., workers' compensation, commercial auto, property and liability, etc.

Independent agents vary greatly in the number of companies they represent. If your operation is large and complex or you manage more than one type of business, you may want to seek out a larger agency that will have the broadest choice of products and enough experienced staff to help you analyze and guard against different exposures. If yours is a smaller, simpler operation, you may be better off with a local agent, familiar with your area, who will be informal and easy with whom to work.

If you want one person to handle all your personal and commercial insurance needs, a captive or independent agent should be able to help. However, if your primary concern is insuring your self-storage operation, specific policies have been developed to cover the risks unique to the industry and its customers. They are typically underwritten and sold through general agencies.

A general agency is granted full authority to underwrite and issue industry-specific insurance policies and adjust claims on behalf of other companies. Examples include Universal Insurance Facilities Ltd., MiniCo Inc. and Deans & Homer. While general agencies sell insurance through licensed independent brokers, they may have their own fully licensed staff who can work with you directly on your self-storage insurance program. Maybe you have a good relationship with a captive or independent agent who provides good service, products and advice for your general insurance, but who isn't familiar enough with the unusual risks of self-storage to address your particular business needs. A general agency can be the answer.

It may seem I've overlooked something important: This article titled Getting the Most for Your Insurance Dollar talks so little about price! Of course, the cost of insurance is significant and, even with good service, a product sometimes can be unaffordable. But when in comes to insurance, service is worth a lot, and bad advice can be very expensive. Taking time to find the right insurance company is the best way to get the most for your money.

Scott Lancaster started his insurance career in 1976 as a licensed insurance agent and broker in California. He is now the regulatory compliance officer for Deans & Homer, where he joined as a commercial lines property and casualty underwriter in 1985 and has worked in the self-storage division since 1993. Deans & Homer has been providing insurance products designed to respond to the unique risks of the self-storage industry since 1974. For more information, call 800.847.9999 or visit www.self-storage-insurance.com.

Rap star Eminem immortalized 8 Mile Road in a song and movie about life on this street that divides the Detroit areas suburban and urban populations. The road is also home to National Mini Storage of Southfield, Mich., which is doing its part to help revitalize the historic thoroughfare as a vibrant business destination.

Last year, National won its fourth Beautification Award since 2000 from the Eight Mile Boulevard Association, a nonprofit promoting the transportation, business and residential corridor. The association considered more than 1,900 properties for the award, which recognizes businesses for enhancing the appearance of their properties.

Pogoda Management Co. built National Mini Storage in 1999 and still owns and manages the two-story facility. Owner Maurice Pogoda says when he decided to buy the 2.5-acre site, he was concerned about the areas rough-and-tumble reputation. But market analysis indicated the location could be a windfall with its suburban and commercial proximity. Plus the lot afforded generous frontage along 8 Mile Road, a six-lane highway traversed by more than 64,000 automobiles daily.

In 1999, it was the first new multistory project built in the state of Michigan, Pogoda says. Today there are tons, but ours was the first. Putting in this brand-new, beautiful project really served as a lynchpin to spur development on a relatively blighted area of 8 Mile Road. I knew this wasnt a great area, but I thought, If we can pull this off, its going to help attract new business.

Pogoda appears to have been right, much to the delight of city of Southfield officials. In the self-storage sector alone, six competitors have set up shop within a 3-mile radius since National opened its doors.

Pretty Is as Pretty Does

Since day one, Pogoda Management ensured its flagship facility would embody the words clean and attractive. The huge building, painted a crisp gray-white with a striking red roof, dominates its stretch of 8 Mile. We just repainted after five years. The building didnt need it, but we wanted to make sure it looks totally clean and spotless. That is part of our philosophy for Pogoda Management: Our ground zero is spotlessness, says Pogoda.

A cupola shaped like the Capitol dome tops the facility and simultaneously acts as a company trademark. Its become a landmark, and our goal is to keep it as a beacon for people in the neighborhood, Pogoda says. The facility has helped grow the area, which is good for business, but its also good for the communityso its good for everybody.

Nationals pristine grounds provide eye-catching relief from many nearby industrial-looking properties. We are constantly doing new plantings every year, doing something interesting and different with annuals, Pogoda says. We are very aggressive with our landscaping.

Though the facility isnt allowed a changeable sign in front of the property, signage may be displayed in a large plate glass window facing the street. Specials and other information are attractively presented in the window and routinely changed every two weeks. As for the loading docks, even they are designed to be visually appealing as well as utilitarian.

Good Will

In addition to beautification awards, the Eight Mile Boulevard Association builds bus shelters, arranges clean-up campaigns, and raises money for landscaped medians, gardens and community signage. Pogoda supports the associations efforts by attending fundraisers. He says National Mini Storage employees were thrilled to have won three of the last four Beautification Awards. We promote it through our whole company to show what a great job they are doing, he says. Its great for morale. For more information, visit www.pogodaco.com or www.eightmile.org.

 

Not many self-storage owners understand the difference between the economic and physical occupancy of their facilities, not even those who have been in the business a long time. A savvy operator understands that 100 percent occupancy is not the goal of your business. The objective is the maximization of profit, which comes from getting the most money you can out of existing customers while still having product available to sell prospects.

What's the Difference?

Physical occupancy refers to the actual number of units you have filled. How does economic occupancy work? If you have 100 units, 80 percent of which are rented at full price, your physical and economic occupancy are the same: 80 percent. Now let's say you have an additional 10 units rented on a two-for-one discount. In this case, your physical occupancy is 90 percent, but your economic occupancy is only 85 percent, because you are only fulfilling 85 percent of your total possible rental income. Even if all of your units are filled at full value, your economic occupancy could exceed 100 percent. How? Through the collection of late fees, of course.

The ideal is "optimum occupancy," which involves physical occupancy that hovers in the 90 percent range. In a perfect world, we would have exactly the same amount of tenants moving out as in every month, but this is generally not the case. So what happens if your physical occupancy goes above optimum? You raise your rentsand quickly. Allowing physical occupancy to go above 90 percent will not only leave you nothing to sell new customers (thus wasting your advertising dollars), it will create a market that attracts competition.

There are at least two organizations out there whose sole mission is to call around to all of the storage facilities in the country and find out which ones are running at full capacity. What do they do with this information? They sell their research to prospective builders as indications of where to develop. Do you want to invite new facilities into your neighborhood? I didnt think so. Keep your rates high enough so you always have something to sell, maximize revenue and discourage competition.

Fear Not

I talk with a lot of owners whose businesses are in trouble, and it's amazing how often I hear their facilities used to thrive. Usually, it's because they were the only game in town. It's not too difficult to prosper without any competition! These owners bellyache about how things have changed, with nine out of 10 telling me stories about how they used to be full all the time. They reminisce about when they had a waiting list.

The fact is they shouldn't be mourning the change in occupancy. They used to operate their businesses without maximizing revenue. They should have raised rents to even out supply and demand. No doubt a clever businessperson saw these sites were consistently full and built a new facility (or two) right down the road. Who wouldnt?

Dont be afraid to bump up your rents based on physical occupancy. It's the only way to maximize your economic occupancy. Every month, look at how many rented units you have in each size category. When you have only a few left in one size, increase the rent a few dollars per month. If you have to increase rates four times a year, so be it. Your prices should not be based on emotional factors, i.e., fear of upsetting customers. They should be changed based on logic, which dictates rents should be raised when certain occupancy levels are achieved.

What about existing tenantswhen do you raise their rents? The answer will disappoint you: It depends. As a general rule, you need to raise them at least once a year. If you are in a highly competitive market, this may be as often as you can get away with a rate hike. Under normal circumstances, people are prepared for a slight annual increase. If your service has been good, they will accept it with very little static.

Unless you are in the most highly competitive of markets, rents should be increased regularly to maintain an optimum physical occupancy of 90 percent. This will translate to maximum economic value. If you don't feel confident in raising prices, either because of concern over customer reactions or faltering business, perhaps you aren't making the most of your marketing. Look at your numbers monthly and adjust rates accordingly, every time occupancy demands it.

Fred Gleeck is a profit-maximization consultant who helps self-storage owners/operators during all phases of the business, from the feasibility study to the creation of an ongoing marketing plan. He is the author of

Secrets of Self Storage Marketing SuccessRevealed!, available for purchase at www.selfstoragesuccess.com. He is also the producer of professional training videos on self-storage marketing. To receive his regular insights via e-mail, send a blank message to tips@seminarexpert.com. For more information, call 800.FGLEECK; e-mail fredgleeck@mac.com; visit www.fredgleeck.com.

This month, I gathered real estate experts to discuss the state of self-storage in the Northeast. Lets hear what they have to say about their respective cities and regions. Our panel includes: Mike Bellinger, Pyramid Brokerage, Syracuse, N.Y.; Linda Cinelli, LC Realty, North Branch, N.J.; John Lisowski, Grubb & Ellis, Pittsburgh; Joseph Mendola, The Norwood Group, Bedford, N.H.; and Chuck Shields, Beacon Commercial Real Estate, Conshohocken, Pa.

This month, I asked our brokers straightforward questions owners and potential buyers will find pertinent, including which items most concern their self-storage clients. They were asked to rank the following issues on a scale of one to seven, with seven indicating the greatest amount of apprehension. As you can see, interest-rate increases are on the minds of many owners. However, all of these issues are important and should be considered when making a decision to sell.

Concern	Range	Average
Potential Overbuilding	1-7	3.2
Rising Taxes	2-5	3.8
Competition from PUD	5-6	5.6
Declining or Stagnant Rates	2-7	4.8
Interest-Rate Increases	2-3	2.8
Increasing Regulation	1-7	4.6
Domination by Big Guys	1-7	3.0

What are the cap rates for "reasonably" projected incomes? What impact do you think the recent rise in interest rates has on cap rates?

Bellinger:

Were seeing an average cap rate of 10 percent.

Cinelli:

In my market, there's such a demand for inventory that we're seeing facilities at 7.5 percent to 8.5 percent cap rates. The interest rates are not affecting buyers at this time since rates are still good. Their main concern is the terms of their loansthey need to have 20-year terms if they're buying at lower cap rates.

Lisowski:

Typically, cap rates for self-storage investment in Western Pennsylvania have been in the 10 percent range. From the view of the investor, as interest rates rise, cap rates will have to increase to the 11 percent to 12 percent range to create the desired return. Consequently, owners see a devaluation of their properties, which makes them very reluctant to sell.

Mendola:

Cap rates in my area range from 9 percent to 9.5 percent on real, trailing 12-month income and expenses. Rising interest rates will raise cap rates.

Shields:

I have found 9.5 percent to 10 percent cap rates are considered reasonable. I believe (and history has shown) that as interest rates increase, so will cap rates. At the same time, returns will decline. If buyers are not able to get the returns they want, they arent going to pay the all-time high" prices we have seen to date. The obvious results are declining values.

Cap rates continue to be all over the map; mostly, they differ because of definitions and location. Dense urban areas with strict zoning get much lower caps, and caps based on trailing incomes tend to be lower than stabilized ones. One thing is for certaincap rates are the lowest they have ever been.

Are interest and cap rates having any impact on buyers?

Bellinger:

Obviously, buyers want higher cap rates as interest rates increase.

Cinelli:

Caps rates are affecting buyers, but inventory is low. Buyers are still actively seeking facilities, as interest rates have not yet reached a point to slow down the market.

Lisowski:

Not yet, but I see it happening very soon. Buyers will be looking at properties with an 11 percent or 12 percent cap rate in mind, which will not sit well with sellers.

Mendola:

Yes, because sellers want to sell based on yesterdays cap rates, and buyers want to buy on tomorrows cap rates.

Shields:

Buyers have not really reacted to the slight increases in rates so far. Rates are still good, and there's not a lot of product on the market. Buyers and investors are willing to look at anything and everything, regardless of price.

As long as the interest rates remain low (how long can it last?), deals at low cap rates make great sense.

Has there been a major shift in occupancy and rental rates in your area? Are you seeing markets experience moderate (15 percent) or significant (25 percent or higher) vacancy?

Bellinger:

I havent seen much of a shift in occupancy or rental rates in my area. There isnt a lot of close competition, and most facilities are full. Owners here worry more about the big guys coming into the market and offering deals smaller facilities cant match.

Cinelli:

Vacancy rates vary in different markets, but facilities still maintain a high average 75 percent to 85 percent occupancy. New facilities in an area affect the overall rate until the market catches up.

Lisowski:

There hasn't been a major shift in occupancy or rental rates in Western Pennsylvania. Vacancy tends to be in the 10 percent to 15 percent range for most facilities.

Mendola:

For the most part, occupancy rates are down from the low 90s to the low 80s. Rental rates are stagnant to 10 percent lower.

Shields:

Surprisingly, there has been a number of facilities that have not seen a decline in occupancy at this time of the year. In some cases, it has increased. This might not be the case throughout, but it is interesting that it has happened at all. This could give fuel to more developmenthopefully not overdevelopment.

Overbuilding remains the single biggest threat to self-storage in almost every location.

Are investors still interested in self-storage? If so, what kind of investors are they, industry newcomers or seasoned veterans?

Bellinger:

They're mostly newcomers, people who have lost money with other investments want to get into self-storage. They see this as a business with low costs and minimal managementa good investment in comparison to other forms of real estate. Some see self-storage ownership as a great alternative to a stagnant career or looking for a job in a tough employment market.

Cinelli:

Investors are still out in full force looking for sites and existing facilities. They feel this is the best overall investment next to retail and apartments.

Lisowski:

Seasoned self-storage owners are always looking to increase their holdings when opportunities arise. Additionally, there continues to be a steady interest by newcomers.

Mendola:

Investors still love self-storage as an investment vehicle. Were seeing newcomers and veterans.

Shields:

Investors see self-storage as a good venture. The owner who has one or more facilities knows what kind of investment it can be and is out in the market looking for more product. The new investors have realized the returns and cap rates are as good if not better than those for other products. It appears self-storage has earned some respect among investors as well as lenders. They see it as a good income-producing product with stable returns. Weve always had self-storage people interested in buying more product. Now we have investors interested in it as well. This is a big change in our market.

Are you seeing a rise or decline in conversions? Briefly describe what is occurring in your area.

Bellinger:

There has been a rise in conversions due to manufacturing plants leaving the area and leaving behind large warehouses. The cities and counties are turning these into economic-development zones including tax incentives, making it prime real estate for the self-storage investor.

Cinelli:

Conversions are in great demand in my area. With the time it takes to go through entitlements, owners can be up and running their operation and into a market quicker. The price per square foot is higher in these areas. Some buildings have some functional problems but, overall, the vertical market does well in the Northeast.

Lisowski:

There appears to be an increase in the conversion market as the amount of available land suitable for profitable facilities is scarce, due in part to zoning issues, increasing regulation, unfavorable demographics and lack of visibility for the available parcels of land.

Mendola:

There has been a decline in conversions. Suburban markets are most desirable now, and conversions dont work there.

Shields:

The conversion market is unique to a certain type of self-storage owner. I cant tell if there is an increase or decrease in these types of projects; but when product suitable for conversion becomes available, there always seems to be a handful of investors looking at the possibilities.

Clearly, the popularity and success of a conversion project depends on the market.

Michael L. McCune has been actively involved in commercial real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55. STORE or visit www.selfstorage.com.