Second Closet, a Toronto-based startup specializing in valet self-storage services, has raised $20 million in equity financing, which it’ll use to expand its employee base and shift away from consumer-based services to a third-party logistics model. The business-to-business approach comprises e-commerce and retail fulfillment, including storage and shipping, as well as physical storage for files and business assets. The Series-A round was co-led by new investor Intact Ventures and legacy investor Whitecap Venture Partners, along with several other return investors, according to the source.

Second Closet had been moving away from its valet-storage and delivery model for the last 18 months to focus on fulfillment and last-mile logistics for businesses in Canada. Though the company will use the infrastructure it built after launching in 2017, including nine facilities across Ottawa, Montreal, Toronto and Vancouver, its new focus will involve a name change and new branding, the source reported. Second Closet has stopped accepting new customers under its valet-storage model, but will continue to serve existing customers.

Part of the impetus for the change was an opportunity to enter a sector with a higher financial ceiling, one that also had unmet needs exacerbated by the coronavirus pandemic. While Second Closet views the self-storage industry as a $4 billion opportunity in Canada, it values the global third-party logistics market at more than $8 trillion, according to the source.

Second Closet expects revenue to increase fourfold this year. To meet growth, its employee base grew from 75 in late 2019 to around 450. It expects its workforce to be about 600 employees by the end of April, the source reported. In addition to adding personnel, the company will also use the new investment to expand its physical footprint.

The capital infusion follows a $13 million funding round in 2019. Whitecap was among the investors in the earlier fundraising, which included a seat on the Second Closet board of directors. Whitecap encouraged Second Closet to explore third-party logistics as a path toward business growth, according to the source.

Source:
BetaKit, Second Closet Secures $20 Million as It Shifts Focus Away From Self-Storage Towards B2B Third-Party Logistics

Real estate negotiations have never been more advantageous for savvy buyers. For the first time in a long time, some sellers are accepting significant price reductions. The coronavirus pandemic has significantly reduced the number of new developments being made in sectors like hotels, retail plazas and offices, which means there are a lot fewer commercial land buyers in the market.

Still, just because the market may be favorable, it doesn’t mean you’ll automatically get a great deal. If you’re looking to acquire land for a self-storage development, you need a strategic approach to the negotiation process. Here are three key steps and some specific tips to help ensure a smooth, profitable purchase.

Step 1: Initial Offer

Everyone knows the basic process for a real estate deal. The seller asks for X dollars, and a buyer offers Y. Negotiations begin. It sounds simple, but the trick is to get things moving in your favor. There are many strategies to consider. My advice is to take a measured approach.

Of course, one tactic is to offer the seller a much lower price than what he’s asking, in hopes that he’ll meet you somewhere in the middle. You can also assume a wait-and-see attitude if he doesn’t respond favorably to your offer. If what the seller is asking is outside your budget, you may not have much choice.

But the key to winning any negotiation is information. The more research you conduct before making your initial offer, the better off you’ll be. At a minimum, make sure you evaluate:

• Wetlands
• Easements
• Zoning lot-coverage requirements
• Zoning favorability for self-storge
• Boundary survey or topography for the parcel
• 100-year flood limits
• Demand and zoning requirements

If you receive details for any of these items from the seller or his agent, get them in writing. It can be in an email or right in the sales-marketing material. Either way, you’ll see just how valuable it is to have these things in writing down the line.

Step 2: Maneuvering

If the seller rejects your first offer or comes back with an unacceptable counteroffer, it isn’t always prudent to quickly increase your bid. This is where the art of preparation and negotiation can tip things in your favor. Spend some time maneuvering.

For example, if the seller declines your original offer, let him know why it was a good offer and give him another opportunity to accept. The more you can explain the reasoning behind your proposal, the better. If he rejects it a second time, ask what he can do to make the deal more attractive for you. Once he “bids” against himself, you can make a written counteroffer. Even if he chooses not to improve his offering, at least he’ll understand your reasoning and will be more likely to accept your counter.

Option time period. An important consideration in a self-storage land purchase is the total option time you get before you must purchase the property. This is the period you’re allotted for due diligence, designs, approvals, bidding and banking. It’s a key point in the negotiation, as you want as much time as possible and the seller wants to close as quickly as he can.

Give and take is an important part of negotiating, so a smart buyer tactic is to figure out the worst-case timeline, then add a couple of months, possibly even time for additional extensions. Once you know your baseline, you have room to negotiate a favorable option time frame. One way to get a longer one is to put up additional money for the deposit or purchase price if your proposed timeline is accepted.

Deposit. Another important point on which to focus in a self-storage land negotiation is the ability to reclaim your deposit if you don’t ultimately buy the property. During due diligence, you can typically get your deposit back with no explanation. That period is often 60 days, but some sellers want it to be only 30. It makes sense then to ask for 90 days, so you can compromise at 60 days if that’s a sticking point.

The last thing you want is to be required to buy the land or lose your deposit if your project doesn’t get approved by the city. Put a stipulation in your offer that if you don’t get approved for X square feet of self-storage, you get your deposit back and don’t have to buy. If you have to negotiate on this point, perhaps agree to lose part of your deposit; but never buy land you can’t use.

Step 3: Renegotiation

The third step in self-storage land negotiation comes after the contract is signed but before the due-diligence period has expired. When you made your initial offer, you did so based on certain information. In many cases, the facts won’t match what was originally presented or assumed, which gives you an opportunity to renegotiate. The seller doesn’t have to accept your request for a price reduction, and you don’t have to buy the property. The goal is to find a win-win! Here are some examples from recent negotiations in which I was involved:

Wetlands. On one large site, the wetlands had been delineated 15 years earlier and drawn on a boundary survey map, which indicated there were 6 acres of non-wetlands. When we conducted due diligence, we found only 5 acres. We gave the seller a hand sketch of our proposed 70,000-square-foot self-storage facility, overlaying the new delineation, so he could visualize the impact of the discrepancy. We ultimately got him to come down on the price, from $900,000 to $600,000.

Bad soil. It’s important to confirm the quality of the soil. You need to complete soil borings and a geotechnical report during the due-diligence period. I’ve seen sites with buried debris, fill or bad soils that had to be removed. Sites with ledge, clay or soils with little bearing capacity can incur unanticipated costs that reach into the hundreds of thousands of dollars.

At one property, we discovered a 2-by-4-foot area of poor soils that had to be removed and replaced with good gravel. The extra cost was going to be $85,000. We presented the information to the seller on our contractor’s letterhead, along with a copy of the borings and geotechnical report.

Generally, the more detailed, written proof you can provide, the better it helps the seller understand that any other buyer will have the same concerns. He may then agree to a price reduction. In this case, we’d already negotiated the price to rock bottom, and the seller said, “No more.” However, we didn’t give up. As it turned out, he owned additional land to the rear of the property, and he agreed to let us move the poor soils to his abutting site. Trucking material is expensive, so we saved more than $20,000 this way.

Water and sewer. I’ve lost count of how many times I’ve been told there’s a water and sewer line right in front of the property only to find this isn’t true. A water main that has to be extended 100 feet down the road to get to the site and another 100 feet along the frontage is a significant expense. During one recent transaction, the water main wasn’t directly in front of the property as stated, but on the other side of a four-lane road! Our contractor provided us with a detailed letter estimating extra cost at $50,000. The seller agreed to pay half.

Easements. On another project, we discovered a 45-foot utility easement along one property line. There was also a 15-foot, side-yard building setback, which meant 30 feet of lost buildable area. We asked the utility company if it would eliminate the easement since it wasn’t in use and not likely to be used in the future. It responded by saying it could take many months or longer to research and formally respond to our inquiry. We shared the research with the seller and negotiated a significant reduction for the loss of land.

We didn’t stop there. The site plan included a 75-foot-wide, climate-control building with 30 feet of the structure over the easement. The plans noted that if the easement wasn’t abandoned, we’d construct a building with a width of only 45 feet. Lo and behold, six months after our formal request, the utility agreed to abandon the easement at no cost. The phase-two building where the easement once was is now under construction.

Diligence Pays

When buying land for a self-storage development, research during the due-diligence period will generally lead to good opportunities. I’ve rarely seen a property review yield no fodder for negotiation. You can often find $100,000 or more in savings. You have nothing to lose! The worst thing the seller can say is “no.” Happy haggling!

Marc Goodin is president of Storage Authority LLC, a self-storage franchise, and the owner of three self-storage facilities that he personally designed, built and manages. He’s been helping others in the industry for more than 25 years. To reach him, call 941.254.3055 or email marc@storageauthority.com. You can also purchase his books on facility development and marketing in the Inside Self-Storage Store.

Lisa Sherwood, facility manager at Amy’s Attic Self Storage in Copperas Cove, Texas, was named “Ambassador of the Year” by the Copperas Cove Chamber of Commerce & Visitors Bureau as part of its 2020 awards program. The accolades were announced earlier this year, but award distribution was delayed because of winter storms. There’s usually an annual banquet held in February, but that was cancelled due to the pandemic.

Sherwood serves as chairwoman of the 11-member chamber. The honor she received is given to a person who participates in the chamber’s ambassador program, assists with membership retention, volunteers for chamber activities and networking events, and actively advocates for the chamber, according to the source.

“I’m glad that Amy’s Attic Self Storage allows me time to serve as an ambassador to help the community and the chamber,” Sherwood said. “Our motto here at Amy’s Attic Self Storage is ‘caring people serving a great community,’ and that’s what I do as an ambassador.”

Other awards given in the annual chamber program include Colleague of the Year, Junior Ambassador of the Year, Large Business of the Year, Outstanding Community Partner, Small Business of the Year and Tourism Partner of the Year.

Founded in 2004, Amy’s Attic operates seven facilities in Belton, Copperas Cove, Harker Heights, Killeen, Morgan’s Point Resort, Salado and Temple, Texas. It also has a new location under development in Waco, Texas.

Source:
Copperas Cover Leader Press, Copperas Cove Chamber of Commerce Recognizes Organizations and Business in the Community With 2020 Awards

Two men who rented units at a U-Haul self-storage facility in Wilkes-Barre, Pa., have been arrested, one for trafficking drugs and the other for breaking into and stealing items from other units on the property. Moises Gonzalez, 39, was apprehended by police on Feb. 24, while Travese Deremer, 39, was arrested on March 14, according to the source.

Police were called to 3 Heinz Drive after syringes and other drug paraphernalia were found outside the unit rented by Gonzalez. When they arrived, Gonzalez had a gunshot wound in his hand. He claimed he’d been invited into a unit by Deremer, who had broken into the space, ostensibly to sell Deremer drugs. At some point during the exchange, Gonzalez reached into a bag to remove a handgun and it accidentally discharged, shooting him through the hand. It’s unclear why Gonzalez tried to grab the weapon or whether the gunshot was heard by witnesses.

After a bit of a standoff with police, Gonzalez surrendered and was taken into custody. He was carrying a bag containing fentanyl and heroin, a knife, and $604 in cash. Police also discovered a backpack in his vehicle containing a .45-caliber handgun, 37 rounds of .38 caliber bullets and more than 100 heroin packets, the source reported.

Gonzalez has been charged with illegal possession of a firearm, possession with intent to deliver a controlled substance, possession of a controlled substance and possession of drug paraphernalia. He hasn’t been charged in connection with the unit break-in. He’s being held at Luzerne County Correctional Facility without bail.

It’s unclear where Deremer was when police nabbed Gonzalez or why he wasn’t arrested until several weeks later, but he has been charged with burglary, theft, criminal mischief and criminal conspiracy. Police believe he broke into at least two storage units at the U-Haul facility between Feb. 10 and March 14. He stole items valued at $7,900 from the unit where the shooting occurred and a motorcycle from the other storage space, police said. He’s being held at the same jail on a $35,000 bail.

Phoenix-based U-Haul International Inc. was established in 1945. It operates more than 68 million square feet of storage space in North America.

Source:
Times Leader, Man Suffers Gunshot Wound During Burglary of Storage Unit

After a dark and dreadful winter, self-storage operators are ready to enjoy the lovely sunshine rays, listen to chirping birds and literally smell the roses. With the warmer months also comes the urge to make things shine, particularly as the industry’s busy season kicks into high gear. A deep site cleanse and external freshen-up will prove to tenants they’ve made the right choice by storing with you and show prospects why your facility is the best choice. It can also improve community relations and team morale!

In this thread on Self-Storage Talk, the industry’s largest online community, members are discussing their spring-cleaning challenges and how they plan to tackle them. They’re also talking about unique maintenance issues created during the pandemic. What’s on your to-do list this year and how will you approach these chores? Add your strategies to this informative thread.

PTI Security Systems, a provider of access-control and other security solutions for the self-storage industry, has integrated its StorLogix Cloud access-control software with the Breeze Premier property-management platform from Yardi Systems Inc., which provides management software for self-storage and other types of real estate. The cloud-based Breeze platform offers a suite of accounting, management and marketing features. Integration with StorLogix will allow facility operators to access data and perform management functions across multiple properties, according to a press release.

“By integrating, we’re giving self-storage owners and operators a leg up in an increasingly competitive marketplace,” said Thomas Brooks, managing director of PTI. “Using StorLogix Cloud and the Yardi Breeze Premier integration, self-storage operations can now streamline the management of multiple properties and improve the tenant experience across locations.”

PTI manufactures technology-enabled security solutions. Its product line includes access-control hardware and software, wired and wireless door alarms, and mobile-access solutions. The company has installed more than 40,000 systems in 30-plus countries. It operates through two U.S. locations as well as distributors in Asia, Australia and Europe.

Yardi Systems develops and supports software for commercial property management. Its suite of programs handles accounting, ancillary processes, operations and services. Based in Santa Barbara, Calif., and founded in 1984, the company serves clients worldwide from offices in Asia, Australia, Europe, the Middle East and North America.

Norway-based Self Storage Group ASA (SSG) and its Danish subsidiary, City Self-Storage A/S, have agreed to acquire the five-property Dit Pulterkammer Holding A/S self-storage portfolio in Denmark. The facilities, which include three locations in Aarhus and one each in Kolding and Randers, comprise approximately 9,300 square meters. The DKK 102 million deal is expected to close during the second quarter, according to the source.

SSG will use an existing bank facility to buy the portfolio from Olav W. Hansen A/S and Schur Finance A/S. The company intends to expand three of the properties, adding a total of 2,100 square meters. The five locations are 79 percent occupied on average, the source reported.

SSG operates 116 facilities across Scandinavia under the City Self-Storage and OK Minilager brand names. Its portfolio comprises 148,200 square meters.

Source:
Global Legal Chronicle, Self Storage Group ASA’s Acquisition of Dit Pulterkammer

The coronavirus pandemic has affected all aspects of our lives. It has certainly impacted businesses. Still, it’s remarkable how resilient companies have proven to be. We’ve seen many adapt quickly to mitigate risk for customers and employees. In the self-storage industry, most operators have transitioned to some form of contactless method to rent units, sell product, conduct auctions and more.

Countless legal changes have also occurred during the crisis, from federal and state emergency orders to municipal moratoriums. Keeping up with ever-shifting requirements has been daunting. To avoid putting your self-storage business at risk, it’s important to know how new laws might affect its operation. Here are a few common questions being asked as the pandemic continues.

Can You Stay Open?

It remains challenging to know how to respond to shelter-in-place orders. Throughout the pandemic, state and municipal directives have often been inconsistent, leaving self-storage operators to interpret for themselves whether their facilities were “essential” and could remain open.

Ultimately, many arguments have been made for why self-storage facilities are essential, and most storage companies have powered through. Still, owners and managers recognize the need to ensure customer and employee safety. From closing the main office to implementing technology that allows for remote and contactless transactions, they’ve found solutions that are likely to endure in the industry for years to come.

Can You Charge Late Fees and Conduct Lien Sales?

In the early days of the pandemic, the next big question for self-storage operators was whether their tenants would be excused from making rent payments if they were prevented from leaving their homes to access their stored property or move out of their unit. In some cases, state or municipal orders prevented the imposition of late fees and other charges.

The data suggests that any increase in self-storage delinquencies as a direct result of the pandemic was low. Many operators who did see defaults elected to defer payments, accept late payments or waive late fees. However, with units going unpaid and unvisited for several months, it appeared as though some had been abandoned. Before operators could act, they had to sift through official orders that restricted landlords on the issues of rent enforcement, late fees and evictions.

Guidance was and continues to be lacking. The laws that sought to protect struggling customers were often confusing, and it was unclear how they affected a self-storage operator’s right to enforce a statutory self-help remedy, i.e., foreclose on a lien over tenant goods. The orders that restricted “court evictions” didn’t include any limitation of non-court lien enforcement, which is found in the self-storage lien laws of 49 states and the District of Columbia.

Unfortunately, the only appropriate answer to “Can I charge late fees?” and “Can I sell the goods?” is to thoroughly review and consider any current or pending statewide orders or laws as well as any that may have been issued by the local municipality. As an interim measure, it’s widely recommended that all your late and lien notices be updated to include certain COVID-19 language, which might read something like:

If you’re unable to pay your account in full because you were financially impacted by the COVID-19 pandemic, please contact us to discuss your situation. Please note that in order to assist you, it will be necessary for you to provide us with medical confirmation, if you or a family member had the virus, or employment records if you became unemployed.

Can You Be Made Liable for COVID-19 Infections?

Any business that remains open during the pandemic must make an ongoing effort to protect its customers and employees. Safety and cleanliness should be a top priority. Many companies have taken up measures recommended by the Occupational Safety and Health Administration, such as installing plexiglass at office counters, providing masks and other personal protective equipment to customers and staff, and establishing clear social-distancing rules. Here are some other things self-storage operators have been doing:

• Limiting the number of customers in the office and even inside the storage areas
• Disinfecting the office between each customer
• Sanitizing frequently touched surfaces
• Providing hand-sanitizer dispensers around the property
• Posting additional signage and website announcements about steps being taken and new rules implemented

But here’s the question: Should a business be subject to liability for customers or employees who claim to have caught the virus on the premises? Would it even be possible to trace the transmission to one specific location? It’s difficult enough for companies to operate during the pandemic without having to worry about these additional concerns. It’s for this reason that a number of state legislatures have agreed to provide liability protection for businesses against the risk of virus-injury claims.

One example is the Georgia COVID-19 Pandemic Business Safety Act (Senate Bill 359). Under this legislation, business owners who follow certain steps will be immunized from liability if a customer contacts the virus on their property. The only way you would lose this protection is if the person claiming injury could prove “gross negligence, willful or wanton misconduct, or reckless or intentional infliction of harm.” The bill creates further protections if a business posts the following sign at its entrance:

Warning: Under Georgia law, there is no liability for an injury or death of an individual entering these premises if such injury or death results from the inherent risks of contracting COVID-19. You are assuming this risk by entering these premises.

Even if your state hasn’t yet passed such an immunity law, it’s recommended that you post signs at your entrances and around the facility to confirm that the tenant is assuming his own risk when entering and using your self-storage services.

What Are Employer/Employee Rights Regarding Illness?

The pandemic has also led to the passage of laws specifically crafted to protect employees who catch the virus. Two of them expand the protections that were already in place for people who become sick while employed or are required to act as caretakers when family members fall ill. Both are part of the Families First Coronavirus Response Act.

Emergency Paid Sick Leave Act. This applies to employees who are sick, advised to self-quarantine, or subject to a federal, state or local shelter-in-place order. Under the law, full-time employees are entitled to 80 hours of paid sick leave (assumed to be equivalent to two weeks), while part-time employees are entitled to the hours worked on average over a similar two-week period. The employer may not require the employee to use his other sick leave before using these 80 hours.

In addition, the employee is entitled to his regular rate of pay, though there’s a per-employee cap of $511 per day or $5,110 in the aggregate. Rates of pay are reduced to two-thirds if the sick leave is taken to care for others, not the employee himself.

Emergency Family and Medical Leave Expansion Act. This expands the original Family Medical Leave Act, which says employers must provide up to 12 weeks of job-protected leave when an employee is unable to work (or telework) due to the health conditions of his children or other qualified family members. There are two parts to the concept of “protected leave.”

• The employee must be restored to the position he held when he left or an equivalent one. If not, the employer must make “reasonable efforts,” for up to one year, to return him to an equivalent position. For example, if the job is discontinued during his 12 weeks of leave and re-opened six months later, the employee should be given the opportunity to return to that position if possible.
• All paid time off can be applied to the first 10 days of the leave. After that, the employer must pay the employee “no less than two-thirds” of his regular rate of pay based on his normal work hours. However, the pay for this family leave is limited to $200 per day and $10,000 in the aggregate per employee. This includes part-time employees.

These laws only apply to employers with fewer than 500 employees, but there’s an exemption for employers with fewer than 50 employees for whom compliance would jeopardize the viability of the business. They only apply to employees who’ve been with the company for at least 30 days. Finally, they provide a tax credit to employers who pay their employees under these laws. The credit is against the employer’s portion of Social Security taxes.

Can You Require Testing and Vaccinations?

Further questions remain as to the rights of an employer regarding staff health and safety. The Equal Employment Opportunity Commission (EEOC) states that it’s legal for a company to ask employees if they have symptoms of COVID-19. It’s even permitted to take an employee’s temperature to determine if he might be infected. You can also ask him to seek medical attention and get tested if his symptoms are the same as those for COVID-19.

In December, the EEOC updated its guidance relating to vaccinations and whether an employer can require them. It has clarified that companies can institute a mandatory vaccination policy for employees, but there are exceptions for people with certain medical disabilities or objections based on religious reasons. Similarly, an employer can bar an unvaccinated employee from the workplace under the basis that the lack of immunization imposes a threat. However, in that case, you must allow the employee to work remotely if the job function can be performed this way. Ultimately, the EEOC would permit employers to require proof of vaccination before allowing employees to enter the workplace.

More Good News Than Bad

The pandemic has taught us a lot about our industry, especially how we run our individual self-storage facilities. Even without certain laws in place, we saw a tremendous amount of generosity from operators toward their tenants and employees. Notably, it appears to have been a year for more positive results than negative ones. That has a lot to do with the owners and managers who’ve worked to help each other and their customers during this unprecedented time.

Scott I. Zucker is a founding partner in the Atlanta law firm of Weissmann Zucker Euster Morochnik & Garber P.C. Practicing law since 1987, he represents self-storage owners and managers on legal matters including property development, facility construction, lease preparation, employment policies and tenant-claims defense. To reach him, call 404.364.4626, or email scott@wzlegal.com.