When I co-founded Easybox Self Storage in 2000 with the objective of developing self-storage in Italy and Spain, I admit I felt a certain amount of apprehension. Why were we the first to develop in these countries? Was the product just a Northern European phenomenon? What if it did not appeal to the Latin mentality? Five years later, its obvious my fears were unfounded. The Spanish have taken to storage like ducks to water, and Easybox is no longer alone in its ambitions.

Spain's Demand Centers

In Spain, its easy to see why there should be a demand for self-storage. Spanish cities are population-dense by nature, and the labor force is becoming more mobile within the country. Approximately 78 percent of the country's 40 million people live in the towns and cities. In Madrid alone, with a population in excess of 3 million, 600,000 new homes have been built and occupied every year for the past three years.

This growth is partly to satisfy an influx of people to the capital from the rural areas. Its also due to young Spanish people who now tend to purchase their own homes as soon as they become part of the active population rather than continuing to live with their parents until (and sometimes beyond) marriage. With a booming economy, growing purchasing power, continuing construction and a feel-good factor absent in many other European Economic Council (EEC) countries, properties are changing hands at ever increasing prices.

Barcelona, between a range of hills and the Mediterranean Sea, is a bustling city of 1.5 million people and arguably the most dynamic and prosperous commercial center in the country. Enormous apartment blocks house hundreds of thousands of people whose only storage space seems to be the outside balcony. The city has become a popular venue for international trade fairs and is one of the largest container ports in the Mediterranean. The high-speed rail link with Madrid will add to the importance of Barcelona as a business center.

Other large cities such as Valencia, which will host the Americas Cup in 2007, and Malaga in the south have experienced substantial growth in recent years and offer tremendous potential for our industry. Only Seville among the larger cities struggles to overcome a high unemployment rate; but it remains a very popular tourist resort and cultural center.

Roadblocks

But all is not perfect for the self-storage operator in Spain. While potential customers may be plentiful, properties that fit the requirements of visibility, access, size and, of course, affordability are much harder to find. Not only is there a strong industrial real estate market, but zoning changes in favor of commercial, office and residential use/construction have permitted property owners to reassess the value of their holdings, relegating industrial builders to areas away from the self-storage customer base.

This development trend may be less of a problem than it would be in other countries, since Spain has taken full advantage of the EEC subsidies available to improve its transport infrastructure. Road communication in and around the major Spanish cities tends to be excellent. Thus, the inevitable proliferation of self-storage facilities over the coming years will likely take place outside city centers.

Construction regulations are another hurdle. Municipal authorities have different regulations and are not consistent; however, the fire department usually has the strongest say. A thorough understanding of the rules and regulations is essential for negotiating with local authorities and can save many months in the process of obtaining licenses. A year or more of delay is common when there is a backlog of applications. But if an application is properly presented and negotiated, the wait can be drastically reduced. For example, our 88,000-square-foot facility in Barcelona was built and opened for business 10 months after we purchased the land.

Reaching Customers

From an operational point of view, the Spanish self-storage market varies little from that of other countries. However, referrals seem to play a larger part in attracting customers than in more northern European countries. The average length of domestic customers' stay is slightly shorter than those of our Northern counterparts, but this may be because of the novelty of the product. Its also necessary to cater to "Spanish hours" and allow customers access until well into the night; an efficient access-control system should eliminate any potential problems.

All in all, operating self-storage in Spain has much to recommend it. The people are friendly, the sun shines most of the time, and if you can find the sites or properties, the frustrations are no more than in any other country. And if you cannot, theres always mañana.

Serge Kaoune, a French national, is the co-founder and country manager for Spain of Easybox Self Storage. A pioneer of self-storage in the Italian and Spanish markets, he has been involved in the industry since 1996, mostly in France with Abacus Self Storage, and as an operations manager for Access Self Storage. Easybox operates six facilities in Barcelona and Madrid, Spain, and Milan and Rome, Italy. For more information, e-mail skaouane@easyboxstorage.com.

In attempts to extricate himself from the doghouse (where he frequently resided), an ex-boyfriend used to say to me, It only takes one small blunder to kill 10 good deeds.

In life, people pay far more attention to what you do wrong than what you get right. Sometimes you have to remind them of your gifts. I dont often use this space to sing the praises of Inside Self-Storage, but on occasion, I like to remind readers and advertisers (new and old) who we are, what we do and why they should continue to be our customers.

First, ISS has served the industry for 15 years, providing quality editorial and access to a wide array of products and services. This not only includes a monthly magazine, but several annual supplement publications: a boat and RV storage edition in September and international issues each spring and fall. Lets not forget the most comprehensive self-storage buyers guide and top-operator list, published every August.

The success of the magazine spurred the birth of a tradeshow division that produces annual expos for self-storage, including educational seminars, exhibits and abundant networking opportunities. The largest industry tradeshow of the year, now drawing in excess of 4,000 attendees, is created and hosted by the ISS team. Our most recent event, held in Las Vegas, February 22-25, was again superlative.

ISS

is also responsible for the annual Factbook, an A to Z self-storage guide that helps newbies find their path and veterans stay on course. A compendium of informational pieces, it covers every aspect of the business, from finance and development to operation and ancillaries. Laughably, I recently got a voicemail from a man demanding a refund on a Factbook purchase. He said, Theres no facts in this darn thingits just a bunch of articles on all different topics! Ill assume he was expecting a directory of statistical analysis, but perhaps he should look up the definition of the word fact. An industry education is based on a lot more than numbersparticularly when those numbers can easily be flawed.

Unlike its competitors, ISS does not charge for electronic access to its writings. A current edition and archive dating back to 1997 are consistently available at www.insideselfstorage.com. Articles are viewable in their complete text versions and searchable by key wordsfor free. While production costs require us to charge for a printed magazine, we dont believe you should put a price on knowledge. Free access to information is just another way we support members of the industry.

Finally, ISS proudly sponsors the Inside Self-Storage Scholarship Program, which provides educational funds for people working in the self-storage industry or their immediate family members. This year, five honorable recipients were given $2,000 to attend the college or university of their choice.

By now, many of you have heard recent proclamations made by the Self Storage Associations new president and chief executive officer, who asserts he will expand the SSA Globe newsletter to compete with this and other industry magazines. His aim? To be the one and only official voice of this industry But there cannot be only one voice. The contributions of ISS and the other reputable publications that support self-storage are too significant to disregard. Diversity of opinions and sources is vital in the news arena. Without it, we fall prey to biased information and propaganda.

Inside Self-Storage

has endured as a pillar of the industry, and weve done an excellent job. We are already an official voice of the industry; and we know youre hearing us, self-storageloud and clear.

Best wishes,

Teri L. Lanza
Editorial Director
tlanza@vpico.com

Five years ago, a small group of pioneers realized the Austrian and German populations lacked space to store their possessions. Having the vision to see self-storage as the natural solution, they boldly launched Self Storage-Dein Lager GmbH. The troupeconsisting of Martin Gerhardus, an independent consultant and general manager for a paper-merchant group, and long-time entrepreneurs Heinrich Hoyos and Herbert and Harry Hildis banking on the industry's economic potential. Austria's population is just over 8 million and Germany's is 82 million, yet storage facilities in these countries are few and far between.

Dein Lager (translation: "your storage"), headquartered in Vienna, Austria, opened its first facility in 1999. Since then, the company has opened five additional facilities: one in Graz, Austria, another in Munich, Germany, and three in Vienna. The storage operation is managed by Gerhardus and Hoyos.

Each facility has a net-rentable area of 6,000 square meters. Customers receive their own keys and security codes and can access their units from 6 a.m. to 10 p.m., 365 days a year. Security measures include video surveillance, alarms and a security service. Facility corridors are designed to be wide and well-lit, allowing customers to easily and safely handle their goods.

Good-Site Hunting

As in all EU countries, suitable storage sites in Austria and Germany are difficult to find, Gerhardus says. "Our sites were selected for visibility, accessibly and our assessment that the locations were good." Except for one, all Dein Lager facilities are in residential areas, making them attractive to local communities. Newer facilities are on major streets with a minimum traffic count of 20,000 cars per day. Only one is in a warehouse area.

Five of the company's stores are new builds and one is a conversion. The greatest challenges to constructing a new facility are time, money and nerves, Gerhardus says. "When we find a location, it takes us four to six months to open the store," he adds.

Regulations, too, can be an obstacle. In Austria, rules governing development are very specific. In Germany, however, which has four levels of self-governmentstate, federal state, district and municipalguidelines can be unclear. For the most part, municipal agencies govern matters related to local communities. "Of course, we follow all regulations and, therefore, have high costsbut no real problems," Gerhardus says. It was to his group's advantage that local residents did not object to the projects.

Though local architects are not familiar with the requirements of self-storage, Gerhardus and his partners were able to assemble an experienced design team. Their partitions and doors were furnished by Steel Storage Systems Inc. Locks, security systems and lifts were supplied and installed by local companies.

Drawing Customers

Though there are no contending self-storage businesses in its market, Dein Lager faces a lot of competition from the transport and storage industry, Gerhardus says. The companys primary marketing mediums include leaflets, signage and the Yellow Pages. Its website, www.selfstorage.at, is another good customer draw.

To expand its base of potential customers, each Dein Lager facility offers ancillary products and services, such as the sale of popular retail items like boxes and tape. The West Vienna facility offers upscale storage for wine. In addition to temperature and humidity control, it features a separate entrance, and each unit is individually alarmed. The East Vienna facility offers business storage, called "self office."

Future Growth

The founders of Dein Lager have one driving philosophy: to be the market leader. Growth and development of the company and the industry as a whole is necessary to bring that objective to fruition. "We plan to establish another four facilities to reach our final goal of 10," says Gerhardus, who intends to build one more facility in Vienna and three more in Munich.

"The growth of self-storage in Austria and Germany will be slow," Gerhardus admits. Nevertheless, Dein Lager sees the potential of the industry and hopes to break even after seven to eight years as it educates the market on the service self-storage provides. For more information, e-mail martin.gerhardus@selfstorage.at.

This month, I gathered real estate experts to discuss the state of self-storage in the Southeast. Lets hear what they have to say about their respective cities and regions. Our panel includes: Bill Barnhill, Omega Properties, Mobile, Ala.; Dale Eisenman, Midcoast Properties Inc., Hilton Head Island, S.C.; Kathleen OBrien, Wexford/OBrien Associates, Arlington, Va.; Chuck Shields, Beacon Commercial Real Estate, Conshohocken, Pa; and Frost Weaver, Weaver Realty Group, Jacksonville, Fla. While Barnhill also works in Alabama and Mississippi, his responses below refer to the Florida Panhandle. Shields area covers New Jersey and Pennsylvania, but his following responses refer to the Delaware market. My comments are in italics.

As you look back at the last two years, what do you see as the primary reasons owners sell their self-storage properties?

Barnhill:

Owners generally sell to complete a 1031 exchange into another property or due to changes in their life. Sometimes they are planning retirement or simply want to have freedom from day-to-day involvement in managing the operation.

Eisenman:

The reasons vary, of course, but usually some life eventsuch as retirement, relocation or reallocation of assetsseems to precipitate a property coming to market. Sometimes a commercial property that was a good fit for an owner in the past no longer suits his investment objectives. An owner may want to diversify among other types of properties, or convert some of his equity to a more liquid investment.

Potential buyers often ask why an owner is selling, as if to suggest that if it was a good property, the owner would not part with it. Thats a flawed assumption. The buyer should be asking why he should buy the property. If the investment fits the buyers objectives and parameters, it should be pursuedregardless of the sellers situation. If the property has some negative issues, the buyer will discover those as he investigates the opportunity. So, in a nutshell, sellers sell when the timing is right, based on their unique circumstances.

OBrien:

Owners have made the decision to sell for the traditional reasons: The time is right due to a life change, such as a move or retirement. In addition, there are owners who have perceived such high demand for self-storage they believe their class-B or even class-C property will attract strong investor interest.

Shields:

Buyers have told me life changes were the reasons owners chose to sell. The main reason was retirement, with the breaking of partnerships as the next cause. This has been my experience in other areas as well.

Weaver:

Owners have decided to sell their self-storage properties for some of the following reasons:

• Developers/entrepreneurs have built their facility and leased it, but dont enjoy the day-to-day operations. They prefer the process of creating value, taking the equity they have created and duplicating the process. These are our industry risk-takers.
• Privately owned and operated facilities are relinquished due to a family death, divorce, split partnership or retirement.
• Investors or owners realize interest rates are most likely going to rise, which could have a negative impact on the value of their properties.

I cant add much to what our troops in the field are saying, except that if you want to sell, prices are the highest they have ever been. Unless you believe interest rates will drop farther, this is probably a once in a generation (maybe lifetime) chance to sell at high prices.

Do you think the potential rise in interest rates will affect cap rates in your area? What effects on property values do you foresee?

Barnhill:

Rising interest rates will obviously affect cap rates, though not necessarily in a linear fashion. Values should moderate somewhat due to higher cap rates. On the other hand, inflationary pressures could cause an increase in rental income.

Eisenman:

Yes, to some degree, but the long-term rates have been fairly stable recently, so it may be a bit early to predict. As long-term rates increase, we may see a dampening of demand, particularly if it is associated with tighter underwriting by lenders. However, rates and lending criteria are only part of the picture. Values will remain attractive if the industry continues to offer reasonable returns to investors. If we find ourselves in an overbuilt market with softening rents, rising interest rates will have a chilling effect on demand and value.

OBrien:

Yes, of course. The bottom line is always going to be return on investment. The lower interest rates allow more aggressive cap rateseven 7 percent and 8 percent. However, a rise in interest rates will be followed by investor intolerance for lower cap rates.

Shields:

The thinking of some owners is interest rates will stabilize during the first half of the year, with the second half being uncertain due to the war and state of the economy. The feeling is if there is any movement, it wouldnt be more than 1 percent; and values would definitely be affected, but Im not sure to what degree.

Weaver:

A rise in interest rates should increase cap rates, as there is a direct correlation. As rates rise, I would expect to see a decline in values, all else being equal.

Once again, the team is on the money. It is simply axiomatic that higher interest rates cause cap rates to rise and prices to decline.

What are the primary reasons buyers are interested in self-storage as opposed to other real estate investments?

Barnhill:

Self-storage has become a highly desired investment since many investors view it as a low-maintenance property type with ease of entrynot to mention the excellent return self-storage affords.

Eisenman:

Self-storage has proven to be a consistent performer over time (with the possible exception of about six months after 9/11). It offers solid returns and seems to be less vulnerable to fluctuations in the economy. Additionally, because a self-storage property has multiple tenants, no one vacancy has the same impact on cash flow as one might experience in retail, office or industrial real estate. While it shares that characteristic with multifamily properties, it requires less of an investment to make a unit available for the next tenant.

When I speak with potential buyers who are new to the industry, I find they often think the industry is a way to make easy money. I try to explain the home-run opportunities are more rare than they once were, but the industry offers solid singles and doubles for those who are willing to be diligent and serious. Many newcomers underestimate the management component of self-storage and fail to see the associated risks with an under-managed or poorly managed facility.

OBrien:

I think the initial reason is the perception that self-storage requires less management. This is not true, of course. However, I think many investors are attracted to self-storage because it does not require an ongoing capital investment after the initial construction. In addition, the tax advantagesmainly with the shielding of passive incomeare quite appealing.

Shields:

Self-storage is considered one of the best investments available. Expenses and management are very reasonable, and the returns can be substantial. In addition, financing has become more favorable.

Weaver:

I have had contact from potential investors who have been actively involved in the ownership of other types of real estate and are now seriously considering self-storage.

Some of their reasons are:

• Simplicity of management.
• Higher cash-on-cash return.
• Lower risk due to a lower breakeven occupancy.
• Fewer construction and maintenance issues.
• Fewer employees to manage.
• Strong demand for resale opportunities.

I think one of the overlooked advantages of self-storage properties is the low cost to turn over a tenant. There is no tenant finish, no leasing commissions, not much cleanup, and not a lot of administrative time and effort. Over the life of most real estate properties, these can really add up, diminishing property value.

Is overbuilding a consideration for buyers in your area? If so, describe their concerns.

Barnhill:

Potential buyers are prudently aware of the overbuilding issue, and most are using market studies as part of their due diligence. An overbuilt market can emerge in a relatively short time, depending on changes in supply and demand.

Eisenman:

Overbuilding is always a consideration for buyers and sellers and will continue to be so. Our industry will benefit from sharing more information that allows better, more informed decisions. While some owners or operators feel they need to safeguard their rental rates and occupancy for competitive reasons, the more enlightened members of the industry recognize that failing to share accurate information can lead to destructive overbuilding, market cannibalization and lower rents.

OBrien:

The population in the mid-Atlantic region is growing in such leapsand the growth projections are so greatthat many buyers are quite eager to enter the market.

Shields:

Overbuilding always seems to be on self-storage owners minds. Some Delaware owners feel New Castle County and some of the beach areas could see some overbuilding but, at the present, it is wait and see as to how the population grows in these areas over the next few years.

Weaver:

Overbuilding has primarily taken place in the larger markets where you have a strong presence of national and regional developers. The smaller markets are continuing to experience good occupancy and stability. Most owners in these markets are reluctant to raise rates for fear of attracting new competition.

Great returns on real estate properties always create overbuildingits just a matter of how much. The overbuilding fires always burn brightest with the oxygen of low interest rates. It is the paradox of real estate that moderation in interest rates is the best position in the long term, even though low interest rates can look really great in the short run.

Is now the time to sell? Rate the local selling environment on a scale of 1 to 10 (with 10 being the most favorable) and explain your answer.

Barnhill:

Now is a window of opportunity to sell, since demand for self-storage is strongand interest rates are still low. Combine this with a low capitalgains tax rate and the opportunity to defer gains through a 1031 exchange, and the result is the best time to sell in the past decade. A rating of 9.5 is not too high.

Eisenman:

Its time to sell only when a sale fits the owners objectives and goals, no matter what the calendar states, interest rates suggest or the owner hears at an industry conference. The proper timing for buying and selling is unique to the individual or organization involved, measured solely by circumstances important to him. For some, now is absolutely the right time to sell, so on the scale, its a 10. Historically low interest rates, reasonable underwriting by lenders and attractive returns make it a good time for buyers to buy and sellers to sell at fair value.

OBrien:

Nobody has a crystal ball, and this is a question each owner has to evaluate. There are many concerns about what the Fed may or may not do; we would all like to predict what the capital markets will do.

Shields:

Some owners believe that self-storage values have topped out. If there is consideration to sell in the next 24 months, its probably better to sell now than later. If interest rates go up, it will be much harder to finance the projects at higher values. On the scale, Id say the rate is 7 to 8.

Weaver:

Unless an owner/investor plans to hold his property for at least five more years, now is the time to sell. I would say the rating is an 8. There is a strong consensus that interest rates are going to rise over the next few years. This is definitely going to have an impact on value. Most markets have sufficient excess supply, and rental rates are not going to offset this declineit would take at least five years for that to occur.

I agree 8 is the minimum rating and 10 may well be the answer. But if interest rates rise, that number will fall to 5 or lower.

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 nations 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.

France is home to 112 storage facilities serving the country’s population of 62 million. The stores are owned by 31 different companies, though 58 percent of the market is controlled by only three corporations: Access, HomeBox and Shurgard. The market is geographically concentrated, with 54 percent of facilities in the Paris area.

The average self-storage customer in France isn’t much different from that of the rest of Europe. Private individuals account for 80 percent of tenants, and business clients comprise the remaining 20 percent. Most tenants are male—60 percent—although the female market is growing. Eighty percent of customers live within 5 miles of their store.

Market Growth

France lags behind the United Kingdom in terms of self-storage development. The U.K. market was born five years earlier, so its public has a better awareness of the service. Studies show that in French cities where storage facilities operate, only 5 percent of the population understands the product. Despite money spent on marketing each year, awareness grows slowly. So far, this is the biggest challenge the French self-storage industry faces.

From 2000 to 2002, the French market greatly expanded, primarily due to development by U.S./U.K. companies. But in 2003 and 2004, most of these large corporations stopped development and growth slackened. This year, for the first time in the country’s short self-storage history, French-owned companies have led the pack on self-storage openings. Among the new generation of French corporations, Box Avenue and Annexx stand out with ambitious development plans.

Philippe Peyrot is president of Annexx SAS, a French self-storage company, and founder of Self-stockage.info, an online publication about self-storage in Europe. For more information, visit www.annexx.com and www.self-stockage.info.