Self-storage facilities continue to command great cash flow, but many owners find themselves funneling more of their income toward exorbitant property-tax bills. Those who take the time to review their assessments and liabilities with a local expert often discover they’re being taxed unfairly. This is why you should identify and question your assessor’s methods, assumptions, data and calculations. By exercising your right to contest your assessment and presenting a convincing argument, you might be rewarded with a lower tax bill.

Self-storage is especially vulnerable to errant valuations by assessors who fail to differentiate taxable from non-taxable value. Key questions include whether the sale of a self-storage facility is completely subject to transfer tax and if the price directly equates to taxable value for real property tax. It can be argued that much of the value associated with self-storage is business value and personal property, which is typically exempt from transfer or property taxes.

Let’s examine how self-storage tax assessments are made and arguments you can use to contest one assigned to your own property. A successful appeal can save significant money, so it’s worth pursuing.

The Trouble With Assessment

Arguing that the value of your self-storage facility is largely derived from non-real-estate sources can be problematic. Much of the difficulty comes into play when the assessor obtains a copy of the finance appraisal, or when a purchase and sale agreement includes an allocation separating the real estate from non-realty items.

Assessors want to believe that all the value in a sale or from financing is derived from real estate. In the Ohio case St. Bernard Self-Storage LLC vs. Hamilton County Board of Revision, the state supreme court stated that although the purchase and sales agreement carved out goodwill in the acquisition price, it was unconvinced that the sale of a self-storage facility had any goodwill. Conversely, lenders are often unable to lend on value that isn’t attributable to real estate.

For property owners, the first step toward minimizing taxes and maximizing their financing is watching definitions; the definition of the interest being appraised is paramount. Appraisers can properly find for two different values on the same property, depending on whether they’re valuing for the purpose of financing or tax assessment, so it’s important to establish the interest being appraised.

When it comes to financing, lenders can and do lend on the stabilized value of a property performing as a going concern. In other words, they’re appraising the property's leased fee value. So, for financing, appraisers can rightfully take into consideration the income from the operation at stabilization, but that isn’t necessarily true for tax assessors.

Many states require assessors to value the fee simple interest in the real property only. The fee-simple appraisal is based on the real estate value alone and excludes value from the return of and on personal property. When it comes to self-storage, the assessor’s calculation of taxable value must ignore value associated with units, computer systems, national marketing and so on, based on circumstances. Individual units are capable of being assembled and disassembled, which means they are at best a business fixture and not real estate.

Many assessors and appraisers recognize the removal of the depreciated value of personal property, which means they must also remove the personal property—and any income attributable to it—from the going-concern value. The comingling of values from multiple sources is especially evident when there’s a sale.

Arguments in Your Favor

When the assessor cites a tax assessment based on the sale of your self-storage property, you can make several arguments. First, look at the building’s construction and acquisition costs without factoring in things like security, computer systems, marketing and individual units.

If your facility was recently converted from a different type of building, that too can give you an advantage. Properties like those transformed from big-box retail space often trade at much lower price before lease-up and stabilization, and the conversion costs are typically associated with the personal property and eventual occupancy. So, as the owner, you can present sales of comparable pre-conversion properties to support an argument for a reduced assessment. It’s better than using the sales of operating self-storage facilities as comps because there’s no need to remove the personal property from the equation.

In cases when there are few comparable sales of big-box properties to reference or your self-storage facility truly isn’t comparable to others that have been sold, it’s appropriate to assess the property based on the replacement costs associated with building new. However, the appraiser should stop short of including costs specific to individual units, otherwise they’d need to apply depreciation from all sources, including age and any economic or functional depreciation.

The last line of counterargument is based on the income approach to valuation. Income-based assessment is the most complex when it comes to removing non-realty income. The easiest and cleanest way to respond is to look at examples of same-generation retail or light-industrial rents.

That said, when trying to defeat a sales price, it may be necessary to look at the actual income and then determine the appropriate amount for the non-realty value. Appropriate income will be based on the initial investment to install personal property as well as the return from that personal property. The income derived from that non-realty component is then removed from the actual net income. This is an activity easier said than done, but appraisers can establish the return. After removing the non-realty income, they should apply an appropriate capitalization (cap) rate to arrive at the property value.

Preferably, the cap rate used by the appraiser or assessor should be created from a mortgage constant and equity returns rather than from sales of comparable self-storage facilities because cap rates from this industry have comingled interests.

As you can see, it’s appropriate for self-storage owners to use different values for their property, including one for financing and another for taxable or assessed value. These will differ because the appraisals that produce them are truly measuring different property interests.

J. Kieran Jennings is a partner at Siegel Jennings Co. LPA, an Ohio-based law firm that specializes in tax law. It advocates for fair property taxation on behalf of all taxpayers. It’s an Ohio, Western Pennsylvania and Illinois member of American Property Tax Counsel, the national affiliation of property-tax attorneys. He can be reached at kjennings@siegeltax.com.

Acorn Mini Storage, a Minnesota-based self-storage operator, has opened A2 Art Storage & Services, a museum-grade, climate-controlled facility designed specifically to store precious art. The 35,000-square-foot property is in a suburb of Minneapolis and St. Paul. Converted from a warehouse originally constructed in 1970, the building offers private and commingled storage options, customizable warehouse space, and two meeting rooms that can be used for appraisals, viewings and other purposes, according to the source.

A2 owner and President M.E. Kirwan and her husband, Chris, who serves as president of Acorn, spent two years researching potential business opportunities that would complement Acorn before settling on the A2 concept. “There are collectors in the Twin Cities,” M.E. Kirwan told the source. “Our institutions … many of them have been storing onsite due to a lack of a facility at these specifications. So, we felt really good about our prospects here.”

Acorn paid about $2.9 million for the building in 2019, the source reported. The conversion emphasizes security and environmental controls, including a dry-pipe, pre-action sprinkler system with central monitoring that covers the entire facility. Non-corrosive fire extinguishers are kept in all storage spaces, which are individually zoned with a vapor barrier, according to the company website.

Tenants can choose to store items on their own or have A2 arrange pickup and delivery by professionally trained art-handlers. The facility uses magnetic locks with individually programmed key-fob access. All staff and contractors undergo background checks, and facility access is by appointment only, according to the website.

Since renting its first space in May, A2 has leased four private units. Though the business is designed to protect artwork, it isn’t solely intended for serious collectors. “We didn’t want this facility to be only for the objects worth tens of millions of dollars,” Kirwan told the source. “It’s really for anything you care about that you don’t have space to hang in your home.”

Acorn operates 15 self-storage facilities in the Minneapolis metropolitan market. Each location also serves as a drop site for the Diaper Bank of Minnesota, which collects and distributes disposable diapers to children in need.

Sources:
Minneapolis/St. Paul Business Journal, Acorn Mini Storage Owner Launches Art Storage Business
Acorn Mini Storage, Introducing A2 Art Storage: Fine Art Storage in the Twin Cities

Prime Group Holdings LLC, a New York-based real estate group that owns self-storage and other types of real estate, has acquired a 13-property self-storage portfolio valued at more than $100 million from Ziff Real Estate Partners. The facilities are in “high-growth” areas of Florida, Kentucky, North Carolina, South Carolina, Tennessee and Virginia, according to a press release issued by Ziff.

The deal comes after Prime announced its intention in May to launch a third private-equity fund, Prime Storage Fund III LP, to raise $1.5 billion for self-storage acquisitions nationwide. Under Ziff ownership, the newly acquired facilities were managed by real estate investment trusts CubeSmart, Extra Space Storage Inc. and Public Storage Inc. and branded under their names, the release stated.

Ziff is a vertically integrated real estate development, investment and management firm. It’s strategy has been to pursue new self-storage development as well as the acquisition of underperforming properties that can be renovated and sold at greater profit. In the last five years, the company has developed or refurbished 13 class-A storage facilities comprising more than 1 million square feet, according to the company website.

“[Ziff] is well-positioned to continue to execute its successful storage redevelopment and new-development strategy, and the firm has an active pipeline of investments under consideration,” company officials said. Among its plans is to launch a self-storage fund for accredited investors, according to the release.

Prime was represented in the transaction by Cowles M. “Monty” Spencer Jr., CEO and group president of The Storage Acquisition Group (TSAG), and David Spencer, vice president and senior advisor for TSAG, which specializes in acquiring off-market self-storage facilities and portfolios nationwide. Ziff was represented by its in-house disposition team.

Headquartered in Saratoga Springs, New York, Prime Group operates the Prime Self Storage brand and has more than $4 billion in real estate under management in 26 states. Its operating self-storage portfolio of 255 facilities comprises more than 18.7 million rentable square feet.

Founded in 1991 and based in Charleston, South Carolina, Ziff invests in office, retail, self-storage and small-bay warehouse properties. It manage all aspects of the investment process with an in-house team of property managers, maintenance and construction professionals, and leasing agents, according to its website.

A fire broke out at Mini U Storage in Bradenton, Florida, on Saturday, injuring five firefighters and causing an estimated $1.5 million in damage to the self-storage property and unit contents. Initial responders from Cedar Hammock Fire Rescue (CHFR) arrived shortly after the fire was reported at 11:13 a.m. to find smoke and flames coming from the roof of one of the buildings at 5717 14th St. W. The incident escalated to a three-alarm blaze requiring about four hours to extinguish, according to a source.

CHFR was assisted by firefighters and support staff from nine different agencies and departments, including the Bradenton Fire Department and the Florida State Fire Marshal’s Office. The extent of the injuries sustained by responders hasn’t yet been released. No civilians were hurt during the incident, a source reported.

The cause of the fire remains under investigation.

Mini U is the operating brand of Dahn Corp., which has more than 45 locations across 11 states. Its self-storage portfolio comprises more than 3.2 million rentable square feet.

Sources:
Fox 13, Fire at Bradenton Storage Facility Injures 5 Firefighters, Causes $1.5 million in Damages
The Free Press, Cedar Hammock Fire Rescue Fights Storage Facility Fire, Five Firefighters Injured

Over the past decade, climate-controlled self-storage has gained popularity in urban areas and transit-oriented developments (TODs), which seek to maximize the amount of residential, business or leisure space within walking distance of public transport. It’s also an integral component in mixed-use projects, where self-storage is combined with retail and other business types. But while there’s a need for storage in these locations, there are challenges to building there.

First and foremost, urban sites command higher land prices, driving self-storage developers to seek smaller parcels than they would in suburban and rural locations. The question is, how can you achieve the density necessary to serve the market and make profit while creating an architecturally sensitive facility that meets local design requirements?

The solution often lies in a multi-story project. Let’s look at how you can maximize a more compact lot while achieving your business goals.

Three Key Considerations

A multi-story self-storage project in an urban location can easily yield 130,000 square feet on a lot of .75 acres or less. When determining how dense or high to build, consider these three things:

Zoning and height regulations. Most urban locations and TODs embrace building height and density, so take advantage of this. Verify local restrictions by meeting with the planning director before you submit drawings. There are often exceptions, potential variances or a rezoning that may be available to create height and density or reduce setbacks.

Efficient floor plates between 18,000 and 25,000 square feet can easily yield more than 120,000 gross square feet in a five- to seven-story facility. If a height restriction is hindering the desired leasable area, consider building one level of underground storage, especially if the site has sloping topography. You can also consider a robotic facility, which allows you to build a very tall single-story structure. (See sidebar.)

Construction costs. To save money, don’t try to build too high. Keep your number of stories below what’ll trigger the use of a high-rise construction code. If you have to adhere to that code, it adds cost because of requirements around mechanical systems, fire ratings and building exits. Each state and jurisdiction may have its own code, but typically, you want to keep your self-storage facility to seven stories or fewer.

Community relations. When developing self-storage in an urban location, it can trigger anxiety in the community, especially when housing is nearby. It’s wise to respect the height, scale and architectural character of the neighborhood. Design your facility with appropriate materials, and include additional windows and architectural features. Ensure that any service areas are hidden from the street, and install additional landscaping. When appropriate, provide first-floor retail, restaurants or civic spaces, as this’ll help people embrace your project.

Other Helpful Insights

Here are a few other things to bear in mind when designing your multi-level self-storage. Many can work to your advantage.

Parking. Unnecessary parking wastes land and costs you money. Fortunately, storage has low parking needs. A typical facility only needs 10 to 15 spaces. Many zoning regulations require more, but it’s often negotiable.

If you can put your parking on the first level, beneath the storage units, it’ll help you maximize land coverage. Plus, covered parking is a great amenity for customers. You can use the management office and additional retail on the front side of the building to help screen the parking from the street.

Setbacks. The zoning regulations in most urban areas include setbacks of zero and “build-to” lines of zero to 5 feet. This allows you to maximize site use and engage customers at the street level. If the facility is in an appropriate commercial location, you can integrate retail, civic or office uses, or even restaurants on the first floor.

Corner or through lots. A small lot with frontage along two streets, or a street and an alley, has more density. One with frontage on multiple streets also provides ease of circulation for automobiles and service vehicles. “Pull-through” lots save valuable land by eliminating the need for onsite maneuvering of large vehicles.

Stormwater retention. Provide for your stormwater-management needs underground, in pipes or vaults. These should be under the parking area, if parking is separate from the building. If the site is extremely small and most of the lot is occupied by the building, consider putting a thin, deep vault under the sidewalk. Always verify stormwater requirements with the local engineering department.

As fewer parcels for self-storage development become available in urban locations, owners and developers should consider smaller lots and build multi-story facilities. Keep the above advice in mind, and your project will succeed!

Stephen Overcash is managing principal at ODA Architecture, inspiring “FUNomenal Design” for all its projects including master planning, commercial architecture and interior design. ODA has provided architectural expertise to clients for more than 36 years. It specializes in office, hotels, hospitality, lifestyle storage, mixed-use developments, and interior spaces. To reach Stephen, call 704.926.3369 or email sovercash@oda.us.com.

Live date/time: Thursday, Sept. 23, 1 p.m. PT
Duration: Approximately one hour (includes audience Q&A)
Presenters: Richard Lillie, Vice President of Business Development for R3 Division, Janus International; Warren Dazzio, Executive Vice President, Cost Segregation Services Inc. 
Registration: Click here to acess the on-demand version.

If you want your self-storage facility to look and function better while making and saving more money, this is the webinar for you! Learn how renovation of an older property can help you attract new customers, retain existing tenants and establish your operation as a market leader in an increasingly competitive landscape. Our presenter will discuss the importance of upgrades, plus common projects being pursued by your fellow owners today, from door replacements and unit remixes to security-system retrofits and more. He’ll also explain what to expect during the process and the many financial benefits of completing the work.

What you'll learn:

• Why and when to consider a self-storage renovation project
• Common upgrades being made by facility owners today
• What to expect during the renovation process
• The positive impact to your revenue stream and facility value
• How upgrades help you save money on taxes, insurance and more

About the presenters:

Richard Lillie is vice president of business development of the R3 Division of Janus International, a global manufacturer and supplier of building components and security technology for the self-storage industry. He joined the company in 2008, handling sales in the Southeast, and has been recognized as "Salesman of the Year" four times. He assumed his current role in April 2020.  An Atlanta native, Richard is a graduate of North Georgia College and State University. He’s been a member of the board of directors for the North Carolina Self Storage Association since 2012. 

Warren Dazzio is executive vice president of Cost Segregation Services Inc. With an extensive knowledge of tax law, he consults with owners of self-storage and other types of buildings to help them reduce their taxable income and stay compliant. He travels around the U.S. providing educational conferences and webinars on tax law and solutions for accounting professionals and CPAs, building owners, real estate professionals, and wealth managers. He’s spoken at many state and national self-storage events. Warren is a graduate of Franciscan University in Steubenville, Ohio, and has an MBA from Louisiana State University.

Sponsored by:

Janus International is a global manufacturer and supplier of turnkey self-storage, commercial and industrial building solutions including roll-up and swing doors, hallway systems, relocatable storage units, and facility and door automation technologies. The Janus team operates out of several U.S. and six international locations.

It’s no secret: The self-storage industry is in the midst of a development and real estate boom. Leading operators and investors are expanding current properties and buying up new ones in markets of all sizes, growing their portfolios through acquisitions, value-add opportunities, new builds and conversions. And all this activity is clearly evidenced in the 2021 Inside Self-Storage (ISS) Top-Operators Lists.

Produced annually, these lists reveal and rank the industry’s top 100 facility owners and top 50 third-party management firms by rentable square feet. Designed for anyone looking to buy or sell assets, vet competition, or identify market opportunities, they provide operator contact information, expansion plans, facility locations and sizes, and other key data. The package provides both lists in a sortable Excel spreadsheet as well as a 20-page PDF companion containing an analytical report of results and a full representation of the rankings in easy-to-read format.

See who’s growing aggressively, who’s yielding market share and the latest up-and-comers in the business! Visit the ISS Store for full product details. Previous lists for 2012 through 2020 are also available for purchase.

Effective social media marketing requires more than posting a fun photo and a few words about your self-storage business on your favorite platform. Bolstered with a good strategy, it’s a complex solution that can also be a foundation of your customer-acquisition process. Let’s examine some reasons why you should invest in social media and where to concentrate your efforts for the best results.

Reasons to Invest

Increase brand awareness. This refers to people’s ability to recall and recognize your self-storage business. It’s the primary goal of any marketer and crucial to acquiring customers. When a potential renter has the choice between you or a competitor, they’re more likely to go with the most recognizable brand. Social media is a powerful way to keep yours top-of-mind. Use it to cast a wide net with paid ads or cater to those most interested in your company by building a network of followers.  

Drive website traffic. Even if you don’t have a robust social media strategy just yet, creating accounts with information about your business and prominent links to your website is an excellent first step to drive traffic to your website. Adding important information to your profile such as hours of operation, driving directions, and keywords for unique or special features like climate-controlled storage are all ways to increase searchability and ultimately drive more visitors to your site.

Convert potential customers. Successfully using social media to convert prospects to paying self-storage tenants requires effort and consistency. It takes much more than occasionally pushing a photo or message into virtual space, but it doesn’t have to be overwhelming.

If your customers have common questions about self-storage, engage with them through question-and-answer posts about your business. If you have a newsletter, use social media to promote it and get new subscribers. Once you’re ready to take your efforts to the next level, build a library of content and commit to consistently making daily, weekly or monthly posts. Consistency is key for building trust and relevance with your audience. Once you have a sustainable strategy in place, investing in paid ads can increase your audience and drive still more conversions.

Demonstrate customer service. Outstanding service is often the factor that convinces consumers to choose one business over another. With social media, everything is on display, so quick and friendly responses are more important than ever.

Some view this open interaction as a negative because if you mess up, your “dirty laundry” is on display for everyone to see. Though this can happen, the opposite is also true. Consistently engaging with customers through social media by answering queries and resolving issues can build brand trust and loyalty in a significant way. Current tenants and potential customers alike will surely take notice.

Enable social listening. This is the process of monitoring social media channels for mentions of your brand as well as for industry insight, competitive analysis, campaign analysis and more. It provides quick insight to your customer experience.

Granted, social media comments and direct interactions with your brand also shed light on what customers say and think about you, but to truly understand industry trends and how your business compares to competitors through the eyes of the public, you need to enable your social-listening skills. This is a useful component to help make smart, strategic decisions.  

The Best Platforms

There are endless ways to leverage social media for your self-storage business. All mainstream channels can be useful in different ways, and every few months, a new platform seems to come along to create even more choices for where to spend your marketing time and energy.

Determining the best channels for your operation will depend on company strategies, goals and resources. If resources are limited, start small. Pick one or two platforms to begin, and then add more as you grow. Here are some to consider and how to use them:

• Facebook: Share general information and announcements, build brand loyalty, create paid ad campaigns, and connect with local customers or groups.
• Twitter: See what’s trending on a national or industry level and join in on “the larger” conversation.
• Instagram: Share information visually, host online promotions and giveaways, and have some fun with your customers.
• Pinterest: Curate all things visually related to the self-storage industry.
• YouTube: Share videos and “how-to” information with your customers.
• LinkedIn: Build your professional network and recruit employees.

Many consumers first search for information on social media channels, so having a profile containing immediate details and clear calls-to-action can be helpful in driving customer traffic.

Organic vs. Paid

Another consideration for social media is your strategy around organic (free posts, photos, videos, etc.) vs. paid (i.e., advertising). Posting organically is free, but the audience is limited to your followers. You can expand that reach by encouraging followers to share your posts and using hashtags, but growing your audience takes time, requires consistency and needs to be a long-term approach.

Paid social media allows you to reach new audiences, increase brand awareness and followers, and even target specific customers who may be interested in your product and services. This tool can drive conversions directly, but it can be costly and hard to measure its effectiveness without the proper data and expertise. Most social platforms have their own advertisings systems, and each takes time to master.

However, when paid social advertising is done correctly, it can be a powerful digital-marketing tool. Self-storage operators can find success by diversifying mixed-use channels and focusing on targeted ads. This strategy brings value because it offers efficiency of scale and can drive traffic to your website and physical property. There are even turnkey solutions available that give you access to the same resources that make the largest operators so successful.

The Place to Be

Social media platforms are becoming search engines in their own right, but they take the experience a step further by allowing authentic engagement and two-way communication with current and potential customers. If your self-storage business isn’t on social media, you could be missing out on significant value.

Social media is a powerful tool to build your brand. If you create a strategy, start small and engage with customers. You’ll get results. If you want to attract more customers, you need to be where they are—even online!

Mike Beutler is digital content management specialist for Extra Space Storage Inc., a self-storage real estate investment trust and management company. He joined the business in 2020 after working in the airline industry for several years. He holds an associate degree from Weber State University and a bachelor’s degree from Thomas Edison State University. For more information, call 866.447.6522; email info@extraspace.com.

Absolute Storage Management (ASM), a self-storage owner and property-management firm, has announced its operating results for the second quarter and first half of 2021. The company increased same-store revenue by 15.7% during the quarter and 12.2% for the first six months compared to the same periods last year, according to a press release. It also increased unit occupancy by 6.7% during the first six months compared to 2020, ending the period at 94.1%.

ASM gained six management contracts during the quarter. Three are for operating facilities, while the other half are for properties under construction. The sites are Clemson Climate Storage in Pendleton, South Carolina; One Stop Storage in Toledo, Ohio; Pumpkin Center Boat & RV Parking in Hammond, Louisiana; River Rock Storage in Gastonia, North Carolina; Wilson Road Storage in Sanford, North Carolina; and Woodruff Storage Lakeside Village in Midland, Georgia.

“We are excited about our performance for both the second quarter and the first half of the year,” said CEO Scott Beatty. “Our team has done a fantastic job in serving our customers in this trying time, and we are looking forward to a strong second half of the year.”

Founded in 2002, ASM operates 137 properties in 17 states. Headquartered in Memphis, Tenn., it has regional offices in Atlanta; Charlotte, North Carolina; Jackson, Mississippi; and Nashville, Tennessee.