ires, floods, hurricanes, burglaries, and finding hazardous chemicals in storage units are just some of the disasters you may have encountered (or could encounter) running a self-storage facility.

“Unfortunately, I’ve had the misfortune of experiencing about every disaster with our facilities,” says Beau Agnello, former senior vice president at Pogoda Companies in Farmington Hills, Mich. Those disasters have included all those previously mentioned, as well as the 2021 winter freeze that gripped much of the country, including South Texas. According to usclimate.gov, the storm was the costliest winter weather event in U.S. history. Several of their properties were affected with power outages and broken pipes.

Agnello says a comprehensive disaster plan put together before the event, as well as managers who were trained in disaster management, helped the company get through the crisis.

Getting your facility through a disaster can be broken down into two parts: pre-disaster planning and disaster management during and after the event.

No matter how long you’ve been in the business, you may encounter a new scenario, says Nitzberg. “When you come across something new, make sure to add it to your book so there are instructions in case it happens again.”

Mixon once detected a strange odor coming from a unit while out walking a property. It ended up being chemicals used to make methamphetamine.

Make sure to prioritize safety of employees and tenants.
Mixon says your employees should be trained in helping tenants exit the building, as well as ensuring all escape routes are practiced and marked prior to any emergency. Safety equipment such as fire extinguishers, which may help people escape, should always be in good working order. Ballard says your employees should understand their safety, as well as that of tenants on the property, comes first. “Don’t be a hero. If they’re being robbed, they should cooperate; if it’s a tornado, they should take cover without regard for computers or records or anything except their safety.”

Place the appropriate calls.
Once emergency services are notified and everyone is safely out of danger, experts say the handbook should outline who should be called first. Most managers who work for owners or management companies typically call their superior, who then coordinates notifying owners, insurance companies, and remediation contractors after emergency services gives the green light for re-entry.

Coordinate communication.
Gary Sugarman, COO of William Warren Group in Santa Monica, Calif., says, “Comprehensive and continuous communication should be established with tenants, employees, and authorities through all means available, such as emails, texts, calls, letters, and social media.” The communications should outline what happened, the plan(s), and what tenants and employees should and shouldn’t do. “These may be many different communications over a long period of time,” he says. As well, experts advise to make sure employees understand who is to communicate with the media. “It’s typically the owner or representative of the company,” says Ballard. Finally, communication also includes documenting for your records and for that of the insurance company anytime you enter or must remove anything from a unit due to safety concerns. Nitzberg says photographic and video documentation is best. Mixon adds, “We require incident reports on every incident, no matter how big or small. We never know when we will need them.”

Set up containers, dumpsters, portable bathrooms, and temporary office space.
The fire that destroyed the office and manager’s apartment of a USG-managed facility had them working from the back of a truck until the city approved other temporary buildings and portable bathrooms. Sugarman says it’s important to coordinate with tenants on when and how they may go through and move their property and to provide dumpsters for them to use as well as containers for items that have been separated from the units. “It’s very important not to just throw everything away, so storing them in containers until they are claimed may be necessary,” he says. “Also communicate clearly to the tenants how long the containers will remain on site before unclaimed property is disposed of.”

Agnello offers one more piece of advice that will help you and your tenants through the disaster: “Don’t take anything the tenants say personally and show a lot of compassion and empathy. Most people have an emotional attachment to their items, so show a lot of patience, which will go a long way in easing tension.”

have to start out by saying that I love dogs! I can’t remember a time in my life that I didn’t have a dog, and I understand the beauty and companionship that dog owners feel about their pets. So, I can understand when facility managers bring their pets to work, either for company during the long days working at a facility where it seems like a ghost town, or for security where tenants or visitors are regularly behaving badly and the manager needs to feel protected.

There is no perfect answer. In a legal world, the value of having pets on the property must be weighed against the risk. Companies address and analyze these cost/benefit issues every day when they run their businesses. For every dog that may be docile every day of the year, there is another that suddenly, and without warning, bites a tenant who may approach it. And certainly, for every person who might otherwise love dogs like I do, there are others who remain fearful and may choose to rent somewhere else because the pet is present at the property. At the same time, the best manager who can be hired may only take the job if they can bring their pet to work.

For those properties that elect to allow their employees to bring their pets to work, there are a few protective steps that should be taken. The first is to notify your insurance company that there is a pet on the premises. Your policy may need to be updated (or a rider may need to be added) to address this factual condition and the “added risk” that comes with it. The cost of the additional coverage might be different if the dog is under a certain weight or is a certain breed. But not having coverage while allowing pets on the property leaves a business exposed to the cost of that risk without insurance coverage if something happens.

Secondly, there should be notice to the tenants and visitors that a pet is present on the property. The notice should be posted on the exterior gate and outside the office door. Although there is always the risk that the tenant may elect to rent elsewhere, the notice is important in case the tenant or visitor might be allergic to the pet or even, most simply, if the tenant or visitor is afraid of dogs and would be surprised or upset if they came into the office and were confronted without notice.

Big thanks to Carol Mixon for asking me about this topic!

any times, when self-storage owners and operators think of ancillary income, they may be thinking about earning a few hundred dollars more per year on selling boxes and packing tape. The truth is, if you’re treating avenues for ancillary income as serious revenue streams, you can make serious extra revenue.

“People tend to overlook it, but overall, ancillary income can add seven to 10 percent of total income to your property,” says Chriss Michalopoulos, director of operations for Pogoda Companies in Farmington Hills, Mich. “Ten percent of $1 million is still $100,000 without a lot of effort.”

When managers are showing a unit to a prospective tenant, they will pull a lock from the retail store; when they make the sale at the unit, they go ahead and secure the unit with the lock.

Michalopoulos says it’s like leaving money on the table if your managers aren’t trained to sell your ancillary products. Since late fees are a high revenue source, managers should also be trained in collecting fees and only occasionally waiving fees for tenants.

Shelving for units
Especially if you have many commercial tenants who need to store files or pharmaceuticals, offering shelving units for a monthly rental could add to your ancillary income.

Partnerships with moving companies
This may seem like a no-brainer given the symbiotic relationship between moving and self-storage, but it is an idea that hasn’t been pursued as often as it should. Like truck rental partnerships, these can produce a handsome revenue stream while also endearing you to stressed tenants who need help.

Cell towers
While not a new idea, it is often an overlooked one. Many cell companies will approach you if you have land that is ideal for a new tower. However, you can also investigate options with cell companies that service your area.

Specialty and vault storage
Many specialty storage options, such as wine storage, require a significant investment, but some do well in areas with many collectors. Another specialty storage option is vault storage, which may allow tenants to store guns, art, or other expensive items.

ver my 46-year property management career, I have managed everything from apartments to large, 400,000-square-foot warehouses and lots of self-storage properties. Some of those storage properties included ancillary real estate/businesses such as small retail spaces, self-service car washes, business incubator spaces, contractor large bay flex space, indoor and under-the-stars RV/boat storage, mailbox rentals, and cell towers/billboard land leases. Even the largest rental truck dealer in Boston, Mass., was our tenant.

The non-storage parts of these properties operate in a completely different manner than traditional self-storage. We’re all familiar with the standard month-to-month storage rental agreement (also known as lease or occupancy agreement), however these commercial tenant spaces are leased using commercial leases with terms that are often far different. Commercial leases are often for five to 10 years, while land leases for billboard signs and cell towers can be for terms of 25 to 40 years. Often the initial 25-year land lease is for five years with (4) five-year guaranteed renewal options. All have built-in rent escalations at a predetermined rate, typically about three percent. Three percent is not a great increase, but when the annual rent might be $45,000 or better, it’s not so bad.

A short or brief commercial lease could be 10 to 12 pages, but I have seen some that are 25 pages or more, including a cell tower lease from Sprint that was 47 pages. I highly recommend you work with an experienced commercial real estate attorney when drafting and negotiating these leases, as you are likely to have to live with that agreement for a long time. That experience will pay off in ensuring your interests are protected. Grabbing a free or $50 lease off the internet may come back to haunt you over and over if something was accidentally omitted or not clearly written. Remember, the lease is the document governing the relationship between both parties. Saving a few thousand legal dollars up front could be very costly should you end up in litigation that ends very poorly for you.

Managing mixed-use property is not difficult if you understand the nuances between self-storage and the commercial space. Commercial tenants tend to stay far longer, pay better, and most accept rent increases without the emotions we are sometimes subject to from the residential storage tenant.

I see more frequent mixed-use properties for sale than ever before. Maybe one is in your future.

However, they discovered that self-storage was “more of a hands-on business” than they initially thought. So, they began by doing what everyone was doing at the time: finding a retired couple, a family in this case, and having them run the business.

“The store did all right, but we quickly learned there was a lot more to it,” says Pam. “We had to modernize the facility. They were running it with stock cards, and no one paid late fees. No advertising, no customer service. We realized that our management couple was not up to the task, and they opted to leave. We had to hire a manager who could focus on sales and handle the technology.”

Pam goes on to say, “It’s not a passive business, it’s an active business,” admitting that she had to backpedal and promptly learn as much as possible about self-storage to give their new venture a chance to prosper.

Pam attended national and state trade shows to learn everything she could about how to run a self-storage facility. She networked with other owners and met some of the industry veterans, many of whom she is proud to call her friends today.

“Some of the early advice I received came from industry icons such as Don Temple and Barry Hoeven,” says Pam. “Don advised me at the first tradeshow I attended to ‘listen, learn, and talk to other women.’ There were not a lot of women there at the time, and he knew that was changing. Barry taught me to put myself out there and to give back. When you receive help from someone, try to pay it forward.”

With newly acquired knowledge, past experiences to reference, and unfaltering fortitude, Pam managed to push the defunct property to new heights within six months. “It was a mess,” she recalls. To get the facility up to par, she set up a computer system to replace the old-fashioned ledger cards. Security cameras and an access gate system were installed as well. “Having the systems in place increased our revenue by 20 percent in the first year and raised occupancy by six percent in the first six months.”

While organic growth in business is defined as an internal increase in sales, Pam describes the ways in which they acquired facilities as organic. For instance, it was the seller of the second facility in their portfolio who contacted the couple. The owner was selling his facility, which was near their Yucca Valley location, so the Domingues sold their second home and purchased the 29 Palms facility. The same seller also reached out to them a few years later to offer his Fontana facility when his partners wanted to sell.

They came to own other facilities within their portfolio in a similar fashion. Sellers in areas near their facilities would contact her about acquiring their value-add properties. “We slowly grew over time,” says Pam. “We grew organically.”

Currently, there are eight facilities within their portfolio and one under construction in Lancaster, Calif. Seven of those established locations are within driving distance (approximately two hours) of their home in California. The other property, Waikele Self Storage, is in Waipahu, Hawaii, on the island of O’ahu.

Pam, whose mother was born in Hawaii, wanted to take a tour of Waikele Self Storage while on vacation. At the time, Carol Mixon, owner of SkilCheck Services, Inc., was a co-owner of the facility. When she learned that Mixon’s partners wanted to sell the property, a handshake deal was done on the way to the Honolulu airport. In 2016, she purchased the impressive property, which includes 33 World War II ammunition bunkers that Mixon and her co-owners had converted into unique storage units. They are painted battleship gray and named after naval ships to assist with wayfinding; each bunker also features historical signage about the ship of its namesake. The facility offers 690 storage units of standard sizes as well as 280 parking spaces.

Although she bought the business in 2016, Pam didn’t take over management of the property until 2017. Then, in 2018, she was able to purchase the land under the facility. Previously, the land been leased.

“Most property in Hawaii is on land leases, so commercial property ownership is rare on the island,” she says. “A local developer purchased the property from Hunt Corporation, who received the land from the Navy in exchange for building the infrastructure. The developer saw the use as warehousing. Carol Mixon’s partners took it one step further and realized it would make a great storage facility. They brought in Carol and her former husband to help them build out the units and start the business. The developer sold off the individual bunkers as warehouses and yard space.”

Owning this property enables Pam to visit her Hawaiian relatives on a regular basis. She checks on the store every four to six weeks. “It doesn’t seem like a long flight now,” she jests.

As for the ground-up development project in Lancaster, Calif., that was the dream of Pam’s husband. He wanted to build a new facility and got the ball rolling before he became ill. After a two-year-long entitlement process, they are getting ready to break ground. Development wasn’t Pam’s idea, nor passion, but she’s carrying the load for her husband with help from some of the industry leaders in construction.

“I’m willing to try anything once,” she says about making decisions for the project and overseeing its development, “but I may not do it again!”

The two-story, 80,00-square-foot, climate-controlled facility is expected to be completed within 18 months. It will feature smart locks and covered RV parking.

“I’m big on education,” she says, noting that she sends her staff to industry events and recommends online training courses to enhance their skills. “We have a training program and do as much on-the-job training as we can. I also encourage them to attend Zoom events offered by our state association and usually take a few employees to Las Vegas for the Inside Self Storage Expo. It’s important to me that they stay up on the current trends and hopefully have some well-deserved fun while they are there. I help them grow, which helps me grow. I can learn as much from them as they can learn from me.”

Her employees aren’t the only ones benefitting from these educational experiences. “I learn something new at every show I attend,” says Pam, who doesn’t hesitate to put newly acquired knowledge to good use. “I’m always trying to figure out the best way to do stuff. I love seeing the new tech at the trade shows and I’m always ready to try something new.”

She’s used some of that information to create processes that streamline, simplify, and improve operations at her facilities. “It’s so much easier when bringing on other facilities,” Pam says about having defined policies and procedures in place. “We have a routine and a checklist now, which helps keep things in order. It’s a lot different than when we purchased our first and second facility; we had no idea what we were doing at the time.”

Staffing is another aspect of operations that Pam has been fine-tuning over the years. For example, she has moved away from hiring retired couples. “We hire the individual who is right for the job(s),” she says. “Too often with a couple, one is great and the other is not. One ends up doing all the work and this can be an issue. We would rather have two co-workers who are not related. We’re also getting away from resident managers at many of our facilities. With the technology advancements in cameras and gates, we no longer need that 24-hour, on-property security.” Residential managers present other issues as well, such as the additional expenses of housing, overtime pay for work done after hours, and potential eviction situations should they need to be terminated.

Instead of those previously preferred types of managers, Pam seeks employees who excel in sales and possess an inner drive to deliver exceptional customer service. “We must remember we are a sales business,” she says. “We are selling our facilities, our staff, and our services. We value all our customers and strive to offer the best experience we can.”

She currently employees 13 full-time and two part-time employees, but Pam has been “exploring” hybrid management options for her facilities because it can be “hard to keep and find good employees.”

“Small stores especially do not warrant the cost for a full-time employee,” she says. “While I do not see us embracing the remote management concept entirely, we have two satellite facilities that have staff at a nearby facility. This works well for us; our customers appreciate someone in the office helping them and answering questions. Technology can assist, but I don’t see it taking the place of our staff.”

Pam is tech savvy and personally favors conducting business online, but she realizes some storage customers enjoy having face-to-face conversations with managers. What’s more, she states that most of their referrals come from walk-in customers, which backs up her belief that “the person behind the desk creates loyalty.”

On-site managers can glean valuable insights as well. Pam values feedback from her employees and uses their input to make store-level adjustments. “They know their markets,” she says. “Each is different, and cultural differences are important.”

But the notion to rebrand their entire portfolio didn’t come into play until the Domingues began drawing up plans for their new build in Lancaster. Truth be told, Pam had no intention of replacing the brand name she had created in 2013 after buying their third property. She assumed the project would bear the Storage Solution name just like the others, but her husband had a different idea.

She closes with a stellar example of the spirit of self-storage: When a car crashed into one of her facilities in Delano, Calif., Pam and Jack were stuck several hours away in one of the worst rainstorms southern California had seen in a long time. They contacted a nearby competitor, whom they had only met recently. He immediately contacted his contractor and instructed him to take a break from his project to fix her boarded up building. He even helped with having their contractor prioritize the rebuilding of their office, an act of altruism that kindled camaraderie. The Domingues now consider Josh Miller and his mother Tanya Miller of Storeland Self storage two of their “closest friends.”

“That’s literally the epitome of what the industry’s about—great people helping each other,” says Pam. “When we help each other, we all do better. To quote Storelocal, ‘We are stronger together.’”

ocated approximately 0.5 miles from the offramp fed by the highly traveled 101 freeway, this site is located on the main thoroughfare of Silver Creek Valley Road, which is the main feeder to the vastly developed Silver Creek and Evergreen communities. With over 165 feet of topographic fall, the site struggled to find a use that could mitigate this issue and make it pencil from a financial standpoint. Enter the chameleon of industrial/commercial uses: self-storage.

A San José-based developer, Toenisketter was perfectly set up to carry this project through to completion with their construction arm. Fortunately, they had numerous connections in the area and to the subcontractor market in order to capitalize on this opportunity during a tough time. However, this would be far from a straightforward project and would face its share of hurdles.

Numerous developers and design teams passed on this site due to its extreme topography and odd shape. However, Jordan Architects was up to the challenge. With some 165-plus feet of fall, the task of designing a user-friendly facility was not for the faint of heart. There was a great deal of difficulty and hundreds of hours of coordination between the civil engineer and architect to figure out a solution to the topography.

Anyone who has worked with the City of San José can tell you that it’s no cake walk. Couple that with the height of a pandemic and you have a recipe for delays and extended entitlement timelines. While the design team was able to address any concerns issued by the city, the timeline was still severely impacted by the COVID pandemic and an overwhelmed staff at the City of San José.

Ultimately, the design team was able to work out a feasible ramp system to access the critical loading areas and fire apparatus lanes. The unique layout allowed for drive-up units on upper floors that are accessed via a ramp. However, this proved to be a laborious task in order to accommodate the maximum acceptable fire apparatus grades as well as ADA access to the two buildings.

The exterior of the project is clad with a mix of flat and corrugated metal panel broken up by vertical and lateral building articulation. Further adding to the facility’s presence are the large banks of both spandrel and vision glass. Travelers along Silver Creek Valley Road will be presented with faux units behind vision glass at the southeastern corner of the larger building. The height of the building reaches some 43-plus feet above finished floor, standing out from its surroundings with warm colors and capped off with a dark green exaggerated cornice element.

n August, a group of young environmental activists celebrated a trailblazing legal victory when a Montana judge ruled in their favor, saying that state agencies were violating their constitutional right to a clean and healthful environment by permitting fossil fuel development. It was the first time a U.S. court had ruled against a government for violating a constitutional right based on climate change. District Court Judge Kathy Seeley found the policy the state uses in evaluating requests for fossil fuel permits, which disallows agencies to look at greenhouse gas emissions, to be unconstitutional.

The 16 “climate plaintiffs,” who had sued Montana officials three years ago for failing to protect residents from global warming, argued that not meeting these constitutional obligations endangers their health and livelihoods and threatens future generations. Although state officials are determined to overturn the decision on appeal, the ruling could set an important legal precedent if it stands.

But even if the ruling is rejected, younger generations will likely remain passionate about protecting the environment by inciting meaningful change. According to data from Verywellmind, of all the generations in the U.S., Gen Z (38 percent of the population) is most worried about global warming. Both Gen Z and millennials are concerned about negatively impacting the world’s future (32 percent and 29 percent, respectively). Furthermore, Deloitte notes that Gen Z is adopting more sustainable behaviors than any other group; 50 percent reduced how much they buy, and 45 percent stopped purchasing certain brands because of sustainability or ethics concerns. This could mean that “zoomers” are looking for eco-friendly features when searching for self-storage near them.

Go paperless.
Switching from paper to digital has never been easier. Cloud-based storage, digital apps, email, and e-signature software can enable self-storage facilities to reduce paper waste and streamline operations.

Update your website and operations.
By allowing customers to take virtual tours of your facility and make online reservations, you are reducing the number of vehicles on the road and greenhouse gas emissions. The same principle applies to remote management; permitting employees to work from home even one day a week improves your carbon footprint.

Add solar panels.
Rooftop solar panels are a win-win for owner-operators; the energy they generate reduces your carbon footprint and utility bill. Plus, there may be rebates and/or state and federal tax breaks available to offset the installation costs.

“A lot of the sustainability efforts we have done to date have been easy decisions for us because they are at the intersection of what’s good for the environment, what’s good for the community, and what’s good for our shareholders,” Extra Space Storage CEO Joe Margolis said about the REIT completing solar installations at more than 400 of its facilities over the past five years. “Solar has been a great thing to reduce our electricity use while producing a great return for our shareholders.”

Replace energy hogs.
Appliances with an Energy Star rating contribute to sustainability by using less electricity. Energy Star appliances (printers, copiers, refrigerators, etc.) can save you 10 to 50 percent on energy bills. You should also ensure that your facility’s HVAC system is the correct size for the building; a HVAC system that isn’t large enough for the space will be running more frequently. To reduce water waste, consider opting for dual-flush toilets and low-flow faucets in your bathrooms.

Switch your bulbs.
Energy Star LED-certified light bulbs use anywhere from 70 to 90 percent less electricity than incandescent bulbs. Motion-sensing lighting is another popular option that self-storage owner-operators have been utilizing at their facilities to keep them well-lit without wasting energy.

Dig into landscaping alternatives.
When it comes to landscaping, choosing native plants and/or drought resistant plants is a practical way to reduce water usage. Water catchment systems or timers for irrigation systems can lower water bills as well. Stōr Self Storage, which has several facilities throughout Texas, uses water catchment systems to collect and store more than 66,000 gallons of rainwater; it’s used for irrigation. Per the company’s website, “Implementing rainwater harvesting is beneficial because it reduces the demand on existing water supply and reduces the runoff, erosion, and contamination of surface water.”

Another option is to incorporate sustainable landscaping into your site design, such as a retention pond to help manage stormwater.

Help your customers recycle.
Besides having recycling bins for paper, plastics, glass, and aluminum, you could consider converting a hard-to-rent unit into a recycling center of sorts for your tenants and community. Plastic bins could be installed for a variety of items that can be difficult for people to properly discard, including light bulbs, batteries, tires, electronics, paints, household cleaners, prescription medications, ink cartridges, various metals, and more. There are even companies willing to haul the items away from the facility at no charge.

In addition, many customers appreciate being able to donate their unwanted belongings without having to lug them to another location. Local charities that resell these items or distribute them to people in need would likely pick up the donations from your facility. Alternatively, charity auctions are easily implemented through nonprofit organizations like Charity Storage.

Support green initiatives.
Some self-storage operators form partnerships with green organizations that make a difference in the world. For instance, StorQuest Self Storage donates $1 from every new unit rental to One Tree Planted, a nonprofit that plants trees to restore ecosystems that have been degraded and deforested.

Offer recycled products.
Even the retail items you sell can be green. For example, there are recycled and biodegradable options for packing peanuts and carboard boxes. You could also create a box sharing program similar to U-Haul’s “Take A Box, Leave A Box,” where customers can drop off their moving boxes for other customers to reuse for free.

Additionally, owner-operators can recycle their own waste after completing facility upgrades. When replacing roll-up doors, the old metal doors can be taken to scrap metal yards or donated to local fire departments and/or police departments, where they can be reused for training purposes.

Swap your swag.
Freebies or giveaway items imprinted with a facility’s name and logo have become a staple in self-storage marketing, but you may want to order some greener promotional items, such as reusable water bottles, tumbler cups, or travel mugs; reusable straws; reusable tote bags; hand-crank flashlight keychains; or anything made from recycled products (notebooks, pens, pencils, etc.) Whichever items you choose, don’t forget to have your facility’s name and logo printed on them.

Build green from the beginning.
By using recycled and/or eco-friendly building materials and obtaining LEED certification, self-storage developers can reduce construction-related pollution and build more sustainably. A few options include foam-panel walls to conserve energy, eco-friendly fiberglass siding, and thermal-plastic roofing. A thermal-plastic roof reduces heat, requires less long-term maintenance, and can be recycled. Owner-operators who aren’t ready to replace their roof could simply paint it white to keep the building cooler.

What’s more, conversions are a greener alternative to ground-up development. By repurposing existing structures developers reduce the impact of building, eliminating millions of pounds of waste and between 50 and 80 percent of greenhouse gases that would be produced building from the ground up.

he economic measures taken by the federal government during the pandemic have had sweeping consequences, and commercial real estate has been particularly hard hit by the fallout. The favorable self-storage lending climate enjoyed by buyers and developers just a few years ago is experiencing turbulence, with the cost of capital reaching its highest in over two decades. Current owners and would-be buyers who are caught in the fray may have to choose between some less-than-ideal options.

“The economy got overheated after COVID,” Neil Gussis, principal of Skokie, Ill.-based CCM Commercial Mortgage, says. “There was a lot of money pushed into the system and people wanted to spend it.” The robust spending led to inflation, and historically, the way to battle inflation is to raise interest rates to cool down the economy. The Federal Reserve began adjusting the federal funds target rate range steadily in 2022, raising the fed funds rate by more than five percentage points in just 16 months.

“Consequently,” Gussis says, “we’re at a historic high point in interest rates for the past 22 years, and we got there in a short amount of time.” Although viable deals are still out there due to the overall stability of self-storage as an investment type, the higher cost of capital is demanding that both buyers and sellers revise their expectations.

“To illustrate, consider 10-year CMBS loans executed in 2013 or 2014, which carried an average rate of 4 percent,” Snyder says. “Presently, newly available 10-year fixed-rate loans are priced within the range of 6.5 percent to 7 percent. The looming challenge stems from more than $200 billion in fixed-rate CMBS debt set to mature over the next 18 months, potentially complicating property owners’ refinancing efforts without substantial paydown requirements.”

Synder says this issue is compounded by the rapid escalation of short-term rates, with a base SOFR (Secured Overnight Financing Rate) surging from nearly 0 percent to over 5 percent within an unprecedented timeframe. “Consequently, a bridge loan established with a bank just 18 months ago at an interest rate around 3 percent could conceivably exceed 8 percent today,” he says.

R. Christian Sonne, executive vice president of self-storage for Irvine, Calif.-based Newmark, says small operators caught in the wrong position in this path have been hit particularly hard. “Even if your self-storage facility is doing great, if you had a 5 percent loan and now you have to refinance because it’s been 10 years and it’s due, it’s now 7.5 percent,” he says. “You were making $100,000 a year, and now you’re making $60,000. Your cash flow just gets crushed.”

Sonne says that mom-and-pop operators in that situation may be forced to sell. “There’s total sticker shock for people,” he says. “Banks get really tough on their underwriting, and they might tell you that you need to put another $100,000 into it. A small operator doesn’t have that laying around.”

Gussis says timing determines the position operators are in now. “The owners who opened up at the beginning of COVID won the lottery,” he says. “They leased up in 12 months when they thought they were going to lease up in 36 months.” However, for the same developer who started a project 18 months later, the economics are a totally different story.

Gussis notes that those who were caught during construction are most vulnerable. “If you have a variable rate construction loan where you were paying 4 percent, and now you’re paying 9.5 percent, that’s going to have a dramatic effect,” he says. Owners in this predicament will either have to put in more cash or sell.

“You put three or four years of your life into finding and getting the land, getting it permitted, getting all of the entitlements, and then doing it, and oftentimes, there is a psychological attachment to that deal,” Gussis says. “So, those owners have to decide how much time they want to give a project. Do you want to cut your losses now and limit your gains, or do you want to play the long game?”

“If you’re in the middle of development, each of those deals have to be reassessed both at the ownership level and the bank level, because they aren’t what they were penciled out to be,” Gussis says.

He says the transaction volume for the first six months this year was down about 70 percent from the same period last year. “The valuations went down when the interest rates went up, so the seller has these expectations from last year and the buyer can’t afford to pay that price,” Sonne says. “But people are adjusting and getting more realistic about their asking price.”

Shawn Hill, principal at Chicago-based The BSC Group, LLC, says that ample liquidity still exists in the market despite high interest rates and a general tightening in the banking community. “Capital is still flowing from banks, credit unions, life companies, CMBS, debt funds, and the SBA,” he says. However, lenders remain leery due to ambiguous language from the Fed regarding future rate hikes.

Hill says banks presently account for approximately 40 percent of all outstanding commercial real estate debt. “They are facing increasing regulatory pressure and have seen many of their existing loans not being paid off due to the lack of refinance opportunities,” he says. This has ballooned their balance sheets and has curtailed the capital they have available for new loans.

CMBS lenders are active, however, Snyder says owners are hesitant to commit to fixed-rate loans at rates exceeding 6 percent for 10 years. Consequently, although CMBS debt is accessible, it may not be the most attractive option in today’s climate. He says credit unions and insurance are other potential sources of capital, although they are more selective lenders.

“Life company allocations are getting full as we approach year end,” Hill says, “but self-storage remains attractive to many on larger, trophy-type deals in core markets.” He says there is still capital in the market for construction, bridge, and permanent executions. “We are definitely in a market where borrowers need to talk to a lot of lenders to ensure they are getting the best rates and terms possible, and we are definitely in a market where mortgage brokers can add a lot of value through their relationships and experience in structuring deals.”

According to Snyder, alternative lenders, such as debt funds, investment firms, and private money entities, are gearing up by expanding their workforces and preparing to fund substantial capital to address the gaps left by banks, insurance companies, and CMBS lenders. “However, they are capitalizing on the current market dynamics, offering interest rates at 8.5 percent and above,” he says. “While these rates may deter many, those in need of capital with projects capable of absorbing these rates—even if only for a brief duration—will find ample funding opportunities.”

Although Sonne says larger operators can have lines of credit up to as much as $100 million, he notes that when the cost of credit goes up, what they can afford to pay for a facility is less. “So, everybody’s unhappy,” he says. “You’re getting less money only because of the cost of interest rates and because banks are kind of sitting on their hands. The banks aren’t sure what’s going to happen in the economy, so they’re making it very difficult on people.”

For buyers, Gussis says new construction that’s 30 percent leased can be attractive. “They’ve already saved themselves three years of buying the land, getting it titled, and building it, so the question becomes, what’s the money value of time and what would it cost me to build it today?” If the buyer believes in the market, he says they’ll be willing to pay.

“Some owners are in so deep they can’t see the light of day,” Gussis says. “That portion of our sector is going to play out over the next six to 18 months. They have the toughest choices to make. I think we’re going to see more lease-up deals come to market.”

An upside for owners, he says, is that with new builds way down, they won’t be vulnerable to much new supply in 2025 and 2026.

“We haven’t seen anything like this since the late 70s, early 80s,” Sonne says, “but it was much, much worse then.” For context, the prime rate in mid-1984 was 13 percent, compared to 8.5 percent in mid-2023. We’re much better off now than 40 years ago. However, in March of 2020, it fell to 3.25 percent. “We were a little spoiled for a while,” Sonne says. “People got used to these 4 percent and 5 percent interest rates, but that was just abnormal. We’re really in an adjustment period now.”

Hill doesn’t believe we will go back to the extremely low rate environment we were in any time soon, if ever. “I think rates in the fives and sixes will persist for the next decade once things settle down,” he says.

As for operations, consumer demand hasn’t shifted much, according to Gussis, although it’s uneven across markets. “If you look at the Almanac, no matter what cycle we’re in, national levels of occupancy have never varied more than 5 percent year-to-year,” he says. “Operations are still going great.”

Sonne believes it’s a great time to buy self-storage as long as you recognize that you won’t get the same return as in recent years. “There’s more capital that wants to invest in self-storage than there is storage available because of the stability of the industry,” he says. “It continues to perform well, even in uncertain times like we have now.”

he overall capitalization rate or “cap rate” is used to convert income to value. One of the easiest ways to think of the relationship of a cap rate to value is the acronym IRV: Income divided by Rate = Value or I/R = V. As the cap rate goes down, the value goes up. Officially, the direct capitalization is defined by The Appraisal Institute in the Dictionary of Real Estate as follows (page 65):

“A method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or developed from market data. Only one year’s income is used. Yield and value changes are implied, but not explicitly identified.”

To complicate matters, a cap rate can be calculated on last year’s net operating income (often called trailing), a forecast of next year’s expectations of net operating income (forecast). Moreover, the “true” cap rate is often a perspective, not a fact. For example, the seller may believe the cap rate was a 5.5 percent, implying a higher value, while the buyer may believe the cap rate was a 6.0 percent, implying a higher return. And, the broker involved in the deal may report a 5.75 percent cap rate. While all three perspectives are important to understand, it doesn’t exactly determine the cap rate.

For comparison purposes, it is best to understand the forecast or stabilized cap rate (for example, this is the cap rate used in an appraisal) and the trailing cap rate to understand expectations of buyers and sellers in the transaction. It is also important to understand if expenses were adjusted to market, particularly real estate taxes, in the forecast or stabilized cap rate. For the purposes of this article, the stabilized or forecast (sometimes called Year 1) cap rate will be addressed because it is typically the most consistent cap rate considered for comparison purposes (for example, it is the basis of Investor Survey’s on cap rates).

Direct Cap Comparables – Deriving comparables from similar properties that have sold is generally the preferred technique when sufficient information is available. For example, what cap rate is reported? The trailing or the stabilized? Comparable cap rates are summarized in Table 1.

Investor Surveys – Survey research is based on periodic publications of the current thinking of investors, compared to historical performance data of comparable sales. Surveys are generally used as support and should not be relied upon as a primary source. They are very useful to understand real-time market dynamics. Surveys can vary in scope of research, so it is worthwhile to review a wide variety of publications. The results of the most recent self-storage investor surveys are summarized in Table 2.

Band of Investment – This technique is based on returns to debt and equity, sometimes called a built-up model. It accounts for market-based financing with a market-based return to equity. The return to equity for a single asset is typically higher than a comparable self-storage annual return to investor or dividend from a self-storage REIT or stock (does not account for appreciation of the asset). Another way to look at the equity dividend or cash on cash, is the annual return on every dollar of equity. Since most properties are purchased with a combination of debt and equity, the technique has relevance in the market. A Band of Investment Analysis example is summarized in Table 4.

Over the past year, the return to equity has become significantly lower due to higher interest rates. Some investors are willing to underwrite a negative return in the initial year to make a deal pencil, but that means significant upside is expected in rents. Common to industrial and apartment sectors, this is new for self-storage. It is another indicator that institutional investors have confidence in the self-storage asset class in bull and bear markets.

Mortgage Equity Analysis – This analysis derives from the idea that real property investments are a combination of two components: debt and equity. It differs from the Band of Investment because it accounts for total yield: equity dividend and appreciation over time. It is a useful tool because it solves for a levered equity yield (that includes both cash flow or equity dividend and appreciation over time). Self-storage as an asset class has demonstrated superior returns for many years. For example, comparing total return of self-storage REITs over the last 25 years, self-storage has provided a 17.50 percent return on average and is superior to other core sectors such as office, industrial, retail, or apartments (based on NAREIT data or publicly traded companies only). As a result, institutional investors have been storing capital in the sector. The Mortgage Equity Analysis solves for equity yield, a common metric of the comparison of returns among investments for the institutional market. The equity yield rate estimated is lower for a single asset (in this case estimated at 9.25 percent) than publicly traded REIT data because REITs offer greater liquidity. The mortgage equity example, with the same mortgage requirements as the Band of Investment example for consistency, is presented in Table 5 and Table 6.

ost everyone knows someone whose life has been impacted by cancer, but they never expect it to happen to them. Breast cancer knows no age, gender, or race. As the most common cancer in women worldwide, it remains a fact of life. Approximately 2.3 million women around the globe were diagnosed in 2021, and incidence rates are on the rise.

That’s because breast cancer has no boundaries. It is the leading cause of cancer death in the world’s poorest countries and the second leading cause of cancer death in American women. The developing world is experiencing higher mortality rates than ever before due to a lack of screening and access to treatment, and we are seeing disparities right here at home as social and economic factors create barriers to proper diagnosis and care. Many of those deaths result from metastatic breast cancer. In November of 2012, Donna Morgan-Esquibel was faced with a phone call that no one ever wants to receive.

For Morgan-Esquibel, November 2012 is a time she will never forget. A call came in that would change things forever. After having a routine mammogram, she was asked by her doctor to come in to have more detailed imaging of her breasts. “After a few days had passed I was informed that I would need to have a biopsy of my right breast as something on my images appeared to show some indications of crystallization on the X-rays,” she said. A biopsy removes cells or tissue from a suspicious area in the breast. The cells or tissue are then studied under a microscope to see if cancer is present.

Morgan-Esquibel describes the time she spent waiting for the results as “torturous.” After several days that seemed to pass more slowly than normal, she received the news that she was in the early stages of breast cancer. “I was devastated. We were in the process of moving from Phoenix, Ariz., back to Athens, Ga., and then my world just stopped,” she said. She was relieved when her trusted doctor in Arizona told her that they could provide her the care she needed prior to when she had planned her move to Georgia. She was hopeful and quickly proceeded with the necessary surgery to remove the tumor, then she began radiation treatments.

One short year later, during another routine mammogram, she was shocked to hear the news that another cancerous spot was found in her left breast. “I couldn’t believe it! I had my biopsy, and my cancer was back, just in the other breast, and it was even more aggressive,” she said. Breast cancer survivors have an increased risk of getting a new breast cancer compared to people who have never had the cancer. A new breast cancer is called second primary breast cancer. Unlike a recurrence, which is a return of the first breast cancer, a second primary tumor is a new cancer unrelated to the first.

Morgan-Esquibel vividly remembers the words her surgeon then said to her: “You need to look at this as life or death, and I won’t do a single mastectomy, only a double mastectomy.” She was paralyzed with fear, and the only thing that was moving on her body were the tears coming from her eyes. “To say I was devastated was an understatement,” she said. She decided to take heed to the advice of her surgeon and proceed with the double mastectomy.

Her next step was to call her boss, Lonnie Bickford, and let him know what was going on. She still remembers his exact words to her, “I was afraid it was back, but do whatever it takes to get well and let me know what you need.”

As Morgan-Esquibel’s surgery date came closer, she was understandably afraid and did not know what to expect. After six long hours in surgery, the surgeons were pleased with how it went, and she was finally in a room and working towards recovery. “I remember when they took off my bandage and I heard my husband for the first time say, ‘It doesn’t look that bad,’” she said. “If you haven’t seen anyone with a double mastectomy before they started reconstruction it will make you feel like there is a big lump in your stomach, and it is devastating just to see it along with tubes hanging out of both sides for drainage.”

Although the surgery was complete, the recovery was just the beginning. “I went through months and months of recovery from having 50 ccs of saline injected into the metal spacers in my breasts each week,” she said. In retrospect, Morgan-Esquibel admits that she may not have had the reconstructive surgery if she had known what she knows now. “I don’t think I really knew how painful this process would be, because I might have thought twice about reconstruction,” she said.

Thankfully, Morgan-Esquibel now continues to remain completely cancer-free and continues to see her doctors on a regular basis. She is proud to be a part of StorageGives and feels honored that Breast Cancer Research Foundation benefits from the donations made through this organization. As Bickford states on the organization’s website, StorageGives.org, “We are facilitating a platform to connect the storage industry to worthy causes to make an impact in lives all over the world.”