Creating Investment Opportunities in Self Storage
2014 was a big year for Self Storage Investments having been a part of several large transactions for some of our clients and providing new development consulting for others.
2015 was similarly a very active time for our group with increased activity and interest in Self Storage within Australia and the Australasian region.
The Self Storage Investments team has grown in 2015 by welcoming a new addition to the group. Michael Yip has joined the team as an assistant project manager. Michael comes with a background in Construction Management.
As it stands, Self Storage Investments is working on a number of Metropolitan Self Storage development opportunities in Sydney, Melbourne and Brisbane. We are seeking Joint venture partnerships to develop these assets.
If you are looking for opportunities to be involved, we would be interested to have a confidential discussion about potential partnership opportunities. Please contact Simon Degaris at firstname.lastname@example.org
Other Services include:
• Development Consultancy
• Divestment Services
• Joint Venture Creation.
For more information about us please see our website www.selfstorageinvestments.com.au
Following up leads (sales enquiries) is one of those self storage tasks that often gets left to the bottom of the ‘to-do list’. It takes time and some of your staff may not feel comfortable calling back out of the blue – but it’s also one of the most important aspects of the sales process; now-so more than ever.
In today’s fast-paced online world, people expect answers quickly – if not immediately. If we look at the average* storer, they generally…
– start making enquiries 1 month prior to requiring storage (35%)
– find their storage facility online (51%)
– do so using a Google search (75%)
– contact facilities of interest by telephone (51%)
– expect to see unit availability and pricing online (75%)
By Andy Pudmenzky (Customer Experience & Marketing Manager, StorMan Software)
LandMark White offer Cutting Edge Services when you need to Value your Assets.
LandMark White are Proud to be one of Australia’s largest and most highly skilled independent valuation and property consultancy organisations across the private business and corporate spectrum including major trading backs, lending institutions, ASX listed and unlisted property, trusts and private investors just to name a few.
Our specialists are market leaders in the valuation of all classes of Assets and are armed with detailed knowledge of the differences between states. This knowledge is highly regarded by lending institutions and helps set LandMark White apart from other valuation firms. In particular Landmark White has extensive experience in the valuation of self-storage facilities.
Self-storage properties have the potential to deliver strong cash flows to investors. But as with any property, getting the right valuation is imperative for buyers and sellers in this asset class. We bring extensive experience in self-storage facility valuations both in Australia and overseas and have specialists who are listed on the Australian Property Institute’s list of expert valuers for this asset class. Self-storage facility clients include major companies, as well as independent operators and owners.
Our extensive valuation experience in this specialist asset class includes:
Going concern valuations (real estate and business);
Lessor interests subject to lease;
Site values; and
Our Asset valuations comply with international accounting standards and our high quality Australia wide service helps minimise risk when it comes to property transactions. Our highly experienced and qualified staff are equipped to undertake challenging and complex assignments. Our process and internal training practices also ensure that all LandMark White valuers apply the same rules and criteria when valuing a property.
National Director Commercial Valuations
Self storage is a capital intensive and location sensitive business. The globally preferred modus operandi is to acquire and own the real estate that the business occupies. This has proven to be the successful and enduring MO for a number of reasons.
Having debated this idea for many years with people who firmly believe leasing storage premises is the ‘new way’ or superior to the classical self storage investment strategy, I remain amused that it persists. It is apparent my arguments are not convincing enough.
The temptation for a self storage operator to lease a self storage property often come with the arguments that:
a) The accountants say a business shouldn’t have such a ‘lazy balance sheet’ holding so much capital in real estate;
b) There is a scarcity of property to be acquired, so leasing is the only way to grow; or
c) The operator lacks the capital to acquire so leasing helps fund the real estate.
In my observations of the self storage industry in more than 2 decades, leasing self storage property has almost always accompanied an impatience of the operator who wishes to grow quickly. These ambitious players hope to assert themselves in the industry quickly.
In the 1990’s, Global Self Storage entered the market and through leasing expanded to 17 locations in only a few years before collapsing.
Other small players have entered on a leasehold basis but haven’t been able to really move ahead.
In 2003, APN created a retail investment product to enable National Storage to sell and lease-back its properties. In a later twist National re-acquired many of those same assets to make them again a more classical self storage owner-operator, but retaining and operating on a leasehold basis in other circumstances.
The largest and most successful self storage operators in the world own their real estate.
In Asia, securing freehold is very difficult and expensive. Leasing for self storage operators is common, but remains riddled with problems. Leases are short (3 years is typical in Hong Kong) and land owners are keen to ensure their returns are optimised. This commonly forces self storage operators to close or relocate.
Long leases are common in the UK, and the law provides for a somewhat sympathetic rent review and lease renewal. However, major storage operators prefer to acquire freehold.
There are a number of flaws with leasing self storage premises:
1) Risk of forced relocation – Australian landlords typically only offer short-term leases. A landlord committing for longer than 10 or 15 years is unusual. (In Hong Kong, getting a lease longer than 3 years is unusual). This means the substantial capital investment to fit out must be written off in the lease term. The business should also prepare to start-up again in a new location when the lease expires, along with the requisite capital investment and rent-up.
2) Risk of an unfavourable market rent review – Leases will re-set the rental to market every few years. A significant market based rental increase may not match the income position of the self storage business at that time, and possibly causing operating losses. This may force relocation and re-starting the business. Problematically, an alternative location may not be available in the area.
In addition, self storage customers do not like being moved. The practical challenge of undertaking the moving of 500, 600 or more of people’s personal effects is not to be underestimated. It takes many months and comes at quite a cost while also losing a significant proportion of the customers.
All this means, the business may have to choose to simply close down, or absorb losses until the income eventually recovers.
3) Leasing constrains capital investment, upgrades and improvements – as the lease expiry approaches, the storage operator will resist undertaking the necessary upgrades and enhancements to keep the business relevant and competitive. Expanding, upgrading and basic maintenance will be deferred until new lease certainty is reached. The tiredness and deteriorating condition can be observed in many leasehold self storage businesses.
In addition, there is a constant wave of up-zoning. Governments around the world are increasing density and changing the zoning uses to enable more productivity from existing real estate. Self storage operators need to keep up and increase their density. If an operator leases the property, the owner will eventually want to crystallise this value.
There is no escaping that self storage is capital intensive and location sensitive. Acquiring and owning the real estate addresses the property cost, giving the operator fixed expenditure for the property it occupies. Importantly also, it enables the flexibility to adjust the service, scale and product offer at any time. Enduring successful self storage businesses own their real estate.
By Sam Kennard
Sam joined the Family Self Storage Business in 1991. He was appointed Managing Director in late 1994. In that time Kennards Self Storage has grown from 8 locations to over 80 today. The company is an active and specialised developer of property, focussing on expanding the Kennards Self Storage portfolio in Australia and New Zealand. Today, Kennards Self Storage is the market leading Self Storage Brand and industry innovator and employs over 230 people in Australia and New Zealand. The company remains a privately owned and family run business.
For more blogs by Sam visit: www.kss.com.au/kblog