Storage businesses expand to keep up with 'our stuff'

By Andrew Moore

Mar. 30, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --
Last week in northeast Bend, near the intersection of Purcell Boulevard and Bear Creek Road, developer Jerry Moore broke ground on a 260-unit self-storage facility.

In late May, developer David Stephenson plans to open a 350-unit self-storage facility in north Bend that he recently finished building.

And in Redmond, Storage Central owner Mike Koepf recently completed a 350-unit addition.

Does Central Oregon have a glut of self-storage?

Hardly, according to owners and operators in the region, many of whom say they are running at 90 percent of capacity or higher. They say they're capitalizing on a growing trend: People have more stuff.

"We seem to like to not get rid of our stuff, and it ends up in storage," Moore said.

That trend seems to be reflected throughout the country, too.

According to the Self-Storage Association, a Virginia-based trade group with more than 6,000 members, 1 in 10 U.S. households rented self-storage units in 2007, up from 1 in 17 in 1995. Nearly 60,000 storage facilities in the U.S. satisfy that demand, annually generating $20.1 billion in revenue for their owners, according to the association.

Leaf through a phone book and one can count more than 70 self-storage facilities in Central Oregon. In Bend alone, there are at least 23 listed.

That didn't deter Moore or Stephenson, however, both of whom said their research convinced them Bend could absorb additional units. In fact, Moore has plans to build a second phase with 200 units once he reaches 70 percent capacity in the first phase, which he expects to open in October.

"Based on our research, most of the facilities were running at near-capacity," Moore said. "In fact, it was pretty hard to find units."

Kim Jalbert, a real estate broker who owns two storage facilities in Central Oregon -- A-1 Madras Secure Storage in Madras and Empire Mini Storage in Bend -- and manages another two for her father, said her renters come from all walks of life. They are people who've run out of space at home to people or families transitioning from one home to another. They are college students, people who've divorced, and retirees who've downsized and sold a home but want to retain keepsakes. They're even transients, Jalbert said.

There also are plenty of businesses that use self-storage to store records or inventory. Jalbert said businesses can be some of the best tenants because they're often long-term renters.

Stephenson, a Portland native who relocated to Bend six months ago from San Diego, said he would prefer to rent all of his facility to commercial tenants -- because they tend to rent longer -- but figures an ideal blend would be half-commercial, half-residential. Stephenson's facility -- at 63177 Jamison St. -- has interior units with radiant heat and cooling that were partly designed with business occupants in mind, he said.

"Lots of businesses use their back rooms to store goods, so if they bring them in here, they free up space and those files will be protected," said Stephenson, adding the units are designed to never dip below 45 degrees.

Stephenson's facility also has a number of the more traditional exterior-access storage units.

According to Chris Sonne, the managing director of the Irvine, Calif.-based Self Storage Industry Group at Cushman & Wakefield, businesses account for only 20 percent of a self-storage facility's occupants, on average.

Sonne, who appraises self-storage facilities around the world, said most residential renters come from a three- to five-mile radius and stay an average of 12 months. Sonne said many people stay longer, attracted to the relatively inexpensive convenience of self-storage.

"It's a garage away from the garage, a safe place to store things, like grandma's china or old baby clothes to pass down to your children," said Sonne, who keeps a storage unit. "It looks like junk to everybody else, but it's my junk and it's important to me."

Turns out self-storage also can be a lucrative business venture -- there is an up-front cost for land and construction but low maintenance and management costs thereafter with a generally steady income stream, according to Sonne.

For those reasons, Sonne said, self-storage has risen in the last several years to become a core asset in the investment world, providing some of the lowest losses and highest dividends.

There are at least four publicly traded real estate investment trusts, one of which, Public Storage (NYSE:PSA) , has seen its stock price rise more than 20 percent since Jan. 1. In comparison, the S&P 500 Index has fallen close to 8 percent during the same time.

Bruce Kemp, the principal broker with Compass Commercial in Bend, said self-storage facilities are generally a good investment, with returns that rival other commercial investment products. Kemp, citing past research, said historical occupancy rates for self-storage facilities in Bend hover around 90 percent.

Jalbert said the business isn't complicated.

"You don't have lots of expenses ... it's just a slick business and a good money maker, as long as you haven't overpaid for (it) and you keep your rates in line," she said.

There are plenty of risks, of course, primarily overbuilding, said Sonne. He said it's hard to induce demand for self-storage, adding that only time and population growth can cure an overbuilt market.

Deschutes County had the fifth-highest rate of population growth in the country in the last seven years, according to U.S. Census Bureau statistics released Wednesday. Additionally, the county's population grew 3.3 percent between July 1, 2006, and July 1, 2007. The report did not list a population for Bend. The census bureau's 2006 estimated population for Bend is 71,892.

Local self-storage owners said an economic downturn could be either good or bad for their businesses.

Falling real estate prices could mean renters can afford big homes with big garages, eliminating the need for a self-storage unit. On the flip side, foreclosures or job losses could increase demand for self-storage units as more people transition to less expensive or smaller housing.

One way to compete in tight markets is to differentiate. One example is Stephenson's interior unit, with radiant heat and Muzak. He also plans to offer a consultation service that can custom-build shelving for his tenants' units as well as offer personal moving services.

Moore plans to add wine storage in lockers he plans to rent on a monthly basis.

Both have elaborate security systems and different-sized units to accommodate everything from RVs to office records.

Mike Koepf, who owns Storage Central in Redmond, said his recent addition puts him close to 1,000 units. He said he was at 100 percent capacity before the addition and is filling up his new units. Population growth is good for the self-storage business, said Koepf, who opened his storage facility in 2003 and also says he's the largest independent U-Haul (NYSE:AO PRA) (NASDAQ:UHAL) dealer outside of Portland. He said his business takes into account Redmond's population growth and grows with it, but is worried Bend might be adding storage units too fast.

"I think Bend is getting to the point where they need to be careful," Koepf said. "I think with the economic downturn it will take longer to fill units."

Koepf said he often talks to investors interested in starting storage businesses and doesn't think of storage facilities in Bend as competitors. He offers many of the same amenities, including units large enough to store small airplanes.

"We're all trying to come up with something, because we're all renting space," Koepf said.



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