A 'white-hot' market for self-storage businesses [Ocala Star-Banner, Fla. :: ]
(Ocala Star-Banner (FL) Via Acquire Media NewsEdge) Aug. 23--Can you name this sector of Marion County's economy?
About 10 years ago, it experienced a boom and expanded rapidly, only to find its market overbuilt when the economy turned.
These days, its distressed properties are a hot commodity among institutional investors.
If you guessed housing and construction, you're wrong: The answer is self-storage.
The market for rental space for people to put their excess stuff remains fairly steady but the demand for self-storage units as real estate investments is "white hot," according to one commercial Realtor.
Bartow McDonald IV, managing director of Sperry Van Ness Commercial Real Estate in Ocala, said he was amazed at the response when he put a 199-unit property on State Road 200, then belonging to Ark Storage, on the market in January with a listed price of $1.49 million.
"I have not seen buyer activity in this market for any type of asset like we did when we were marketing the Ark Storage Unit," McDonald recalled. "We literally had buyers from around the world calling daily, especially in the last three weeks before the deal closed."
According to Bloomberg.com, Bloomberg Markets magazine's list of best-performing alternative investments to publish in September will include Real Estate Investment Trusts, or REITs, which it describes as "agglomerations of properties sold as stocks." The one category of REITs that "soared," according to Bloomberg, was operators of self-storage units. Four of the top five slots in Bloomberg's REIT Index go to self-storage REITs.
However, the winning bidder for the Ark property McDonald listed was not a national self-storage conglomerate or a group of institutional investors. It was Neighborhood Storage, an Ocala-based business owned by the Rudnianyn family, a name long familiar in Marion County's business community.
In fact, Neighborhood Storage is the big player in Marion County's self-storage market. Differing analyses of Marion County's self-storage market show anywhere from 37 to 55 self-storage facilities here. Neighborhood Storage owns 18. Among the national chains, U-Haul's website lists six Marion County locations and Public Storage's site lists three.
John Rudnianyn, longtime Marion County developer, co-founded Neighborhood Storage in 1978. Nowadays, he said, his son, Todd, handles much of the day-to-day operation of the company.
"It's a growing business and he is on the cutting edge," John Rudnianyn said of his son. "And he's corporate where I'm more of a jackleg."
Todd Rudnianyn, 32, earned an MBA from Harvard Business School and gave up the life of an investment banker in New York to come home in 2005 to work in the family storage business. He is now its managing partner.
Why? Rudnianyn said he simply enjoys it.
"It's just the hands-on nature," he said during an interview at Neighborhood Storage's 25th Avenue location on Thursday. "I was out back when you got here. We're doing an expansion. I enjoy actually seeing the operational side of things and serving customers."
Rudnianyn said the company has grown from "four or five" properties in 2004 to the current 18 by focusing on acquisitions and development, from building a facility in Belleview in 2005 to buying distressed properties in the economic collapse that followed not long after.
"We made a decision that this is what we do: self-storage," he said. "The goal was to be able to provide service to people in Marion County regardless of where you are. That combined with the fact that there was some oversupply made us attempt to be a local provider, whether you're located on State Road 200 or Maricamp Road in the Shores or on (State Road) 326."
In such a competitive industry, self-storage businesses have to focus on customer service, according to Rudnianyn, who said the company contracts with mystery shoppers who regularly grade employees, himself included, on customer-service experience.
Rudnianyn said the company offers amenities such as free use of a truck for move-in customers and discounted boxes and moving supplies. It also has a heavy focus on technology, including ATM-like kiosks as well as online applications aimed at serving customers around the clock.
"If you want to go online at 2 in the morning and pay your bill you should be able to do that," he said. "If you want to reserve a unit, you ought to be able to do that."
In contrast to Neighborhood Storage, Russell Pardee of Pardee Moving and Storage has just one storage facility, a 245-unit location on Northwest Blitchton Road he built in 2005.
Pardee, who has been in the moving business in Marion County for more than two decades, said he's never been interested in building additional locations, explaining he built his lone center to serve moving customers he'd noticed having trouble finding storage space.
He said the Rudnianyn family actually gave him helpful advice when he started in self-storage.
"They are probably our biggest competition," Pardee said. "But because of the moving business, we don't compete directly with them."
Pardee said relationships he built over the years with his moving customers helped build clientele. Like Neighborhood Storage, he puts an emphasis on customer service in hopes of standing out in the market.
"We have thicker insulation in our ceilings and our walls and in our ceilings than a normal storage facility," he said. "We keep our air a little bit cooler than everybody else. We sweep and mop our floors all the time."
When asked how business is going, Pardee said it is "doing well" and added a little dry, dark humor.
"Like any other business, you've got to beat people up to get money out of them," he said. "Half our customers pay on time and half of them we have to threaten to chop their legs off to get them to pay."
Don't expect to Pardee Storage Center to grow beyond its current location.
"I have room to expand here," Pardee said. "In the near future I think we're going to do that but it's like anything else, it's hard to get money."
Karen Hatch, vice president/commercial lender with CenterState Bank, said she doesn't see lenders financing speculation in the Marion County self-storage market right now.
"There are too many self-storage units out there that are vacant that need to be absorbed within our market," she said.
Hatch said things could change once Marion County's housing market, with its high number of foreclosures, gains additional stability. In the meantime, Hatch said, The Villages, with its population growth and deed restrictions, is a much more viable site for new building in self-storage.
Asked about the prospect of big national players swooping into Marion County and maybe even making offers for their businesses, Pardee and Rudnianyn had different takes.
Pardee said he'd listen to offers for a buyout.
"But I don't think they're going to offer me what my price is worth," he said.
Rudnianyn shook his head, shrugged and said "I don't know."
"This is really fun," he said.
John Rudnianyn said he sees his son continuing to expand Neighborhood Storage exclusively in Marion County.
"We've got 18 and I think we're fixing to buy a couple more," he said. "You've just got to keep growing in this business or you'll get left behind."
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