Empty space a hot commodity
The more stuff people and businesses accumulate, the more the booming self-storage industry profits
MIKE KING, The Gazette
Published: Saturday, January 20, 2007
There's a lot of money to be made renting out empty space - an estimated $8 billion last year in Canada - to provide people and businesses with a secure place to store their stuff.
"It's booming in Canada and the future is very good," said Candace Watson, a professional real-estate appraiser who has specialized in the valuation of self-storage locations for more than 25 years.
Continually growing revenues are up by more than 15 per cent plus over the past five years.
"We're still behind the States, but we don't have their problem of oversupply," Watson, the owner of Canadian Self Storage Valuation Services, said in a telephone interview from Vancouver.
There are an average of 2.5 square feet of self-storage space per capita in Canada, compared with approximately six square feet in the U.S. - with some states, like Nevada, having up to 12 square feet per capita. That suggests there is plenty of room for the industry to grow here.
Depotium founder Turan Kalfa, Quebec's self-described "self-storage guru" and operator of the province's largest storage provider, said Montreal's storage level is about one square foot per capita, and "almost non-existent off the island."
But that is quickly changing as Depotium and other companies begin spreading across the province.
"The South Shore is booming more than Montreal, and Laval is another phenomenon," said Kalfa, whose company is opening locations or expanding in Vaudreuil-Dorion, St. Hubert and Joliette this year.
Depotium also has off-island sites in Longueuil, Candiac, Valleyfield and St. Eustache.
Last year, Kalfa sold his company's flagship storage facility in St. Laurent - at 216,000 square feet, the country's largest - for $13.85 million to Canadian Mini-Warehouse Properties Company, the Canadian subsidiary of Public Storage, the world's largest owner and operator of self-warehousing facilities.
Public Storage has more than 2,100 locations around the world and is the biggest self-storage operator in Canada with 45 locations - including eight in Quebec, six of them on the island of Montreal.
There are more than 2,800 self-storage facilities across the country.
Brad Suga, Quebec director of Public Storage, said the company also plans to open a new facility in Laval this summer.
"Quebec is definitely an underdeveloped province so there's a lot more potential," he said. "There's definitely more competition coming."
Kalfa invested some of the money from last year's sale into eight more locations, including the two "mom-and-pop operations" he bought and will expand in Dorion.
His company is also converting three other existing buildings and building three new outlets to bring the number of locations in his chain to 18 by yearend.
He predicts his network will rise to 25 by the end of 2008.
Glen Grossman, the industrial chartered real-estate broker at Montreal's Michael White Realties Inc. who negotiated the nearly $14-million deal between Depotium and Public Storage, acknowledged Quebec is ripe for expansion.
"There is a lot of activity and I'm seeing value in certain neighbourhoods," said Grossman, who has made self-storage his niche business during the past few years. He described the West Island as a gold mine and has noticed new players on the market.
One such recent arrival to the local scene is Mini Entrepot Metro in St. Leonard, run by the father-son team of Jerry and Dan Ostrega.
"Nobody comes close to what we have," Dan Ostrega said. "We have a totally different way of working."
The pair bought a former Metropolitan Blvd. clothing manufacturing plant and converted it into a high-tech and innovative self-storage facility they opened last June.
Mini Entrepot Metro claims the industry's first full-ceiling security monitoring with infrared detection, boasts Quebec's first personal identification number (PIN) control of individual door alarms and access, as well as features like washrooms on each floor and training for customers on the security system.
Jerry Ostrega called the evolving self-storage industry "the greatest thing to hit the real-estate market in 25 years."
Although he wouldn't divulge how much money has been invested in Mini Entrepot Metro (better known to anglophone clients as Metropolitan Storage), the senior Ostrega said it was considerably less than the "$10 million it would cost in Toronto to have what we have here."
Because the Montreal region, and Quebec in general, are so underserved, he said "growth potential is amazing."
Ostrega and Kalfa agree the industry is starting to better answer the growing demand for better quality and services.
Those include low rates, easy and controlled access, convenient locations, size selection as well as safe indoor/outdoor storage.
In addition to rental fees, operators can increase their revenue by offering extras, from boxes and locks to truck and vault rentals.
"Customers aren't just renting the space, but the people behind it and peace of mind," Ostrega said, referring to security.
Mini Entrepot Metro has its security system - "our access control is equivalent to the Bank of Canada's" - supplied by Protectron Holdings Inc., the second-largest security monitoring company in Canada.
Although Ostrega classifies their operation as "the most state-of-the-art in Quebec, if not the country," industry leader Michael Foy, who has visited the facility said: "It still doesn't compare to the rest of the country, but (it) is going in the right direction."
The partner at Anderson Foy Investment Realty Advisors, an Ontario-based commercial brokerage firm specializing in the acquisition and disposition of self-storage operations, said Montreal still doesn't have any what he calls "A-class facilities."
He pointed out some truly sophisticated operations in other provinces offer such luxuries as boardrooms and Internet connections.
Quebec is still 15 years behind the United States and five years behind the rest of Canada, said Foy, whose company was instrumental last August in creating InStorage Real Estate Investment Trust, Canada's first and only public self-storage company.
There are key reasons industry experts give to explain why Quebec is playing catch-up:
Entering the province's predominantly French-speaking market has kept many outside investors from moving here.
Increasing real estate prices are making it more expensive to either buy existing properties to renovate, retool or convert into storage facilities or to buy land to build on.
With Quebec's lower disposable income, due in part to high taxes, it isn't always possible to justify the revenue that can be generated by limited rental fees.
Prohibitive zoning regulations by municipalities which prefer companies that contribute to the tax base by hiring many people. Some municipalities also shy away from the old image of self-storage facilities as eyesores.
Kalfa recalls one Montreal borough mayor telling him she would allow a self-storage facility in her municipality only over her dead body. He said she relented after he showed her plans for his office-style facility.
"My goal is to be the biggest in Canada and the beauty of it is, just in Quebec we'll be the biggest in Canada," Kalfa predicted. "There's no need to go outside Quebec, where it's much more competitive."
He will have to overtake both Public Storage and InStorage, already No. 2 in Canada with 24 locations, none east of Ontario.
"We certainly want to expand into Quebec and the Maritimes to be truly coast-to-coast," InStorage chief executive Jim Tadeson said from his Toronto office.
"We're in discussions with several owners in Quebec."
Foy has negotiated the sale of four facilities in Quebec, including the three Fortresse Mini-Entreposage facilities to Apple Self Storage of Toronto.
Calling Montreal a unique investment opportunity, he said the city's low per-square-foot average presents a chance for strong returns on initial investments as the rental rates are certain to increase.
Average local rental rates for climate-controlled storage spaces in Montreal range from about $50 a month for a 25-square-foot locker to about $365 monthly for 300 square feet.
Financing should get easier too, Watson said.
"Banks, which used to consider (self-storage facilities) a great risk because of the high turnover of tenants leaving, are now very eager and falling over themselves to finance (self-storage projects)."
mking@thegazette.canwest.com
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