Shurgard Storage Centers, Inc.
Shurgard Storage Centers, Inc.
Shurgard Storage Centers, Inc.
Sales: $210.27 million (2001)
Stock Exchanges: New York
Ticker Symbol: SHU
NAIC: 322212 Folding Paperboard Box Manufacturing
Shurgard Storage Centers, Inc. is one of the largest self-storage companies in the United States. Operating as a real estate investment trust, Shurgard manages a network of 477 storage centers in the United States and Europe, 30 of which are managed for third parties. The company’s facilities are spread throughout 20 states. In Europe, the company operates in 72 locations in France, Belgium, Sweden, The Netherlands, and the United Kingdom. In addition to purchasing a storage unit via telephone, Shurgard customers can also purchase storage space on the company’s web site or through commercial account representatives. Shurgard also provides portable containerized storage units which can be delivered to customers and then picked up for the return to a Shurgard warehouse.
Origins: The 1960s to 1980s
An industry pioneer, Shurgard began operating roughly a decade after the self-storage industry was created. Self-storage properties first appeared in the southwestern United States during the early 1960s, their development sparked by a growing need for low-cost, accessible storage. A number of factors contributed to the initial demand for self-storage properties, the same factors that would later fuel the industry’s growth in the years leading up to the formation of Shurgard’s predecessor company. The demand for self-storage sprang from the characteristics of post-World War II society: an increasingly mobile population requiring short-term storage as individuals relocated residences; the increasing cost of housing, which led to smaller houses and less available storage space; the increasing popularity of apartments and condominiums; and more discretionary income, which enabled individuals to purchase boats, recreational vehicles, and other large items which required sizable storage space. Adding to the surge in demand was the proliferation of small businesses during the latter half of the 20th century, which meant cramped offices required off site storage space for sundry needs.
Chuck Barbo, Shurgard’s founder and longtime leader, devoted his career to fulfilling the demand for self-storage. His family, led by his great-grandfather Lars Barbo, emigrated from Norway in 1871 and settled in the Pacific Northwest. Chuck’s grandfather, Christoffer Barbo, was ten years old when the family arrived in the United States and later teamed with one of his brothers to start a logging and construction company in Bellingham, Washington, near the U.S.-Canada border. Like his grandfather and great-uncle, Chuck Barbo also pursued a career as an entrepreneur, but not at first. He enrolled at the University of Washington in Seattle intending to earn a business degree, a goal Barbo shelved after only one quarter of studies, his passion lost after suffering through introductory accounting classes. Barbo then switched his field of concentration, opting to major in history and education. He earned his teaching credentials and taught history at a junior high school in Seattle, but the lure of the business world soon pulled him away from teaching.
During a summer break from teaching in 1966, Barbo entered the real estate business by selling property on Whidbey Island, one of the San Juan Islands located north of Seattle. “I earned more money in two months of selling real estate than I’d have made in four years of teaching,” Barbo recalled in Shurgard’s 2001 annual report. “Even though I’m a miserable accountant,” he continued, “I figured that one out in a hurry.” His teaching days numbered, Barbo moved south, making an hour’s drive to Olympia, Washington, the birthplace of Shurgard.
Once in Olympia, Barbo opened his own business, a real estate investment company that served as the connection for meeting a local developer named Don Daniels. In 1971 the pair formed the Barbo-Daniels Group, which acquired and developed various commercial properties. Among the properties developed by the firm was a tilt-up concrete mini-warehouse called B-D Mini-Storage, located just south of Olympia, in Tumwater. Although Barbo envisioned business opportunities in the self-storage industry, others, particularly bankers, were skeptical. “Back in the early 1970s,” Barbo wrote in the Shurgard’s 2001 annual report, “no one had any idea whether self-storage was a legitimate business or not. Imagine trying to convince some tight-fisted bankers that a junior high school teacher turned real estate developer was on to the next great thing.”
Barbo succeeded in obtaining the capital to develop B-D Mini-Storage, sparking his interest in developing further storage centers. He launched a bid to develop a national chain of storage centers. As he progressed toward achieving his lofty goal during the 1970s and 1980s, difficulties in securing capital emerged again, forcing Barbo to develop a solution that would determine the way Shurgard was later structured. When interest rates escalated, the bankers Barbo earlier characterized as “tight-fisted” entirely closed their hands, shutting off Shurgard’s capital. To overcome the problem and to continue Shurgard’s expansion, Barbo formed the first of a series of public partnerships to fund the construction of new storage centers. Eventually, Barbo formed two dozen such limited partnerships, raising nearly $700 million for his expansion coffers, enough to provide capital for nearly 20 years of growth.
Reorganization in the Early 1990s
In the early 1990s Barbo began developing a plan to consolidate his numerous public partnerships, which were sponsored by a separate property management company, Shurgard, Inc., into a single corporate entity. As one of the steps taken to create a unified force, Shurgard Storage Centers, Inc. was incorporated in July 1993. Barbo’s nearly two-year effort to consolidate $442 million of real estate partnerships culminated in early 1994, when 17 of the 24 limited partnerships were merged into one body. At the end of March 1994, 17 million shares, held by roughly 55,000 limited partners, debuted on the NASDAQ exchange. At the time of the offering, Shurgard was organized as a real estate investment trust (REIT) which operated 139 storage centers and two business parks in 17 states, the result of Barbo’s 22-year effort to build a national chain. One year after the company’s debut on the NASDAQ, the outside property management company, Shurgard, Inc., was merged into Shurgard Storage Centers, Inc., creating a self-administered and self-managed REIT.
Following the massive effort to create a single corporate entity, Barbo was ready to expand. Short-term plans called for the acquisition of 20 storage centers and the development of eight others in 1994. Expansion during the year was targeted for markets in Seattle, Portland, Phoenix, Atlanta, Dallas, Nashville, Richmond, and northern Virginia. In 1994 Barbo also made a bold and unprecedented move for a self-storage company when he established an office in Brussels to explore the feasibility of opening storage centers in Europe. The investigation revealed potential, leading to the formation of a Belgian subsidiary, SSC Benelux & Co., in 1995, making Shurgard the first U.S. storage company to establish operations in Europe.
By 1996 Shurgard was touting itself as the second largest operator of storage facilities in the United States. The company operated storage facilities in 275 locations in the United States and Europe, which generated $110 million in revenue for the year. A new subsidiary, Storage To Go, was also formed in 1996 and given the responsibility of introducing a new containerized storage format. The venture, restricted to markets in Seattle, Portland, and San Francisco at first, featured portable storage containers delivered to customers for packing and then picked up for storage in a Shurgard warehouse.
Late 1990s Expansion
Barbo’s 25th year in the self-storage industry was celebrated by growth both at home and abroad. Expansion in 1997 included the acquisition of seven sites in Washington and three locations in Michigan, for which the company paid $20 million. Shurgard, through SSC Benelux, also increased its presence in Europe, acquiring three warehouses in France for $5.4 million. Sales for the year reached $140 million, more than twice the total recorded five years earlier, and net income hit $42 million, up considerably from the $22 million posted in 1992.
To ensure Shurgard’s financial growth maintained its pace, Barbo looked for inventive ways to fund the company’s expansion. His strategy appeared to be sound, but in order to continue as the dominant competitor in its key markets—the greater Seattle, Portland, and San Francisco areas, as well as markets in Arizona, Texas, Florida, Georgia, and Michigan—Barbo needed more capital. Barbo formed a joint venture with a San Francisco-based REIT named Fremont Realty Capital in 1998 to acquire up to 18 properties. He joined forces with Fremont Realty Capital again in May 1999, forming a second joint venture to acquire up to 16 storage centers. By expanding through joint ventures—something he would continue to do in the future—Barbo was able to lessen the cost of development. Capital losses associated with fledgling properties developed or acquired through joint venture arrangements were taken off Shurgard’s financial books, enabling Barbo to expand without the capital drain he would otherwise have incurred.
If you’re shopping for storage space, it’s time to Expect More. And that’s precisely what you’ll get at Shurgard. We’ll give you more in the way of extra services, like a guarantee to always have a cart available, or our promise that you can talk to a real human being 24 hours a day. So if you ’re interested in reserving a storage space, buying packing supplies, renting a truck, or learning more about packing your stuff or showing your home, you’ve definitely come to the right place. After all, why expect less?
In his bid to become the industry’s leading storage center operator, Barbo chased behemoth competitor Public Storage, Inc. Based in Glendale, California, Public Storage towered over its rivals, owning or holding a stake in nearly 1,400 storage properties spread throughout 37 states. Although Shurgard trailed far behind, controlling roughly 1,000 fewer properties, Barbo looked to one area for growth that Public Storage did not—Europe. Shurgard owned 19 European properties (with ten more under development), and Barbo was determined to push forward. In October 1999, Barbo raised $249 million to finance Shurgard’s second leg of expansion in Europe. Investors included the familiar Fremont Realty Capital, as well as Deutsche Bank, AIG Global Real Estate Investment, and Credit Suisse First Boston, which received a 43 percent stake in Shurgard’s European division. With the capital gained through the arrangement, Shurgard opened 19 new storage centers overseas in 2000, giving the company a presence in Belgium, France, the United Kingdom, The Netherlands, and Sweden.
As Shurgard pressed its case abroad in 2000, the battle with Public Storage took on a new twist. In February, Public Storage began investing heavily in Shurgard, spending roughly $50 million to become the company’s largest shareholder by early April. Barbo seemed to have anticipated Public Storage’s intent—“We knew somebody was buying our stock and assumed it was them,” he said in a March 3, 2000 interview with the Seattle Times” —particularly if he was aware of Public Storage’s recent history. Public Storage had acquired a stake in Storage Trust Realty in 1998, then offered to buy the company. Storage Trust rejected the offer but later agreed to the deal, forced to concede after relenting to shareholder pressure. In mid-April 2000, Public Storage representatives flew to Seattle and initiated talks with Shurgard officials about combining the two companies. Shurgard’s management declined the offer, to the chagrin of some of the company’s shareholders, and withstood the unsolicited advances of its larger rival. Public Storage decided against a hostile takeover and several weeks later reduced its stake in Shurgard.
On the heels of Public Storage’s advances, Barbo formed another joint venture. In May 2000 he announced a $160 million deal with Chase Capital Partners to acquire and operate an unspecified number of storage centers that were to be developed by Shurgard. Barbo’s efforts to accelerate expansion went further in July when he announced a new program to forge partnerships with smaller, independent self-storage chains throughout the United States. Called “Shurgard Preferred Partners,” the program involved the licensing of the Shurgard brand name and the provision of services by Shurgard to independent chains, a tactic once tried by Public Storage and later abandoned. According to the trade group Self Storage Association, there were estimated to be between 25,000 and 30,000 self-storage locations in the United States, with as many as 70 percent belonging to independent owners. Barbo hoped to bring as many as 3,000 such locations in as Shurgard partners, telling the Puget Sound Business Journal on July 28, 2000, “I want to be able to meet customer needs all over the United States, and we’re not going to be able to build enough (new storage centers) to do that.” Through the licensing program, Barbo intended to sign up storage center operators who were located in markets where Shurgard did not already maintain a presence. In its failed program, Public Storage had used its partnership program in markets where it already maintained a presence.
By 2002 Shurgard controlled approximately 450 storage centers in the United States and Europe. The company’s actions in its 30th anniversary year promised further expansion in the years ahead, although the celebratory year was pocked by one regressive move. In February the company announced it was closing two of its five Shurgard Storage To Go warehouses and discontinuing service in Atlanta and Orange County, California. The company’s delivery service of storage containers in Seattle, Portland, and Oakland was unaffected by the closures. On a brighter note, the company acquired a 74 percent interest in Morningstar Storage Centers LLC, the largest self-storage operator in the Carolinas with 40 properties in North and South Carolina. Completed in July 2002 for $64 million, the deal augured continued growth for the company as it entered its fourth decade of existence.
Morningstar Storage Centers LLC (74%); SSC Benelux & Co.; Storage To Go.
Storage USA, Inc.; Public Storage, Inc.; AMERCO.
- The Barbo-Daniels Group is formed.
- The company’s first storage center, B-D Mini-Storage, is constructed.
- Shurgard is organized as a REIT after consolidating 17 limited partnerships.
- SSC Benelux is formed to develop European storage properties.
- Shurgard rebuffs a merger proposal with Public Storage, Inc.
- Shurgard acquires a majority stake in Morningstar Storage Centers LLC.
Bishop, Todd, “Shurgard Allies for Growth,” Puget Sound Business Journal, July 28, 2000, p. 1.
DeSilver, Drew, “Shurgard Spurns California Suitor,” Seattle Times, May 3, 2000, p. E1.
Epes, James, “Shurgard REIT Will Open to Uncertainty in Market,” Puget Sound Business Journal, March 25, 1994, p. 4.
Ferrendelli, Betta, “Shurgard Sees Plenty of Room Left in Self-Storage Biz,” Puget Sound Business Journal, June 15, 2001, p. 23.
“Rival Buys Shurgard Stake, Eyes Possible Combination,” Seattle Times, March 3, 2000, p. C1.
“Shurgard Buys 74% Stake in Morningstar Storage,” Winston-Salem Journal, July 3, 2002, p. D1.
“Shurgard Closing Two Warehouses As Way to Cut Costs,” New York Times, February 5, 2002, p. C12.
“Shurgard Founds JV with Chase Capital Partners,” Real Estate Finance and Investment, May 29, 2000, p. 9.
“Shurgard Raises $249 Million for Expansion in Europe,” Seattle Times, October 13, 1999, p. C2.
—Jeffrey L. Covell