In August, the state of Idaho purchased Affordable Self Storage in Boise to help fund public schools, and the purchase was concerning enough to the National Self Storage Association that president Michael Scanlon wrote a letter to the Idaho Department of Lands expressing his displeasure (read <a rel="nofollow" href="http://www.storagefront.com/therentersbent/state-run-self-storage-bad-for-private-business">our previous blog entry about the purchase</a>).\r\n\r\nMainly, Scanlon was worried that Affordable Self Storage would have a competitive advantage over local private self storage businesses, because the state-owned business would not be paying property taxes, and thus, the company could lower its rates.\r\n\r\nGeorge Bacon, the director of Idaho’s Department of Lands, wrote a <a rel="nofollow" href="http://www.ssaglobe.org/newsarticles/SSAResponse.pdf">response letter</a> back to Scanlon on Nov. 19 in an attempt to put to rest Scanlon’s concerns.\r\n\r\nBacon emphasized that the reason for state-run businesses was so that taxes would not have to be so high, and the money that the state makes from such ventures is more beneficial than tax dollars.\r\n\r\n“Our founding fathers exempted endowment trust land from taxation because the entire benefit derived from true assets goes to supporting state institutions,” Bacon wrote. “… The greater the earnings provided by the prudent management of the endowment land, the less tax that is paid by the citizens of Idaho.”\r\n\r\nBasically, why tax when that’s just counterproductive, because the money is going to state institutions anyway.\r\n\r\nThe main concern of the NSSA was not taxes, but rather the absence of taxes allowing Affordable Self Storage to offer lower rates than its competition.\r\n\r\nBacon’s response: “State law requires that trust managers charge “market rates” throughout the duration of its leases and contracts. … Similar to private REITs, we use local third party contractors to manage our commercial office/retail/industrial properties. These contractors handle day to day operations using their staff (not state employees), and they advise the state on marketing, maintenance and pricing, etc. commensurate with prevailing marketing conditions. These contractors pay attendants business and income taxes based on their business operations.”\r\n\r\nTo see if the pricing was similar to other self storage businesses in the area, we called Affordable Self Storage to find out some rates and compare those rates to the rates of a private business listed on StorageFront.\r\n\r\nFor a 5-by-10 unit, Affordable Self Storage charges $32 a month. The private Boise facility charges $60 or $65. For a 13-by-44 unit, Affordable Self Storage charges $166 per month. The largest unit offered by the private company listed on StorageFront is 10-by-30, and that unit goes for $139 per month.\r\n\r\nAccording to an Associated Press story, state officials said that Affordable Self Storage has 80 percent of its units occupied. This is believable, because several unit sizes were sold out, including all the 10-by-15 units.\r\n\r\nThere is a disparity in the rates, but is it enough to warrant a competitive advantage?\r\n\r\nIn his letter, Scanlon encouraged the state to sell the facility. He also expressed concern over whether private sector entities were given the chance to purchase Affordable Self Storage when it was for sale.\r\n\r\nBacon addressed how the state went about purchasing the facility; however, he did not say whether there were others bidding for the property.\r\n\r\n“The property was marketed via a local listing with an area broker, Thorton-Oliver-Keller,” Bacon wrote. “Any investor or interested buyer could have submitted an offer. The state followed a traditional investor path of inquiry and ownership by submitting a Letter of intent, followed by a Purchase-Sale Agreement, the performance of due diligence, ratification by the trustee (Land Board approval) and close of escrow. Like any investor, due diligence and limited funds determine what price the trust manager is willing to pay for an asset. There is no “treasure chest” of unlimited funds as implied by your writing. The only source of funds available for real property purchases is the proceeds from the sale of other trust lands.”\r\n\r\nDid Bacon put to rest the NSSA’s concerns? Or does Affordable Self Storage have a competitive advantage? Please share your thoughts below.