Lots More Consequences

It's the thing that many experts still don't understand: how interconnected everything is.

That is why they didn't realize that the subprime crisis would have implications for all lending markets. Or that upheaval in one credit trading arena would spread to others. Or that so many different types of financial institutions in various countries around the world would end up with rivers of red ink flowing out of their financial statements.

Or, as the following report from the New York Times, "Losing a Home, Then Losing All Out of Storage," might suggest, that the bursting housing bubble would continue to spawn plenty of (unexpected) consequences.

The foreclosure crisis is hitting yet another American locale: the self-storage center.

As they lose their homes, people are turning to these humble cinderblock and sheet-metal boxes to store their stuff. But some people cannot keep up with their storage bills any better than they could handle their mortgage payments, and storage companies are auctioning off their property for a pittance.

A cottage industry has developed to profit from these lost and abandoned items. The other day in this Chicago suburb, Stephanie Donahou and her son Marcus had only a moment to decide whether to bid on a unit in default. They could see a couch, a sewing machine, a fish tank, a washer and dryer, lots of Christmas wrapping paper, a television and other trappings of daily life.

“This is someone’s house,” Mrs. Donahou said. Her bid, for $160, was the highest. Mr. Donahou was not impressed. “Ma, you bought a junker,” he said, rooting through the material. They began to fill their U-Haul. Good material they would auction on eBay; middling stuff would go to yard sales.

The auctioneer, Blair Auction & Appraisal, has been conducting sales at self-storage facilities in the Midwest for more than a decade. “If a site used to have 10 auctions, these days it has 15 or 20,” said Wayne Blair, the owner. At one site in Detroit, he auctioned off the contents of 45 units.

Subprime mortgage loans had low “teaser” rates to lure borrowers. Many storage facilities offer the first month for free.

“You tell yourself, ‘I’m only going to put my things in for a short time,’ ” Mr. Blair said. “Before you know it, you’re behind. Then you have to pay penalties and interest. You owe $400 to $500. If you lost your job, you can’t come up with that, not if you want to feed your family.”

Nearly non-existent 35 years ago, self-storage has become ubiquitous, with 51,000 facilities nationwide. Even as the larger economy falters, the industry is flourishing. Executives say the mortgage crisis is one reason.

Dean Jernigan, chief executive of the U-Store-It chain, says people generally rely on storage when they are dealing with major milestones: marriage or divorce, a relative’s death, a job transfer or, in boom times, remodeling or building new homes.

Now he’s adding foreclosure to the list. “People are moving back down the property ladder,” Mr. Jernigan said.

Bill Martin, a 50-year-old former manager in the technology industry, lost his house in the Southern California community of Lake Forest last August. His local self-storage company sent a truck and driver to pick up his things, a service it offers all new customers.

“Storage has my hopes in it,” said Mr. Martin, who sleeps on a foldout bed in his mother’s guest room. “I don’t tell anyone this, but at least once a week I go over and look at my couch, my refrigerator, my TV stand, my mattress and realize I did have a life, and maybe there’s a way to go back to it.”

Investors agree that hard times for homeowners like Mr. Martin will yield good times for storage firms. U-Store-It’s stock is up 33 percent this year. Extra Space is up 18 percent. Public Storage is up 18 percent.

“People might lose their home but they’re not going to lose their things,” said Charles Ray Wilson of Self Storage Data Services, a research firm.

Yet some evidence suggests that is exactly what is happening. It is impossible to put precise numbers on the phenomenon, partly because the industry is highly fragmented — the majority of facilities are locally owned — and also because the topic is not one the industry cares to dwell on. But auctioneers who dispose of units in default, as well as the bidders who try to buy their contents, say they see increasing signs of strain. They note that more auctions involve people who appear to have had their homes foreclosed.

Fred Reger, an auctioneer in Washington and its suburbs, is seeing two trends, which he calls “matching luggage” and “residential units.”

The first means that he often sees a bunch of over-stuffed plastic bags when he opens a unit. “People used to put their belongings in boxes,” Mr. Reger said. “But Hefties are a lot cheaper. These people came in under stress, which explains why they defaulted a few months later.”

A “residential unit” is one where the renter tries to illegally live in the unit. “We used to see one or two residential units a month,” Mr. Reger said. “Now I’m seeing 6 or 8 or 10. At one facility in D.C. the other day, we had three residentials.”

Not every area is seeing an increase in auctions. Neal Grossman, who runs auctions at storage facilities in Ohio, said a higher percentage of storage customers are rescuing their possessions at the last minute.

When renters default on their monthly payments, facilities replace the lock with one of their own. That way, the renter cannot come around at the last minute and empty out his unit.

Mr. Grossman cut locks on 87 units in March but, as many people paid at the last minute, ended up auctioning only 21 of them in April. Both numbers were down from a year ago, he said, suggesting “the worst is behind us.”

In Chicago, on the other hand, the ranks of the dispossessed seem to be swelling. Storage facilities in Illinois that intend to auction off units in default must publish a legal notice alerting the owners. The suburban Daily Herald ran notices for 62 auctions in the Chicago metro area on a recent Monday, some of them involving more than 10 units.

Brook Snyder runs the Chicago operation for Blair Auction. A good-humored 34-year-old with a penchant for bright shirts and three-day stubble, Mr. Snyder has made a career of delivering bad news: He has been an assistant to court officers doing evictions as well as a process server delivering legal papers to people being sued.

“I try to treat everyone with respect,” Mr. Snyder said. “Anyone can have hard times.”

On auction days he drives from site to site, trailing a caravan of hopeful bidders. When everyone is assembled in front of a defaulted unit, he takes off the lock. Forbidden to enter or touch, bidders make offers based on a glimpse and well-honed instinct. The entire process is over in a moment.

In three brisk days, Mr. Snyder held auctions at 23 U-Store-It facilities. At the first site, in Gurnee north of the city, he raised the door on an indoor unit, revealing what was essentially a one-room apartment: bed raised high, recumbent bicycle in the corner, file cabinet, vacuum cleaner and, for power, many extension cords. The contents sold for $675.

The next warehouse, in Waukegan, brought a unit full of — depending on how you look at it — cherished household possessions or somebody’s trash. Most of the bidders took the latter view, disdaining an offer. Tonya Boyd bought the bulging plastic bags for all of $6. “It looks like someone had some troubles,” said Ms. Boyd, an employment specialist. There were piles of clothes, brand-new women’s shoes, old chairs, a dirty fan, kitchenware.

For some units, $6 is too much. “A dollar bill, first dollar bill takes it,” Mr. Snyder implored in front of one unit. “Come on, this is everything they own!” To no avail.

This is the eternal mystery of self-storage. If the material was worth money, it was foolish to let it go to default. If it was not worth much, why spend at least $50 a month to store it?

Mr. Jernigan, the U-Store-It executive, says budgets are stretched tight. “People pay their cellphone, rent, credit card before they get down to their storage unit,” he said.

Self-storage site managers describe an irrational tendency in some clients. One said she had seen customers who lost their possessions at auction come back and rent another unit. Mr. Snyder said he had removed a lock from the same delinquent unit six times in one year. Five times the renter had paid up at the last minute; the sixth time, a few weeks ago, it was auctioned.

“His luck ran out,” Mr. Snyder said.

Comments

[Snappy Tom]

This is a very interesting story especially the "residential unit" portion. Will the Hoovervilles of this crisis be dispersed and hidden in foreclosed homes, farm outbuildings, parked RV's, state and national parks as well as self-storage units? I once had a landlord, a wonderful woman who lied next door, tell my wife and I how she and her mother had lived for some time in a tent when her father abandoned them during the Great Depression. I knew then that we could see such times again.

There is nothing new under the sun.

[Snappy Tom]

This is a very interesting story especially the "residential unit" portion. Will the Hoovervilles of this crisis be dispersed and hidden in foreclosed homes, farm outbuildings, parked RV's, state and national parks as well as self-storage units? I once had a landlord, a wonderful woman who lied next door, tell my wife and I how she and her mother had lived for some time in a tent when her father abandoned them during the Great Depression. I knew then that we could see such times again.

There is nothing new under the sun.

[roger]

It's the thing that many {experts ???)still don't understand: how interconnected everything is.interconnection is not static but is always in a flux changing the nature of relationships & the nature of things,this what is incomprehensible to the static mind of so called experts they study everything in isolation as one unit.

[roger]

It's the thing that many {experts ???)still don't understand: how interconnected everything is.interconnection is not static but is always in a flux changing the nature of relationships & the nature of things,this what is incomprehensible to the static mind of so called experts they study everything in isolation as one unit.