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The U.S. Private Vault Boom Of The Early 1980s, Part 4

Today I’m going to wrap up that four-post series on the U.S. private vault boom of the early 1980s. To recap, in part one I blogged about the rapid growth of the non-bank vault industry in the United States at that time, where the number of safe deposit box facilities reportedly went from zero in the autumn of 1980 to approximately 170 vaults just a few years later. And back down to just 3 by 2010. I ended part one asking:

So how did the boom fizzle out? And why such explosive growth in the first place?

In part 2, I examined the “boom” phase more closely. Various news outlets at the time reported elevated demand for safe deposit boxes due to:

• Rising gold and silver prices
• Growing interest in collecting antiques, artwork, coins, stamps, etcetera
• Corresponding increase in crime. U.S. property crime rates increased year-over-year from 1977 to 1981, according to Federal Bureau of Investigation uniform crime reporting statistics.
• “Economic survivalists”
• Businesses requiring offsite, secured data storage

Meanwhile, banks didn’t have enough safe deposit boxes- particularly large-sized ones- to satisfy demand. Hence the three- to five-year “wait lists” being reported. And the arrival of more private vaults.

In part three, I looked at the “bust” phase in more detail. I suggested changes to those factors that helped spur demand for safe deposit boxes in the early eighties may have contributed to the “bust” for the next quarter century. Those developments included:

• Gold and silver prices falling significantly from their January 1980 highs
• Collector interest (and prices) peaking in baseball cards, coins, comic books, and stamps by the late eighties/early nineties
• U.S. property crime rates decreasing year-over-year from 1981 to 1984 and again from 1991 until 2010 (save 2001), according to FBI uniform crime reporting statistics
• Fears of the “economic survivalists” never materializing. Or at least, their concerns never going mainstream.

In the meantime, the media reported the supply of safe deposit boxes grew (including the larger-sized containers) via financial institutions and the new non-bank vaults coming online.

The “bust” of the U.S. private vault industry was on.

Today, I’ll end the series with a talk about the tail-end of that bust and the relevance of the whole phenomenon for the U.S. and offshore non-bank vault industry here at the start of 2016.

But first, I’d like to go back to part one where I talked about a Colorado Vault & Safe Deposit Box Co. blog post from August 2015. The Centennial, Colorado-based facility pointed out:

In 2010, when Colorado Vault & Safe Deposit Box Co, opened there were only 3 private vaults in the United States…

“Only 3 private vaults in the United States”

At the tail-end of the bust (lasting until 2010 or so), I suspect the U.S. private vault industry found themselves to a certain extent in the same boat as their banking system counterparts. Deirdre Fernandes reported on The Boston Globe website on March 8, 2014:

The safe deposit box, once a staple of any bank branch, has itself become an antique. Banks are reporting that safe deposit box use is on the decline, with occupancy rates dropping quickly as customers buy home safes, digitize and store documents electronically, and, in this era of conspicuous consumption, prefer to display their valuables rather than stash them away for special occasions.

Jerry Pluard, the owner of Safe Deposit Box Insurance Coverage LLC, an Illinois company that insures the contents of the boxes, estimates that nearly half — 45 percent — of safe deposit boxes in the country are empty today. Boston-based Santander Bank says demand has slipped so much that it won’t even include safe deposit boxes when it builds new branches…

Younger customers, however, mostly find it a hassle. Already using branches less for all services, they don’t want to make a special trip just to get access to their belongings, said Bob Hedges, a managing director at Alix Partners, a global consulting firm based in New York City. Only 6 percent of bank customers rent a safe deposit box, and one third of those customers are over 65, according to recent survey by the firm.

Safe deposit boxes now rank along coin-counters as lowest-used bank service, Hedges said…

(Editor’s note: Bold added for emphasis)


“Banking trends making safety deposit boxes obsolete”
USA Today Video

The private vault industry also (undeservedly) received a “black eye” as word got out about Britain’s “Operation Rize,” a June 2008 police raid where thousands of non-bank safe deposit boxes in London were confiscated over suspicion of criminal activity- yet only 30 people were ever convicted of wrongdoing out of 6,717 box renters last I heard.

But fortunes were changing for both bank and non-bank safe deposit box facilities. Eric Zorn reported on the Chicago Tribune website on April 24, 2014:

It’s [SDBIC’s Jerry] Pluard’s best guess, however, that the decline has leveled off and that reports of the demise of the safe-deposit box — “On the way to oblivion,” said a Crain’s New York Business headline last year; “A relic,” wrote The Boston Globe in March; “Obsolete,” added USA Today this month — are overblown.

“It’s mostly bigger banks where I’ve seen the falloff,” Pluard said. “They open new branches that don’t offer safe-deposit box services. But business is still good at smaller, community banks, and demand is still high for the biggest boxes.” He added that he’s “noticed a growth in private-vault companies that aren’t affiliated with banks,” which might explain the perception that the safe-deposit box is a “dodo bird,” as the New York Daily News wrote last year.

These private companies are analogous to self-storage locker businesses.

Those have boomed in recent decades, suggesting that we’re still interested in keeping our stuff safe, but that our stuff has just gotten larger…

(Editor’s note: Bold added for emphasis)

“These private companies are analogous to self-storage locker businesses”

Highly-secured, self-storage locker businesses, a prospective/current customer would hope.

This decade, a resurgence in private, non-bank safe deposit box facilities opening their doors is underway in the United States and overseas. Megan V. Winslow reported on the Los Altos Town Crier website on April 1, 2015:

Mark Paul, director of U.S. Private Vaults Inc., of Beverly Hills, said he is aware of 15 private vault companies in the country

“This may seem unusual in the U.S., but it’s very common in Asia and it’s fairly common in Europe,” Paul said…

(Editor’s note: Bold added for emphasis)

And from that Colorado Vault & Safe Deposit Box Co. blog post:

Do you know how many privates vaults are in the United States?

If you guessed over 10 then you were correct. The private vault industry is on the rise in America as well as around the world. In 2010, when Colorado Vault & Safe Deposit Box Co, opened there were only 3 private vaults in the United States; Dallas, Las Vegas, and the San Francisco Bay area. Now, private vaults are all across the U.S. from over 3 in California to the newest facility in the Washington D.C. area. Furthermore, as of June 2015 there were over 130 private vaults worldwide

(Editor’s note: Bold added for emphasis)

I’m familiar with two private vaults in this state (Illinois) alone, with one located just a short drive from me. And glancing at this blog’s sister site- Offshore Private Vaults- I now count just over 200 overseas, non-bank facilities that are either open or will be soon. And I come across new ones on a regular basis as part of my research.

So that was the tail-end of the bust (and start of the next boom). As for the relevance of the whole phenomenon for the U.S. and offshore non-bank vault industry here at the start of 2016? Well, it appears some of the same factors that powered the early 1980s U.S. private vault boom are back again, such as:

• Higher gold and silver prices compared to levels at the beginning of the millennium
• Increased property crime. While the statistics may not confirm this (anyone else suspicious of “official” numbers besides me?), the perception exists for many. And often that’s what drives people to act.
• Financial upheaval that’s spawned a new generation of “economic survivalists.” The global economic crisis that reared its ugly head in the autumn of 2008, the subsequent central bank “papering-up,” and tepid recovery boasting plenty of low-paying jobs have made “hard assets” alluring again to the smart money and new breed of “preppers” who have a pretty good idea of where this is all heading.

As supply is concerned, safe deposit boxes of all sizes seem to be readily available (for the most part) in the United States through financial institutions. In other parts of the world, banks are no longer offering this service and ditching these secured containers (blogged about as recent as November). That being the case, I won’t be surprised if the ongoing private vault “boom” is more pronounced overseas than here in the U.S.

Three catalysts most likely having a significant positive impact on continued industry growth going forward will be:

1. Higher precious metal prices
2. More property crime (I recently read a report out of Ireland that burglars are bringing metal detectors along with them on the “job”)
3. Increased capital controls/wealth confiscation activity by governments and banking systems around the world (catalogued on sister site here starting at paragraph number four).

Regarding that last point, if such desperation by politicians and bankers becomes commonplace enough that Americans are fully-aware of it, storing one’s valuables in a bank safe deposit box may be considered an act of insanity. At which point, I suspect more safe deposit box facilities outside the banking system may open their doors from higher demand/lower supply (bank boxes being pretty much out of the equation under such circumstances).

I don’t know how long this current “boom” in the private, non-bank vault industry will last, but at the present time it looks to be on solid foundations and I believe it’s very possible all three of those catalysts mentioned above will play out down the road.

By Christopher E. Hill
Offshore Safe Deposit Boxes (www.offshoresafedepositboxes.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on information found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

Sources:

Fernandes, Deirdre. “The disappearing allure of the safe deposit box.” The Boston Globe. 8 Mar. 2014. (https://www.bostonglobe.com/business/2014/03/08/the-disappearing-allure-safe-deposit-box/HvwkPkvAUtoo8329bZrKsM/story.html). 21 Jan. 2016.

Zorn, Eric. “Safe-deposit boxes are in decline at banks.” Chicago Tribune. 24 Apr. 2014. (http://articles.chicagotribune.com/2014-04-24/opinion/ct-banking-safe-deposit-boxes-decline-oped-zorn-04-20140424_1_safe-deposit-decline-bigger-banks). 21 Jan. 2016.

Winslow, Megan V. “First Street’s ‘Fort Knox’ up for sale.” Los Altos Town Crier. 1 Apr. 2015. (http://www.losaltosonline.com/news/sections/business/183-business-features/49867-first-street-s-fort-knox-up-for-sale). 21 Jan. 2016.

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The U.S. Private Vault Boom Of The Early 1980s, Part 3

Right before Christmas, I started blogging about the boom in private vaults here and abroad these last couple of years. I pointed out this was not the first time the U.S. non-bank vault industry experienced such growth, as the number of safe deposit box facilities reportedly went from zero in the autumn of 1980 to approximately 170 vaults just a few years later.

And back down to just 3 by 2010.

I ended part one of this four-post series asking:

So how did the boom fizzle out? And why such explosive growth in the first place?

In part two, I examined the “boom” phase more closely. I wrote:

Elevated demand for safe deposit boxes stemmed from the following:

• Rising gold and silver prices
• Growing interest in collecting antiques, artwork, coins, stamps, and more
• Corresponding increase in crime. U.S. property crime rates increased year-over-year from 1977 to 1981, according to Federal Bureau of Investigation uniform crime reporting statistics.
• “Economic survivalists”
• Businesses requiring offsite, secured data storage

But American banks didn’t have enough safe deposit boxes, particularly large-sized ones, to satisfy the demand that existed at the time. Hence those three- to five-year “wait lists.” And the explosion of U.S. private vaults in the early eighties.

So that’s the “boom” phase. Next time I take up this subject, I’ll talk about the subsequent “bust” and how elements of each might relate to the industry here and overseas at the end of 2015.

And that’s where we’re at today. The “bust” phase of that U.S. private vault boom of the early 1980s.

(Editor’s note: Due to the amount of material I’m working with here, the tail-end of the “bust” and relevance of this whole phenomenon to the U.S. and offshore non-bank vault industry at the beginning of 2016 will be discussed in part four)

Returning to those factors that helped spur demand for safe deposit boxes in the early eighties, changes took place which may have contributed to the “bust” early on through the next quarter century. Listing most of those bullet points again:

• Rising gold and silver prices- The price of an ounce of gold, which hit a record $850 in January 1980, proceeded to drift lower for about 20 years until it double bottomed near $250 in 1999 and 2001. January of 1980 also saw the price of an ounce of silver hit $49.45 (London fix) before falling to around the $4 mark by the early nineties. It would not be until 2006 that the price of one ounce of silver would climb back above $10. Many Americans who owned gold/silver bullion, coins, jewelry, etcetera may not have considered a safe deposit box to be as much a priority anymore as precious metal prices declined after January 1980.

• Growing interest in collecting antiques, artwork, coins, stamps, and more- Interest (and prices) in a number of areas of collecting started to wane by the late eighties. From my experience and various accounts, coin and stamp collecting peaked by the end of the decade. Baseball card and comic book collecting reached their zenith by the early nineties. As values fell, collectors may have thought twice about incurring the expense of storing such items in a safe deposit box.

• Corresponding increase in crime- Contrary to what took place in the late seventies/early eighties, U.S. property crime rates decreased year-over-year from 1981 (5,256.5 per 100,000 population) to 1984 (4,498.5), picked up through the late eighties/early nineties, then fell almost every year (save 2001) from 1991 (5,140.2) to 2010 (2,945.9). Once again, the source used was FBI uniform crime reporting statistics. Now, I’m not a big fan of government statistics (manipulation issues), but if Americans bought into the idea that property crime had not only turned around since the late seventies/early eighties but was steadily decreasing over time (save that period of the late eighties/early nineties), safe deposit boxes were going to be a harder sell.

• “Economic survivalists”- Despite tough economic conditions in the late seventies/early eighties, Americans, for the most part, never found themselves in a situation where “hard money” was required to buy necessities. Federal Reserve Chairman Paul Volcker took dramatic steps to combat double-digit inflation rates of the time. Fear of stagflation gave way to renewed confidence in the economy under the Reagan administration. And the national debt, while a genuine concern, took backseat to other “pressing” financial issues, such as the health of the U.S. stock market and one’s bond/stock/real estate portfolio (I wonder what the 1980s “economic survivalists” would think of where we’re at with the national debt today?). As certain “hard assets” made way for “paper assets” and real estate in the ensuing decades, secured storage of such items was no longer necessary.

Taking all these changes into account, it’s very likely the demand for safe deposit boxes suffered. Particularly for those large-sized containers that reportedly were in short supply.

Turning to the supply side of the equation, consider the following observations about American banks during the private vault boom. David C. Scott wrote in The Christian Science Monitor on January 12, 1982:

Some banks are replacing unused, smaller boxes with larger ones.

“Banks have stepped up their orders for safe deposit boxes,” says Mr. Rosberg, of the Mosler Company. “We’ve received considerably more orders than we had two years ago. And the orders are for larger boxes. The mix is changing toward the larger sizes.” Industrywide, orders are up about 60 percent over the past two years, he says.

“And in light of this giant safe deposit expansion, new banks are building modular vaults. So when they fill up the vault with safe deposit boxes they can take out the rear modular panel and add another 10 or 15 feet,” Rosberg explains…

(Editor’s note: Bold added for emphasis)

The New York Times reported on October 4, 1984:

The main question for the private safe-deposit operators is whether they are likely to face stepped-up competition from banks.

“Banks are in a very competitive environment, and many have reassessed their charges for every service except the safe-deposit operation,” Mr. [Richard] Ornstein [president of Atlanta-based The Vault] said. “It seems inconceivable that they are reluctant to raise prices for a market whose demand has grown considerably.”

Some banks have already taken notice of the growing demand for boxes, and several suburban branches with sufficient space are enlarging their vaults. But if the banks raise their prices, many private safe-deposit operators believe, it will be better for their own business.

(Editor’s note: Bold added for emphasis)

What we seem to be left with is a scenario where demand for safe deposit boxes- particularly large ones- declined, while the supply of those bigger containers increased via financial institutions (and more non-bank vaults coming online). “Wait lists” would have gotten shorter. And the “bust” should have come as no surprise.

There were additional reasons as to why a number of private vaults folded early on. From that October 1984 Times piece:

While Zurich [“Depository, one of New York’s largest safe-deposit companies”] has prospered, a number of other companies that entered the business have gone under.

In Manhattan, the First City Safety Deposit Corporation opened its doors on Third Avenue in 1982, and closed them seven months later. Farther downtown, the United Safe Deposit Corporation also closed soon after its opening.

High-Cost Areas

One vault operator said that because the companies had located in areas where rent and operating expenses were high, they had been forced to charge fees higher than many customers were willing to pay.

According to the survivors, many of the failures mistakenly saw the centers as a get-rich-quick opportunity. “The companies that have done well in this business are those that have spent time studying the market, choosing a suitable location, raising adequate capital and having patience,” Mr. Drummond of the vault association said.

“Failures in the business have occurred as a result of people jumping into the market undercapitalized and establishing inadequate facilities,” said Richard Ornstein, president of The Vault, a safe-deposit facility in Atlanta.

He recalled one now-defunct northern New Jersey facility that had not established a parking lot for its customers. “People certainly aren’t going to feel comfortable about parking blocks away and carrying their valuables to and from a safe deposit center,” he said.

Undercapitalization has been a handicap for some. “Many deposit centers that are privately owned have difficulty sustaining capitalization during the two or three years that it takes before you can see any return,” said Arlene Leibowitz, manager of the Central Federal Savings Safe Deposit Center of Garden City, L.I., which opened 18 months ago. The center is owned by Central Federal Savings, formerly the Central Federal Savings and Loan Association of Long Beach, L.I., with assets of $745 million…

(Editor’s note: Bold added for emphasis)

More next week…

(Editor’s note: Part 4 published here)

By Christopher E. Hill
Offshore Safe Deposit Boxes (www.offshoresafedepositboxes.com)

Sources:

Scott, David C. “Theft rise aids one business- nonbank deposit vaults.” The Christian Science Monitor. 12 Jan. 1982. (http://www.csmonitor.com/1982/0112/011231.html). 6 Jan. 2016.

“SURGE IN SAFE-DEPOSIT CENTERS.” The New York Times. 4 Oct. 1984. (http://www.nytimes.com/1984/10/04/business/surge-in-safe-deposit-centers.html). 6 Jan. 2016.

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The U.S. Private Vault Boom Of The Early 1980s, Part 2

A week ago, I blogged about the boom in private vaults here and abroad these last couple of years. I pointed out this was not the first time the U.S. non-bank vault industry experienced such growth. I discussed how no safe deposit box facilities existed before October 1980 (according to The New York Times), yet they exploded to around 170 vaults in the early part of that decade before plummeting to just 3 by 2010 (according to Colorado Vault & Safe Deposit Box Co.). I ended part one of this series of posts asking:

So how did the boom fizzle out? And why such explosive growth in the first place?

To answer that question about the bust, the “boom” phase needs to be examined more closely. Chet Wade reported for the Pittsburgh Post-Gazette on February 12, 1985:

Private vaults have been operating in the United States since the early 1800s. The recent rebirth of the industry began in 1976, when a shortage of safe deposit boxes in banks and a growing concern about crime led entrepreneurs to open facilities…

(Editor’s note: Bold added for emphasis)

The New York Times, who pursued this “boom” story throughout the early eighties, said on April 11, 1982:

With waiting lists for bank safe-deposit boxes as long as three to five years, a number of companies are hoping to take advantage of what they see as a potential boom industry…

(Editor’s note: Bold added for emphasis)

David C. Scott wrote in the January 12, 1982, edition of The Christian Science Monitor:

Go to almost any commercial bank in the nation to rent a large safe deposit box, say, the size of a filing cabinet drawer. Instead of a box, you’ll be given a pen – to put your name on a waiting list that could stretch to five years

(Editor’s note: Bold added for emphasis)

Scott added later in the piece:

It is a classic case of supply and demand. Safe deposit boxes, especially large ones, are in short supply because, until recently, banks never had much demand for large boxes. Over half of the boxes were small ones traditionally rented or given to regular banking customers.

Then, three to four years ago, the demand for larger boxes took off. Rising gold and silver prices, appreciation of collectibles (antiques, stamps, artwork, etc.), and a corresponding increase in burglaries sent people scrambling for secure storage space.

“People today are looking for a safer place than the dining room to keep their eight-place silver service – which now can be worth anywhere from $4,000 to $8,000,” says Robert Rosberg of the Mosler Safe Company…

(Editor’s note: Bold added for emphasis)

On the topic of precious metals and collectibles, Samuel G. Freedman recognized the emergence of a new type of safe deposit box client in his June 12, 1983, New York Times article. Discussing the “phenomenal growth industry” of private vaults and the recent opening of a new facility in Greenwich, Connecticut, Freedman reported:

Mr. Ransom and Mr. Drummond said the Vault also capitalized – literally and figuratively – on a group of people who might be called “economic survivalists.” They are people who believe in investing in what they call “hard money” – gold, silver, artworks, antiques and other tangibles. They believe that economic chaos, if not utter collapse, is entirely possible in the United States and that those who hold “hard money” will be able to use it to buy necessities.

“There is a large and growing portion of this country,” Mr. Ransom said, “that is becoming concerned about the return of inflation, the size of the national debt. They believe in hard money and collectible assets, in gold and silver bullion.”

(Editor’s note: Bold added for emphasis)

Sound familiar?

Another new type of safe deposit box user emerged during the domestic vault boom of that time. Peter Weaver reported in The Lewiston Journal on April 8, 1983:

Rightly or wrongly more and more citizens are becoming security conscious. They’re buying safes for their homes and they’re putting more items in safe deposit boxes.

In many areas, banks can’t keep up with the demand, especially for the larger boxes. You can’t put your gold, coins, jewelry, expensive camera and silverware in one of those tiny bank boxes used for wills, securities and the like.

So a bunch of private vault companies began operation. Business is booming. While individuals with valuables are steady customers, the main line of trade is with companies that must store their backup computer data in a safe place away from the headquarters.

“One company,” says Rick Drummond, president of the National Association of Private Security Vaults, “had a fire and all records on tape were destroyed… It put them out of business.”

(Editor’s note: Bold added for emphasis)

The “boom” phase of the growth of the U.S. private vault industry in the early 1980s truly was “a classic case of supply and demand,” by the accounts I’ve read and cited here. Elevated demand for safe deposit boxes stemmed from the following:

• Rising gold and silver prices
• Growing interest in collecting antiques, artwork, coins, stamps, and more
• Corresponding increase in crime. U.S. property crime rates increased year-over-year from 1977 to 1981, according to Federal Bureau of Investigation uniform crime reporting statistics.
• “Economic survivalists”
• Businesses requiring offsite, secured data storage

But American banks didn’t have enough safe deposit boxes, particularly large-sized ones, to satisfy the demand that existed at the time. Hence those three- to five-year “wait lists.” And the explosion of U.S. private vaults in the early eighties.

So that’s the “boom” phase. Next time I take up this subject, I’ll talk about the subsequent “bust” and how elements of each might relate to the industry here and overseas at the end of 2015.

(Editor’s note: Part 3 published here)

By Christopher E. Hill
Offshore Safe Deposit Boxes (www.offshoresafedepositboxes.com)

Sources:

Wade, Chet. “Pricey private vaults lock up more business.” Pittsburgh Post-Gazette. 12 Feb. 1985. (https://news.google.com/newspapers?nid=1129&dat=19850212&id=D4NIAAAAIBAJ&sjid=PG4DAAAAIBAJ&pg=3596,2789609&hl=en). 29 Dec. 2015.

“Other Business; PRIVATE VAULTS BANK ON BOOM IN SAFE-DEPOSIT BOXES.” The New York Times. 11 Apr. 1982. (http://www.nytimes.com/1982/04/11/business/other-business-private-vaults-bank-on-boom-in-safe-deposit-boxes.html). 29 Dec. 2015.

Scott, David C. “Theft rise aids one business- nonbank deposit vaults.” The Christian Science Monitor. 12 Jan. 1982. (http://www.csmonitor.com/1982/0112/011231.html). 29 Dec. 2015.

Freedman, Samuel G. “TAPPING THE SECURITY MARKET.” The New York Times. 12 June 1983. (http://www.nytimes.com/1983/06/12/nyregion/tapping-the-security-market.html). 29 Dec. 2015.

Weaver, Peter. “Easy access to private safe box.” The Lewiston Journal. 8 Apr. 1983. (https://news.google.com/newspapers?nid=1899&dat=19830408&id=aF4gAAAAIBAJ&sjid=JWUFAAAAIBAJ&pg=1409,1934426&hl=en). 29 Dec. 2015.

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