I recently signed a management contract on a facility in central California that was a Small Business Administration (SBA) foreclosure. The site had obviously been mismanaged or the SBA would not have taken it back. There was no on-site manager, just a person brought in by a local management company the SBA had hired to operate the site during the foreclosure process.

A water pipe had broken and flooded the on-site manager's apartment over the weekend. It was a total disaster, causing the apartment to need complete remodeling, not to mention the replacement of all major appliances, bathroom pullmans, kitchen sinks, carpeting, flooring, etc.

The office and facility will also have to be reorganized. There are approximately 50 units full of items that appear to be mostly junk--no locks, no leases. The back perimeter fencing has been cut and several units broken into. There is no electronic gate or computerized accounting system in place.

We have all heard about sites like this one. They can be a bargain if purchased at the right price and you are willing to do the work necessary to turn these "diamonds in the rough" into potential gems. This is not the first time I have taken over a site like this one. The experience can be challenging and overwhelming at first, and extremely rewarding in the long-term. But where do you start?

The Physical Plant

First, you should take a good look at the "bargain" you just purchased. Very often, these properties are sold as is. Take a checklist with you and look at the site through the eyes of the tenants renting there. Obviously, any safety hazards or security issues should be your first priority. Roofs, doors, driveways, the office, the apartment, fencing, gates and landscaping are just a few of the major items to look at. Is the facility in need of repairs, or is it just a matter of cosmetics?

Fixing roofs, elevators, fencing and gates will probably be your most costly expenditures. If you have plenty of capitol to invest, then you might want to look at installing an electronic gate and keypads, video cameras and individual door alarms. Sometimes it is merely cosmetic items that need to be attended to: New paint, driveway sealant and general clean-up can do wonders for a site.

Don't forget your office or on-site apartment. The on-site apartment may need all major appliances, carpeting, flooring, paint, kitchen cabinets and a bathroom remodel. If there is no apartment, you will want to build one. Will you need to remodel the office? Does it need counters or built-in work stations? Does the restroom need remodeling? You should also think about whether you need to purchase new desks, chairs, file cabinets, computers, printers, fax machines or telephones. Don't forget about office supplies, such as file folders, printer paper, pens, etc.

Do an inventory of your facility equipment. Will you need a new golf cart, charger, ladders, drills, light bulbs, cleaning supplies, brooms, door hasps, hinges, bug spray, rodent poison? Be sure to order all of these items immediately. How about your sign? Do you have a new facility name? Will you need new flags or banners? What about the landscaping? Don't overlook anything.

Begin contacting local, licensed contractors and begin getting bids for all of the major work that needs to be done. Obtain at least three bids, and remember that the cheapest is not always the best. Also, don't forget to inquire about worker's comp verification. Ask for references, make a decision and schedule the work to begin.

Administration

Obviously, this part is much easier if the site is automated--then it becomes a matter of printing reports, doing a physical walk of the site, and matching unit numbers with sizes, occupied units, delinquent and lien-sale units, and vacant units. If you are on a manual system, then it will take you longer to do the same things. If you are lucky, you will have a site map of your units; if not, then you should consider having one drawn. Going to the city zoning office to obtain the original plans might be a good start when reconstructing your site map.

Once you have physically walked the site, an assessment of the tenant files is a must. Does every unit have a signed rental agreement and insurance addendum? If not, you must begin getting those signed. Post a sign at the entrance gate asking that all tenants stop by the office. Mail each tenant a letter explaining that there is a new owner and they must sign a new lease. Keep in mind that, in most states, you are required to give a tenant 30 days notice for any changes in the rental agreement, such as rental rates, due dates, and office or gate hours.

I suggest having three-part, numbered leases. Put the original white copy in the tenant file, give the tenant a copy, and reserve the third copy for monthly review when you do your site visit. Determine whether you need insurance addendums and a "rules and regulations" sheet. You may also want to have new facility forms or business cards printed.

Abandoned Units

What if you have units with no locks or leases, but items still within? You must begin playing detective. Go through each unit and open boxes. Can you find a name or address, anything that will give you a clue as to whom those items belong to? Go back and check tenant names on the computer or ledger cards. Look at past tenants, move-out logs, company files. Do any of the names match?

If you hit a dead end, then you have a choice: You can take several of your larger units and move the items into them, keeping them together, and wait to see if anyone comes to claim them. Be sure to take photos and have at least two people witness that you have moved all the items from the original unit. If, after six months to a year, no one has come to claim the items, begin throwing them out or sell them at auction, disclosing that they are "company" units. Units filled with items that are obviously trash--old newspapers, one shoe, an oily old shirt, a broken chair--should also be photographed. The items can be thrown away, the unit cleaned and rented to a new tenant.

When dealing with a situation such as this, remember: document, document, document. Keep detailed records and photographs of the disposal or removal of items from a unit. Always be sure that you did everything possible in your search to find the proper tenant prior to taking the abovementioned steps in case a tenant comes back for the items. When auctioning, be sure you list those units as "company" or "unrentable" units. This is where you are likely to find a mystery tenant that the last manager used for theft of rent.

Money Matters

How are your facility's rates? Is it time to raise the rent on all units, or just those of certain sizes or tenants? What about your late-fee structure--is it in line with other facilities? Is there any marketing being done? If so, is it effective? How is your Yellow Pages ad? When it is time to renew, will you want to make changes? What are your outside advertising costs?

Do you sell any auxiliary items, such as boxes, moving supplies or locks? Will you need to order them? Don't forget about company vacant locks and overlocks. Call a locksmith and have the office, apartment and other facility door locks changed and several sets of new keys made.

Management

If you purchase a site that is not as bad as the one I described earlier, but is what I would term a "normal" purchase, then you probably have a manager running the site. When a new owner buys a site, very often it is a difficult time for the manager. This person doesn't know what will happen to his job or, if he lives on site, his housing situation. Sometimes, with the larger national companies, the managers will stay with the company and simply transfer to another site, leaving you to find a replacement manager. If the facility was sold by a smaller, private owner or company, then the manager may stay on and want to negotiate their employment with you.

This is time for you to assess the management staff and see if you want to keep them. You must determine why the facility was sold in the first place. Was the old owner retiring? Was it a probate sale? Was this a facility that one of the "big guys" bought and is now spinning off? Or, was it a foreclosure sale brought about by mismanagement? Was the current staff partly at fault for the foreclosure?

If members of the staff are willing to stay, will they be receptive to your new policies, be flexible to change and be willing to help you clean up the site, if needed? What about wages, and bonus or benefit programs? All of this will have to be renegotiated with the management staff.

If the managers don't want to stay, or you don't want them to stay, then you need to begin the process of searching for a new staff. Your search will be easier if you know what you will expect from the new management. Will you need them to clean, help paint, organize the office, research those "missing" tenants in the units with no locks or leases? As with the existing staff, what will you be willing to pay the new managers, and what bonus or benefit plan will you design? Make sure you get a new letter of employment signed once all terms are agreed upon, and don't forget an apartment lease if they live on site. Think also about a management-changeover form when you turn over items such as drawer money, petty cash, inventory and facility keys and equipment.

The Rewards

Purchasing an existing site has many challenges, some similar to a new facility, such as marketing, training management staff, organizing the office, etc. Yet, there is nothing that cannot be overcome, changed or repaired at your existing site. Take before-and-after pictures--you'll be glad you did. If this is your first venture into the self-storage business, then give serious consideration to hiring a professional management company; perhaps your lender will require you to employ one. This company will have expertise in opening new sites or know the challenges of turning around distressed properties and making them profitable.

Purchasing an existing site is a learning experience. You might make mistakes, but you will learn from them. Keep in mind that your facility will operate at a certain income level. Once that level is achieved, is it acceptable? If not, then you should consider either an exit strategy or looking ahead to your next self-storage acquisition.

It can be extremely rewarding to take an existing, distressed site and turn it around to create a profit, but wipe the fairy dust out of your eyes and roll up your sleeves. You've got work to do--so get moving!

Pamela Alton is the owner of Mini-Management^®, a nationwide manager-placement service. Mini-Management also offers full-service and "operations-only" facility management, training manuals, inspections and audits, feasibility studies, consulting and training seminars. For more information, call (800) 646-4648.