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April 2, 2007
8 Min Read
Professional management companies have been around since the beginning of self-storage, and they’ve continued to grow. Sometimes referred to as third-party management, the service has the potential to increase profits, free up an owner’s schedule and provide other benefits. Should your facility go this route?
Turning property control over to another party is a huge decision. You’ll need to understand exactly what a professional management company does and how to select one. What should you rightfully expect? Do they cost you money or enrich your coffers? If you opt for third-party management, the transition process for an existing operation is no light task. And finally, how do you evaluate the job they’re doing?
To start at the beginning, a management company generally provides complete self-storage services:
Administrative and human relations functions
Marketing
Accounting
Repair and maintenance supervision
Operations management
As an owner, your top concern is that your property is being operated as effectively as possible.
Human Resources
A qualified management company will have competent personnel and keep abreast of changing legislation and procedures. When evaluating a company, inquire about its people—their backgrounds, education and experience. At a small company managing no more than 10 facilities, one person may oversee all tasks; larger outfits will have more personnel.
You can expect the company to handle the hiring, training, supervising and termination of onsite staff. A qualified candidate will be knowledgeable in the following:
Staffing positions, responsibilities, legal requirements, sales, accounting and operations
Applicable federal, state and local laws with respect to employment
Software systems at each site, including gate and office functions
Accounting practices
Self-storage law addressing liens, auctions, etc.
The company should provide each facility employee with an operations manual spelling out policies on compensation, job responsibilities, work hours and attire. You’ll have to decide whether employees will remain “yours” or if they’ll belong to the management company, and who’ll determine the compensation and benefits programs.
Management Responsibilities
Human resources looms large, but it’s only the beginning. If you could write a personal ad describing your perfect management “mate,” the checklist would cover money handling, marketing, maintenance and more. Let the following be your guide to great expectations.
WANTED: Self-storage management company with impressive experience in:
1. Annual Operating Budgets and Accounting Systems
Prepare a detailed budget plan that spells out planned rent increases, plan for late fees, ancillary sales, etc. Should be able to show history if operated by company and compare to current year’s budget.
Budget should detail expenses, not only how much but logic behind expenditure.
Accounting system to account for budget to actual. Should be able to explain variances in logical manner.
Auditing program accounting for revenues and to check operational expenses are in line.
Property-tax appeals plan: Who is going to do this, if applicable, and what type of arrangement for compensation should be negotiated. Where are the bills and assessments to be sent?
Setting policies for payment of expenses: how will the company verify correctness of a vendor’s billing, and when are checks cut and mailed?
Where are the records (originals) kept and what type of reporting is provided to you? What can you expect in terms of report timing?
2. Marketing Programs
Company should have intimate knowledge of Yellow Pages print and Internet/electronic functions and marketing.
Perform offsite direct-marketing programs: direct mail, newspaper, radio, cable or network TV.
Prepare and update company brochure, fliers, giveaways, specials, etc.
Prepare and implement direct-sales program to neighborhood residents and business.
Carry out special events and programs, working with local charities, organizations, police departments, etc.
Will managers be provided with telephone-sales and customer-service training?
Competition reporting: Who will be evaluating pricing, specials, etc.?
3. Maintenance and Repairs
Prepare, implement and update routine maintenance schedule.
Prepare and complete scheduled maintenance program on major areas such as roofs, doors, driveways, HVAC, painting, and water and sewer systems.
Prepare and competitively bid major jobs. Include scope of work, detail on labor and parts, lien waivers, contractors' insurance, etc.
4. Community Interaction
Should have an awareness of community economic events that may affect the store’s performance, such as major industry or companies activities, and changes to local laws, tax appropriations.
Be active in community charities as well as the chamber of commerce.
Be active in a local business-networking group.
Crisis and emergency management
Need a plan and specific policies to deal with emergencies like flood and fire; public relations plan also should be in place.
What is the plan if a manager walks off the job or is terminated?
5. Miscellaneous Duties
Involvement in trade associations.
Innovative ideas on kiosks, call centers, etc.
Market studies, other consulting expertise.
Selection
Now that you know what to expect, how do you select the right company? Do your due diligence. Before buying a storage property, you would adopt a thorough due-diligence plan; use the same approach when considering candidates for professional management:
Start with the companies’ resumes, brochures and websites.
Get a contact list of owners with whom they’re doing business. Call each and ask if the company has delivered as promised, how often they meet with owners, etc.
Ask for permission to visit stores they’re managing. Talk to onsite employees about the leadership: What do they like and dislike, how responsive is the company to manager questions?
Ask to see management contracts. Do they provide an exit strategy for you and the company in the event the relationship doesn’t work out?
Provide them with a list of your expectations and ask to discuss it.
Ask for a copy of their insurance policies. Are they adequately covered for wrongful terminations; do they have workman’s compensation?
have them prepare a proposed budget for your store. In order to do this and to be fair about it, they may need some historical data. Be sure this is done in a confidential manner.
Meet them at the property. have them give you a plan of what they’ll do to improve the property. This may take a few days time, but it’s worth waiting for.
Meet them at their office. have them introduce you to their staff and explain to you each person’s duties. Get a resume on everyone who’ll be involved in your operation.
Ask for a “scope of services” and be sure you agree on those responsible for management-related issues. Who will be paying the bills, taking care of service contracting, and what are spending limits?
Last but not least, negotiate the fee arrangement. Is your store a candidate for a fixed fee, are you paying travel expenses or supervisor expenses? What percentage of revenues is fair and how is that calculated?
These are all questions that need to be asked before signing the management agreement.
Making the Transition
Let’s say you’ve found the ideal company and decided to move forward with third-party management. Now, you need to concentrate on the transition process. Here’s what to expect:
Agree on a date of transfer of duties. Be sure both parties are absolutely clear on this date. Is it reasonable?
Provide the company with pertinent information such as federal ID numbers, loan-payment information and insurance policies.
Give your employees information about the company you’re hiring, and include a solid recommendation to get them on board.
Work closely with the company to transfer billing information from vendors, etc.
Give the new company as much historical data as needed, as well as a list of any preferred vendors.
Set up specific communications requirements such as e-mail, call times and report times.
Be open to suggestions from the new company. Keep an open mind: even though the store may be your baby, understand that they are looking at it as a new business and an opportunity to make improvements on your behalf.
Be patient. It usually takes a couple of months to work out all the bugs, get used to each other, and have a good under- standing about how things will work.
Be supportive: Remember they’re trying to make improvements and sometimes change can be scary or even threatening to employees and vendors. help them out by giving them your thoughts, but don’t try to tell them how to do their job. Don’t be offended if they don’t do things exactly how you think they should be done; sometimes a new way is a better way.
Money, Honey
Once you’ve made the transition, there is still a major consideration: Is the management company making you money?
Let’s look at one way to make this evaluation. Assume that prior to hiring the management company you and your staff were averaging 20 new rentals a month. After a given period (not less than one year), the store is now renting about 25 units per month. Is it fair to give the management company the credit for the entire increase? That is a value judgment you have to make. however, you have to at least give them credit for the majority. So again, let’s assume they're directly responsible for four of the five new rentals.
Presume the average rental is $75, and the average stay of your customer is seven months. So, it’s a simple math problem: $75 x 7 x 4 (increase of new rentals per month) x 12 (months under management) = $25,200 generated with the management company at the helm.
Now, let’s assume the management fee you’re paying is around $1,800 per month or $21,600 annually. Deduct this from the increased revenue ($25,200) and you have a net gain of $3,600. If you use a market capitalization rate of 7.5 percent, the end result from just this one area is a net value to you of $48,000.
Obviously, this is only one of the many ways you can justify the management company; in many cases, profits are much higher. Also, keep in mind the company is now overseeing day-to-day responsibilities, performing all the duties you would have to do otherwise. Bottom line, you’ve made money and have free time to do something else. That in and of itself is worth something.
Mel Holsinger is president of Professional Self Storage Management, based in Arizona, offering facility management, consulting and development services to the self-storage industry. He is also president and cofounder of the Self Storage Education Network, providing online-based manager and owner education (www.selfstorageeducation.net). For more information, call 520.319.2164; visit www.proselfstorage.com.
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