Success in Self-Storage Real Estate: It’s Who You Know
Copyright 2014 by Virgo Publishing.
By: Neal Gussis and Aaron Swerdlin
Posted on: 05/23/2008



 

Whether it’s self-storage or another commercial asset, a property’s location is a key foundation for success, followed closely by well-managed operations and maintenance. In addition, there’s a famous saying that applies particularly to any real estate-based business: "It’s not what you know, but who you know."

Whether you’re buying or developing a storage property, its location is a variable that typically takes time to establish. On the other hand, your networks and contacts are factors you can manipulate and capitalize on immediately. "Who you know" is especially valuable in today’s market given the capital market volatility that has altered the self-storage real estate playing field.

Time to Tap Into Networks

Self-storage is an industry largely driven by life-changing events that create a demand for our products and services. While the nationwide housing slowdown and credit crunch have created a lower rate of residential sales transactions and thus a slowdown in demand for short-term storage during a typical residential relocation process, they have also produced a surge in home foreclosures and a corresponding up-tick in demand for self-storage. Thousands of consumers are downsizing their living arrangements from more spacious homes to smaller apartments with limited storage capacities.

During uncertain economic times like these, storage owners and operators should utilize their networks to support the changing needs of their customers. For example, this could be an outstanding time to tap into your network of maintenance vendors to strike good deals on curb-appeal facility improvements; build a referral network with area businesses and chambers of commerce; or promote your properties through marketing contacts. By making these connections, you can more effectively grab the attention of potential customers, improve your physical and economic occupancy levels, and better position your facility for a future sale or refinancing as market conditions inevitably improve.

The credit crisis has also affected the ability of self-storage owners to sell and finance properties, so the value of good contacts and networks is especially vital during this period. While some financing sources are simply not doing deals in today’s market, the ones who are providing loans are certainly more conservative in the amount of leverage they are willing to finance in their storage program lending terms and in their financing spreads. With bond markets at a virtual standstill, the conduit lenders who were a great source of financing for the pre-crunch boom times are not a practical solution for almost any financing transaction today.

This is where networking comes into play. Brokers can play a crucial role in reaching out to the lending community, and more important, engage in negotiations on behalf of clients during times like these where there is no longer such a thing as a standard deal. Conduits have been replaced by banks, life insurers, credit companies and private capital as today’s primary capital sources, and finding the right program for a given deal takes a proper network, determination and drive.

A Different View

It’s no different on the sales landscape. Finding the right buyers for a facility during an economic slowdown requires a solid network of contacts. With these connections, you’ll not only know who is in a position to potentially buy a property, but who is willing to negotiate in good faith and has the financial wherewithal to close the transaction. Similar to the financing market, a credible intermediary with a strong network of contacts can facilitate the process, improve the odds of securing a favorable sales price, and help you close the deal.

Investment firms are no different than self-storage when it comes to expanding lists of clients and business relationships in the storage industry. They build and expand contacts through such avenues as speaking engagements, trade organization memberships and sponsorships, educational programming, referral alliances, and advertising and media relations techniques. They then diligently translate the resulting contacts from these efforts by providing "what they know" to clients, which in this case is financing and real estate solutions.

In the past, investment companies recognized that referral networks could be used as a powerful tool to providing real estate and financing options to clients. That view bore proof that networking can be a true key to success. The networking and contact building between financial services firms and direct capital sources will not only continue, but flourish, providing another example of "it’s not only what you know, but who you know."

How about you? What do you know about the business of self-storage? Can you take that knowledge to the next level by extending working relationships and creating valuable alliances? Make a list of who you know and plan to get to know them better. Your business and the relationships you foster will thank you. 

Writers Neal Gussis and Aaron Swerdlin teamed together to provide both this month’s article and a working example of the success that can be realized through networking. Gussis is a principal with Beacon Realty Capital and can be reached at 312.207.8240; e-mail ngussis@beaconrealtycapital.com. Swerdlin is a senior managing director at Holliday, Fenoglio, Fowler, formerly Storage Investment Advisors, and can be reached at 713.376.3326; e-mail aswerdlin@hfflp.com.