Components of the Third-Party Management Package
|Copyright 2014 by Virgo Publishing.|
|By: M. Anne Ballard|
|Posted on: 04/03/2008|
Services offered by management companies run the gamut within our niche industry. Some include "soup to nuts" and all courses in between, while others are very basic. What role do management companies play in the startup and ongoing success of your self-storage property? Is there a perfect management company just for you?
To answer these and a multitude of other questions, we contacted industry experts for their opinions and offerings. In addition to sending out questionnaires to several well-known companies, I spent time on the Web to see how companies stack up. Some have gone to great detail with their online offerings, while others simply state they offer property management. I must say, after looking at more than 50 websites of those known to be offering these services, it would be difficult at best to make a decision based on online information alone.
The following, summarized from the surveys and website reviews, is an overview of the services offered, what should be expected and fees. Just as we ask our managers to compare themselves to their competition, it was of great interest to compare my own operation to those of my peers.
This is just what is says: management, accounting and oversight services for an agreed-upon fee or minimum monthly amount, whichever is greater. Minimum fees range from $1,500 to $3,000 per month for stores in lease-up. Management fees will generally fall in the 6 percent to 7 percent range for a single-store location.
This fee is calculated on the adjusted gross income per month and is paid monthly, typically in arrears. This means that services rendered in January will appear on the January statements (delivered to clients in February), and be paid once the month ending has occurred and been reconciled, likely around the 10th of February in this example.
Multiple-store discounts are sometimes given to a single client and can be as low as 4 percent of gross income. Start-up fees for 30 percent of the companies in the survey were between $3,000 and $5,000, with another 30 percent being $7,500-plus to assimilate a new property and get things set up within the company’s guidelines, including the business setup for the operating system, and accounting setup for budgets and projections.
All respondents indicated they prepare monthly financial statements and pay all the bills for the stores, including tax contributions and debt servicing, as directed by the owners. This would include the reconciled bank account statements and comparison to budgeted targets. Preparing the annual budget was also completed by all companies.
There was a wide variety for the timeline of reporting to owners, with one company reporting within five days of month ending, with most reporting around the 15th of the month. One reported 25 days after month ending. Only 43 percent of companies currently offered online or websites for owner’s reports and financials. All companies in the survey also indicated that the postage for the bill paying is an expense of the owner/property.
Manager Hiring and Training
All reported the onsite staff members would be employees of the management company. Most conduct obligatory back-ground checks; authorization for this is required on the company’s employment applications. The salaries and benefits for the managers are included in the annual budgets and paid by the owner, as are all property expenses.
All companies also reported having an official training program for new managers and an awards program as well. These expenses were paid by property owners in 85 percent of companies surveyed. Forty-two percent reported travel expenses for the supervisor were also paid as a property expense. Manager training consists of sales, plus marketing, reporting, delinquent management, curb appeal, auditing, administrative and technology training.
Most manager payrolls are in the $30,000 range, with the low being reported as $18,000 and the high at $125,000. Many hold annual training functions where all store employees are brought together for intensive training and motivation. These can vary in format from a few hours to a weekend at a resort venue. As stated earlier, 85 percent of property owners will pay this travel expense. The reward is a better motivated and educated manager who can produce a better bottom-line result.
Some services are inclusive, while other companies charge separate fees for each. Such intricacies would include invoicing of customers monthly (in which 50 percent replied they send an invoice), and all but one company had this done by the onsite manager. Others send invoices for a fee paid by the customer.
Half of the companies reported conducting auctions/lien sales in-house by a management company representative, while the other combine in-house and auctioneer sales. One company used an auctioneer exclusively for delinquent units.
Marketing plans were prepared and enacted by all companies. One-half reported the marketing plans were paid by property owners. Research also revealed that most management companies operate under various store names; only one reported all sites under their banner. This can result in additional licensing or franchise fees.
All who responded said they were involved in new-store designs to varying degrees. The best scenario includes the management company from the day the dirt is purchased. Because there is so much to handle while the site is being built, this involvement allows the management team to open a new site with all details prepared and ready to go, including marketing plans and programs; website development; manager hiring and training; updated comparable survey; integration of all operating systems, such as access-control and operating software; and promotional items ready for pre-leasing at least one month before opening.
Management firms will also consult on the office and store layout, unit mix and site plan; ancillary sales; lease-up projections and detailed five-year budgets; furniture and fixtures planning; and all signage.
When reviewed and guided by experienced professionals, owners can save thousands, banking on a well-planned site that will lease up quickly, maybe even win an award. The low monthly minimums charged while under construction can literally be the saving grace for a new store, or one in need of a complete rehab. Oversight of construction or rebuilding of the store may also be included for additional fees.
Length of Term
Many in the industry have annual management agreements which self-renew. Others require a longer term. Since this is like a marriage, make sure you review this part of the agreement. Short-term contracts are available, as are specialty contracts, and a higher monthly fee is typical in these situations.
Examples could include start-up contracts, where the management company completes all steps to get the store open—hiring and training managers, creating marketing and promotional plans, and putting budgets in place. Due diligence contracts to assist a prospective client in purchasing an existing facility are also short term, as are feasibility studies. Prices for these services range from $5,000 to $10,000 apiece.
Frequency of Onsite Supervision
Management companies typically make monthly visits to the store to audit, train managers, inspect the site and review income and expenses for the preceding month. Some companies also offer weekly supervision, while others make quarterly onsite inspections.
If you require more on-site supervision, be prepared to pay for this service. Most companies do daily audits of income deposited and require managers to make daily deposits for safety and administrative reasons. You may also find companies that provide online manager training where managers and home office staff are face to face using existing store hardware such as webcams and speakers. This means less travel time and the ability to be in touch instantly.
What is the length and term for giving notice, and what, if any, are the early termination penalties? In most cases, a 60-day notice to terminate should be issued from either party. Some property-management companies require the client to have paid at least 12 months of fees, regardless of notice length. Some contracts state that termination can only occur with cause. Read and understand all these important terms. You should also consult with your attorney for more clarification of contract details.
As in a divorce, there are occasional situations where it is mutually agreed to terminate, and fees may be waived in such cases. An example would be in a lease-up situation where the store has negative cash requirements. In this situation you are required to reimburse the management company within a specific time period. Failure to do so can result in immediate termination. Remember, management companies are not in the business of financing owner’s stores and operations.
Is there language dealing with disputes and where the contract will be governed? Are there limits to what management is allowed to spend without owner’s direct approval? What about emergency situations? All this should be considered prior to executing these documents.
A third-party management company should be a true operating partner and an extension of your business. This relationship can be especially rewarding when management understands the owner’s business goals and provides the experience and supporting resources to meet and exceed these goals. As has happened in the past, owners will sometimes withhold their true goals and hire a management firm intent on "stealing" every form, process and program, and then terminate the contract.
It's when owners are explicit and straightforward that management can achieve and surpass goals. An example is a client who wants to develop and operate a new store, then exit by selling to a REIT or other national operator within five years. This provides a clear goal and exit strategy for everyone. Be honest about your management needs, so they can be formulated and customized to fit your exact scenario.
Terms for Endearment
The following recommendations should help cement relations from the start.
Communication: Have an agreed-upon flow of communication between the store managers, management company and the owner. If the store manager has too many bosses giving him instructions, he may feel overwhelmed. It works best when everyone agrees the owner communicates with the management company, which oversees the manager. Likewise, the manager communicates with the owner via the management firm. This way everyone works as a team.
Budgets and goals: With an agreed-upon annual budget and sales goals there is no need to revamp the budget each month. Everyone has already reviewed and agreed upon the targets for all expenses and leasing activity. It is when owners wish to constantly revise budgets or plans that things can run amuck. This does not mean there won’t be contingencies or emergencies. Life happens and budget sometimes must be adjusted accordingly.
Involvement: If you intend to micro-manage every detail third-party management may not be well suited to you. If, however, you wish to partner with your management firm to achieve goals, it is likely a very good fit for you. You make the call.
References: You should be able to get reliable references on any third-party management company. Talk with their managers for opinions. In addition, is the company a member of the state and national organization? Does it contribute articles and/or provide training to a larger audience such as at national conventions? You want someone who stays at the forefront of the industry.
Sample exhibits: Look for exhibits within contracts, making sure you understand and agree to the formats for these reports. These might include the monthly cash-flow statement, pro forma and budgets, or other report samples. If you require specialized formats or reporting, make sure this is discussed during negotiation. There are numerous reports available from today’s self-storage operating software, so review what is included in the standard reporting package. Others may be available at no cost.
Extra services: If you are expecting to receive high-level attention, such as daily phone calls or weekly meetings, extended reporting and more sophisticated marketing plans and programs, be prepared to pay more. Anything can be had for the right price. However, if you demand all these services and want the largest possible discount, you may have to choose which of these is most important to you. It’s not likely you’ll get both discounted rates and expanded services.
Owner training: Many companies provide owner-training classes and other specialized reporting. Ask if this is available and included in your contract.
Reputable management companies frequently have longstanding relationships with industry vendors of all types and this usually results in discounts to clients. This would include property insurance, retail supplies, access-control and software providers along with industry-specific online and marketing service companies. Well-established firms negotiate better price points and services than a single owner may be able to achieve. Oftentimes, we are asked to review new technologies and products and provide feedback.
Other benefits to look for include:
When deciding who should manage your property, expect a full menu of services and seek expertise that goes beyond operational issues. For success, partner with the company that brings an owner’s mindset to the table and can develop strategies that meet the owner’s business goals.
Owners today should expect management to improve the property’s performance in ways that ultimately contribute to the bottom line. After all, improving the income is the way everyone involved gets paid.
M. Anne Ballard is president of Atlanta-based Universal Management Co., which provides global consulting for evaluations, feasibility studies, training and development services. The company also offers full-service fee management in the United States, where it manages more than 35 locations. For more information, visit www.universalmanagementcompany.com.