Self-Storage Management Companies: Choosing a Partner, Setting Expectations and Evaluating Performance
Copyright 2014 by Virgo Publishing.
By: Amy Campbell
Posted on: 10/12/2012



 

There’s a big distinction between owning a self-storage business and operating one. Not all self-storage owners wish to oversee staff and manage day-to-day tasks such as unit rentals, marketing and facility maintenance. It’s just one of the reasons some operators hire third-party management companies. The other is the number of benefits a management company brings, particularly to a single operator in a crowded and competitive market.

Along with brand recognition and economies of scale, third-party management companies bring experience. But with so many potential partners from which to choose—each touting increased occupancy, streamlined operation, marketing savvy and more—how do you find the right fit for your business?

Owners need to know what to look for in a third-party management company, what they can  expect from the partnership, and red flags that it’s time to seek a new company to oversee their operation.  

Seeking a Partner

Much like hiring staff or purchasing new software, choosing a self-storage third-party management company takes research and time to ensure you make the right choice. “Not all third-party management providers are alike. They will have very different things to offer and may produce very different results,” says Carol Shipley, vice president of third-party management for CubeSmart, a self-storage real estate investment trust and a provider of self-storage management services. “Your facility is a valuable asset, and you want a third-party management company that will treat it as its own. To find that perfect partner, you have to do your homework.”

It begins with researching companies that are successful in your market. One that doesn’t even have a presence in your area may not be the best choice in the long run. Your facility could be overlooked and may not receive the attention it deserves, says Noah Springer, director of third-party management for real estate investment trust Extra Space Storage Inc., which also provides management services. “I have heard of too many management companies that have their sites in one part of the United States and a one-off location in another part. Bad idea.”

In addition to having a market presence, your choice of provider should have self-storage experience. Ask how long it's worked in the industry and for details on key personnel’s expertise in finance, marketing, human resources and other critical areas. “Any reference to what they have done should be verified,” says Mel Holsinger, owner of Tucson, Ariz.-based Professional Self Storage Management, which oversees properties in Arizona, California, Colorado and Texas. If the company says it has consistently shown a level of occupancy growth, it should be able to be back it up with facts, not just words, Holsinger says.

Jack Rogers, vice president of business development for Uncle Bob’s Management, advises owners to also look at other properties the company manages, and even visit the company’s headquarters if possible to get a feel for what happens behind the scenes. “In the end, you need to feel confident the management company is working in your best interest and can deliver on the fundamentals you deem paramount to the success of your business model.”

Owners also need to determine if the services provided line up with what they’re seeking. Today’s third-party management companies offer a variety services, from manager staffing to marketing. In general, management companies will oversee the day-to-day operation including all facility finances, employee training, marketing and advertising, lien sales, retail ordering and sales, budgets, event planning, maintenance and upkeep, and other operational tasks.

Ultimately, feeling comfortable with the partnership is the most critical factor. “This company will be handling the day-to-day operations of a very important investment. If you don’t feel comfortable voicing your opinion or communicating exactly what you want from the management company, the relationship is doomed to fail from the start,” says Matthew Van Horn, vice president of Cutting Edge Self Storage Management, a full-service management company.

An open line of communication—from the start—is the best way to ensure a long and fruitful partnership, says Anne Ballard, owner of Atlanta-based Universal Management Co., which provides full-service fee-management to clients in the Southeast. “Owners need to clearly state their goals for ownership,” she says. This includes revenue goals, upgrade plans and whether they hope to sell the property in the future or keep it as a long-term investment. “In this day and age, there’s no reason an owner should give up his store identity to achieve outstanding results,” Ballard says. “In particular, we are feet on the ground where their store is located, providing personalized service and using our industry vendors to achieve the results they need.”

The Cost

Each third-party management company will charge accordingly to what it offers, industry experience and its economies of scale. In general, however, most require a flat percentage of the gross income with a monthly minimum. For the majority of operators, this averages between 4 percent and 6 percent of the monthly gross revenue.

Mitigating factors that could move that percentage up or down include the facility size, number of locations and services requested. When selecting a management company, Shipley advises that owners ask about any other fees they may be charged. “Many management companies provide services such as sales centers and Internet marketing that require an additional charge but would eliminate the need for outside vendors supplying these services, and often reduce the expense you are currently paying for these services.”

While it seems like the fees add up, the third-party management company’s sole purpose is to increase an owner’s revenue. “The owner should be able to pay for the management services with the increased revenue the management company expects to bring in,” Springer says. “While the first year of revenue could be slightly less than the owner was receiving due to the management fee, the increase in revenue over the subsequent years should more than offset the increase in added expense.”

Your Expectations

Just as an owner has expectations of his staff, he should have clear expectations of his management company. You’ll likely have overall goals in mind, which may include broad objectives such as increasing revenue, staff training or new marketing, and specific items such as a financial reporting timeline, creating a Twitter account or overseeing a renovation project. “Be detailed in what you as an owner expect, and make sure the company you are dealing with knows exactly what you expect,” says Holsinger, who suggests you ask the company to give you a detailed list of what it will accomplish each month, quarter, year, etc.

You should find out if the company can provide an operating budget, how often a company representative will visit the property, marketing avenues they’ll seek, what kind of  reports you can expect, and when they will be delivered. “These are just some of the ways you as an owner can ensure you’re receiving the services you’re paying for,” Holsinger says.

Because you’re no longer in charge of the operation on a daily basis, you should also expect your management company to bring any concerns or ideas to you that will boost your facility’s revenue or growth as well. “They should have the tools to recognize immediate areas for opportunity within your facility as well as problem areas that require quick action,” Shipley says. “It’s also important your management company have a seasoned, detail-oriented accounting team. You want strong oversight of all financial areas of your facility and confidence that your operation is being run by a professional, highly competent accounting group.”

As with any partnership, communication is critical to ensure everyone is working toward the same goal. From the start, the owner and management company should agree on “a flow of communication and stick to it,” Ballard says. “Moreover, owners should be on their sites looking to see if everything is according to plan.” If it isn’t, they should contact the management company rep and discuss a cure or path of action to take.

Ballard suggests owners meet with their management company at least monthly in the beginning. “After everyone is more comfortable with reporting formats and ways to access data and provide instructions, then perhaps switch to quarterly or, as we have some long-term customers, only annually.”

While a third-party management company can bring a lot to the table, operators still need to be realistic, Springer says. “No third-party provider can change your results overnight. However, if the increase in revenue is not making up for the added expense and the property is not headed in the right direction, then the owner is not getting the most out of their third-party manager.”

Owners should also be concerned if the management company is not delivering on its promises, whether it’s timely reports or completing a project on time and on budget. “It really boils down to a trusting relationship with open dialogue and actions that match with what was promised initially,” Rogers says. “Hold the management company accountable, but keep an open mind to the realities of what can happen with the ebbs and flows of the business.”

Linnea Appleby, owner of Lime Tree Management, a Florida-based self-storage management and consulting firm, suggests owners regularly review reports, and visit their own site and their competitors to make sure their rates and occupancy are in line with the market. “Your site should be equal to or better than the others,” she says. “If it’s not, you’re not getting the most out of your management company.”

Making a Change

So what happens when a self-storage owner finds his management company is not meeting his expectations? It may be time to make a switch. “The best way to make a transition to a new management company is to just move forward,” Van Horn says. “The new management company will most likely have a team of people to work with the former management company to attain all of the day-to-day information they’ll need to move forward with the property.”

Some management contracts may contain a termination clause. If so, owners will need to coordinate the transition with the new company to organize such items as payroll, accounting, management software and other essentials, Appleby suggests. “Allow enough time for a smooth transition so there is as little disruption to the site as possible.”

Before making a switch, however, Van Horn says owners should seriously consider why they want to make the change. “Changing management companies on a regular basis can be detrimental to a property. It’s very similar to a quarterback in the NFL having three or four different offensive coordinators in a four-year period. The quarterback never gets comfortable or seems stable and never seems to reach his full potential. You don’t want your self-storage investment to have that type of instability.”  

Speak with your current management company first to address your concerns and see if changes can be made. For example, if reports are not timely or marketing is underwhelming, ask the company what they can do to turn things around. “Be very clear with your issues and goals, then see if they’re addressed,” Van Horn says.

While operators should expect great things from their third-party management company, they also need to be realistic about their goals and expectations, communicate them, and be patient while the management company puts them into practice.

“The management of your investment is one of the most important decisions you can make,” Van Horn says. “Don’t settle. Make sure you hire the management company that best fits your expectations.”