Talking With Bob Schoff: Observations of a Self-Storage Veteran
Copyright 2014 by Virgo Publishing.
By: Teri L. Lanza
Posted on: 03/04/2009



 

Inside Self-Storage talks with self-storage expert and veteran Bob Schoff about the general state of the industry, where the business is headed over the next five years, the legislative endeavors of the national Self Storage Association, and plans for his company, National Self Storage.

Robert “Bob” Schoff knows more than a thing or two about the self-storage industry, having entered the business in 1974. Thirty-five years later, he’s not only the president and chairman of the board for National Self Storage (NSS), he serves as chairman on the Self Storage Association Board of Directors and is the immediate-past president of the Arizona Self Storage Association.

Bob began his self-storage career as the city manager for Tucson Self Storage, an investment partnership sponsored by his brother, Michael, and partner, David Mackstaller, as part of real estate development company The Schomac Group. By 1976, he was managing seven facilities comprising 360,000 rentable square feet. From 1978 to 1980, he worked for Phoenix-based Mini-Storage Insurance Corp. (now MiniCo Inc.), where he coordinated sales, advertising and accounting, and held an insurance-sales license.

In October 1980, Bob was recruited by NSS to become its vice president in charge of operations, responsible for facilities in Denver, El Paso, Texas, Sacramento, Calif., Salt Lake City, and Tucson, Ariz. He was promoted to president in 1986, overseeing the acquisition and development of more than 30 facilities during that period of strong growth. He left the company in 1989 to work as an independent self-storage consultant, but rejoined the company in 1991 to coordinate its consulting and contract-management divisions. He was re-elected as president in 1994.

Bob has been actively involved in the national Self Storage Association (SSA) since its predecessor, the American Mini Warehouse Association, was founded in 1974. He was one of the original 52 members of an association that now represents more than 6,000 facilities worldwide. He began his second three-year term on the SSA Board in January 2006 and is board chairman for 2009.
 
Bob has been published in numerous industry publications including Inside Self-Storage and is a regular presenter at self-storage conferences and tradeshows. He has also served as a self-storage expert in legal proceedings.
 
ISS is pleased to present the following interview with such an esteemed industry representative. Thanks to Mr. Bob Schoff for his time and industry insight. 
 
1. Let’s start with an industry “snapshot.” What do you feel is the general health and status of the self-storage industry in today’s struggling economy?
 
“Better than most!” would be my short answer. No doubt the economy has slowed things for the self-storage industry. Move-ins are down 5 percent to 10 percent from a year or so ago. Unfortunately, move-outs continue at 10 percent to 15 percent of occupied space, so it’s a struggle to increase occupancy.
 
Most operators report flat or slowly declining occupancies. However, a 5 percent or 10 percent decline is not so bad compared to other real estate sectors and associated industries. Shrewd operators have still been able to show net operating income (NOI) growth through rate adjustments and expense control.
 
It will be interesting to see how the self-storage industry fares this summer. If occupancies decline, it will be the first time the decline was due to the economy rather than an increase in new competition. Fortunately, our customers want to hang on to their personal belongings, so self-storage demand has remained fairly constant.
New development has all but disappeared, so conventional wisdom says occupancies should rise as population grows within a given market due to the lack of new supply. Today’s development process and financing difficulties will keep the new product “pipeline” short for many years, which bodes well for those currently in the business. That’s not such good news for those in the self-storage development and construction fields; it may be a while before they recover.
 
2. Mainstream media has often argued that the self-storage industry is reaping the benefit of consumers’ misfortune, renting units based on financial downturns and selling tenants’ goods to boot. They don’t generally consider our rising delinquencies and occupancies, or the role we play in assisting residential and commercial customers. What is your take on this?
 
We hate to sell tenants’ goods. I don’t know any operator who can say he makes any money on the process. However, it’s a part of our business. Everyone knows that some of the stuff in self-storage has much more “sentimental” value than true value. I guess the self-storage industry is reaping the “benefit” of consumers’ misfortune, but we look at it as providing a valuable service during personal or business transitions, and we are saving what’s left of their shattered lives so they have something to rebuild from.
 
When someone loses a home or business, self-storage provides a low-cost spot to retain family heirlooms and the tools of a trade so they just don’t have to start from scratch. The fact that self-storage has not seen as big of a decline in occupancies as other real estate sectors is further testimony on the role it plays in assisting customers.
 
3. What do you see happening with the self-storage REITs? Sovran just released a quarterly report in which it said concessions were hurting revenue and net-operating income was down from 2007. Is this a trend among larger operators?
 
REITs need to lead the way in financing and strategic efforts. Most have good FFO (funds from operations), but this won’t be respected by the financial markets until the credit markets start moving again and fear and politics take a lesser role in affecting investor expectations. Self-storage REITs are also getting a bad rap from the market.
 
I think one of the problems is the “RE” part in REIT (real estate). Those two words lump REITs in a category that is recognized as the cause of today’s economic crisis. But as noted above, self-storage is performing relatively well, and not all industry REITs are reporting NOI losses.
 
We are all competing harder for new tenants. The big companies use concessions or some kind of offer as a part of their marketing campaigns. Most operators will match the larger operators’ specials depending on their occupancy. The all too familiar “$1 First Month Rent” and “3 Months Half-Off” are soon to be joined by “Low Price Guarantee” concession programs by certain REITs. You have seen and will see more TV and radio advertising by the REITs and larger operators. They know now is the time to invest in marketing! 
 
4. Where do you see the industry headed in the next five years? Will development continue to waver? Will operators be forced to invest ever more time/money in marketing and customer service? Or will the business remain strong due to the plethora of uses for the product?
 
I think the industry will perform positively over the next five years. Development will continue to waver until construction and take-out financing become available. As demand fills in the current vacant supply, storage rates will begin to rise and new development will begin. So, in three years, we should be in a new development cycle.
 
Meanwhile, operators will have to invest more time/money in marketing and especially customer service to attract and maintain their customer base. There are a plethora of uses for the product, but who knows what threat lurks ahead. Mobile storage was pretty unheard of not too long ago. 
  
5. As chairman of the SSA Board of Directors and immediate-past president of the AZSA, what do you see happening on those fronts? How are the associations battling legislative challenges and working to help operators?
 
We’ve been involved in self-storage industry trade associations from the beginning. It just makes sense to work together for the good of the industry and learn from each other.
 
One of the important functions of the associations is keeping on top of legal and legislative issues. The laws the self-storage industry operates under reside mostly at the state level, so local representation is very important. With model legislation and monetary support from the national SSA, most states have been able to enact self-storage-specific laws.
 
The SSA is the industry’s most effective lobbyist and is “on guard” to provide a voice in the face of regulatory activity. It has fought recent efforts to enact late-fee and abandoned-records regulations as well as new sales taxes on self-storage rentals. Additionally, SSA is working with AZSA and other states to improve outdated self-storage lien laws. The changes will really affect the bottom line of all storage operators by eliminating costly Certified Mail/return-receipt mandates and expensive newspaper advertising as part of the collection process. Both associations have promoted specialty insurance licensing, enabling operators to offer point-of-rent insurance. The economy is forcing legislators in Washington to reconsider and update bankruptcy laws, so the SSA is promoting self-storage-friendly adjustments to protect operators when tenants file for bankruptcy.
 
Further focus for the SSA and AZSA are legal, research and data, and education issues. The self-storage associations are needed now more than ever because relevant, real-time information is at a premium.
 
6. How do you see technology affecting the day-to-day operation of self-storage sites, e.g., Internet, remote viewing capabilities, etc.? How is your organization incorporating technology into its own facilities?
 
When I first got in the business, one of the biggest technology advancements was carbonless paper and the peg-board accounting system. How cool it was to just write a receipt and post all the entries at the same time! It’s hard to believe we used to keep track of everything by hand.
 
Today, managing a self-storage facility requires the skill of a symphony conductor to allow all the technologies to work together and make beautiful music. The self-storage management company must integrate the point-of-sale software, accounting system, gate system, website, security system and e-mail with all of its operating policies. We recently moved our office, and a big surprise to me was the small amount of paper files we had compared to the last move. I soon discovered how far we have come under the direction of the next generation.
 
The Internet has allowed us to have real-time, in-store digital video and a live “dashboard” accounting overview of each facility. Bills and accounts-payable are received, scanned into the accounting system at the store level, and electronically sent to corporate for approval and payment. All income activity is electronically transmitted from the stores to our home office general-ledger system and reconciled to the bank statement. Operations manuals, forms, procedures and a company forum are all available online. The forum allows all of our facility managers to share ideas, ask questions and gain knowledge with regard to self-storage management and the company.
 
Round-the-clock rentals and payments are available through our website. A central call center allows us to keep payroll costs in line, yet it expands our hours of operations since payment and rentals can also be accomplished over the phone. The call center also allows us to hire one high-quality employee rather than two mediocre ones. It’s amazing to me that we and our clients can now see who’s running the office, when they logged in and how much business they have done, right on our laptops.
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7. What are the future plans of National Self Storage? What is the company’s survival strategy in these tight times?
 
National Self Storage sold 70 stores in 2005 but retained its trademark, management company and key employees. Since then, our small, family-run business has acquired ownership in five self-storage properties and manages another 10. We have recently found a capital partner and are looking to acquire at least 50 more storage facilities. Right now, we’re targeting the western half of the United States.
 
We have also packaged our management services a la carte so customers can pick and choose services on a flat-fee or percentage basis. Small operators just can’t afford all the bells and whistles individually; we can provide them now at a fraction of the cost.
 
One good thing coming out of tight times and our being small is we can eliminate inefficiencies and have been working on improving our operations. The management technologies we discussed earlier were integrated this year, so the platform, although new, has been rigorously field-tested and is easily implemented in new projects. We have lost some business by owners trying to save expenses, but we feel professional self-storage management is critically important, now more than ever. Unless you have the economies of scale and modern techniques of a larger operator, survival today is much more difficult.
 
8. Any closing words of encouragement or insight for our readers?
 
We are in a down cycle right now, but I’ve always said it’s better to be in the business and own self-storage than not. We may not see the growth of past years, and we might even see some declines, but not like many other businesses.
 
The lack of financing, while painful for the construction sector and those looking to refinance, will prevent significant new self-storage product (supply) for the next several years. Self-storage has one of the best, if not the best, loan-default rates. I think financing will become less of a problem, but do expect much, much more conservative lending terms.
 
A few words of wisdom: Don’t let your product fall into disrepair. Invest in modern technology, keep professional management, boost your marketing efforts, and you will see self-storage is a great business!
 
Bob Schoff can be contacted at bschoff@nationalselfstorage.com. For more information about NSS, visit www.nationalselfstorage.com.