Time for a Check-Up

Michael L. McCune Comments
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Your doctor recommends you have an annual check-up, and you know you should; but sometimes you are just too busy. If you have symptoms of an illness, however, you are likely to go to find out their cause.

The health of your self-storage facility is important to your business and deserves an annual check-up as well. But as with our own health, we are more likely to address the health of the operation when "symptoms" appear. Chances are, few owners have made the time or effort to take a hard look at their operations and the market to see how they are doing. Recent years have been quite favorable for self-storage and, generally, few symptoms have appeared to indicate a thorough check-up was necessary.

Are There Symptoms?

Many owners are beginning to have an uncomfortable feeling something is changing. Over the past several months, I have noticed trends suggesting the market is shifting throughout the country. More often than not, the symptoms in our business manifest as lower occupancies, fewer calls that turn into rentals, and difficulties in raising rates. With our own health, we might attribute the first phase of symptoms to passing aches and pains. Likewise, we find convenient ways to explain the first self-storage symptoms with passing causes, such as "it's just seasonal" or "it's residual effects of 9-11." One of the most common symptoms is passed over by saying, "That new project won't hurt my business."

The Symptoms Are Real

In many areas of the country, these symptoms are real. While we have always felt the self-storage business is somewhat immune to economic downturns, many owners are reporting their businesses are being affected by this "nonrecession." There is a lot more price-shopping happening as everyone looks for a deal. Some actual demand for storage disappears as some renters leave, saying things like, "I just lost my job, so I have to store this stuff with my in-laws now." However, what appears to be the most significant issue in many areas is overbuilding.

Overbuilding is particularly a problem in many metropolitan areas and even some more rural locations. For example, a recently built project in a major city has six projects within a three-mile radius. There's a total supply of 330,000 square feet and an average occupancy of about 85 percent, or a total actual demand of 280,000 square feet. There are four projects in the same radius currently nearing completion with a total of 270,000 square feet, and another being zoned! This is more than a symptom--it's the real thing. Of course, such overbuilding is not happening everywhere or on such a scale, but even some overbuilding can be very harmful to your facility's health.

The Check-Up

What you need for this check-up is an expert to diagnose the situation and a plan to proceed with the assessment. Since no one is as expert in a market as an owner, you are the best one for the job. However, you must be relentless in obtaining all the facts and impartial in evaluating the information. Many owners think they already know all there is about a market, but it is unusual an owner can go through a detailed evaluation and not learn something, if nothing more than a shift in perspective.

Now you need a plan to make your evaluation, not unlike the list of questions a doctor uses during an examination. I have developed a checklist that will be a useful guide to evaluating existing or future projects. While the list is printed in this article, you can also get blank forms from www.selfstorage.com/ argus/toolbox/checkup.htm. The purpose of the form is to make sure you address all the issues important to your property's health and accurately evaluate your operation against that of your current and potential competitors. You can, of course, add items you feel are important. But you should, at a minimum, get the basic information.

The first step is to define your trade area. Generally speaking, it is better to choose a larger area than you might originally think. This ensures you won't get "sandbagged" by a highly competitive property just outside your limits. I suggest a minimum of a five-mile radius. The next step is to stop by the local planning and building department to see if there are any new projects on the planning board and make sure they are on your list to evaluate. These folks are often very helpful and actually enjoy finding out your perspective on the market.

Next, of course, is to plot all of your existing competitors and put them on the list. Plan to spend an hour or so visiting each project or potential project. Don't be bashful about introducing yourself and chatting with the manager or owner. You will be surprised at what you learn. Immediately after visiting the site, make an evaluation of six critical items--location, visibility, access, signage, traffic and appearance--on a scale of 1 to 10. Be objective. Obtain the rates by calling the facility as a potential customer, as this is one area in which the manager or owner may not be straight with you. (It also allows you to get an idea of his salesmanship.) Following is what a sample evaluation might look like:

Last, but not least, perform the same evaluation of your own facility. It is sometimes very difficult to be objective; but it is most important in this case. Now, add up the scores and look at the various rental rates and see where you stand in relation to the market. Perhaps you will also find the new projects will significantly enlarge the market, and you must take some dramatic steps to remain competitive. Even if you have the best property in the best location in the market, you will know better how to sell against the competition and where the holes are in the pricing structure. If you are at a competitive disadvantage to some other projects, you will also know how and to what extent to compensate for these weaknesses in your property. Because you now know more than most of your competitors, you will be the leader in your market rather than the follower.

Sample Annual Check-Up
  8th & Main Ash & 4th Adams & Smith New Property Your Facility
Location 8 4 9 9 9
Visibility 7 8 7 7 6
Access 4 10 8 7 9
Signage 5 5 7 8 5
Traffic 10 4 8 10 8
Appearance 9 6 8 10 8
Total Points 43 37 47 51 45
Occupancy 83% 63% 87% N/A 91%
RATES
5x5 $23 $26 $20 N/A $25
10x10 $56 $60 $52 N/A $57
10x15 $65 $72 $63 N/A $70
10x20 $80 $85 $77 N/A $85

Michael L. McCune has been actively involved in commercial real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In January 1994, he created the Argus Self Storage Real Estate Network, now the nation's largest network of independent commercial real estate brokers dedicated to the buying and selling of self-storage facilities. For more information, call 800.55.STORE or visit www.selfstorage.com.

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