Storm Nolan’s story probably sounds much like your own. His company, Whitt Properties of Fort Smith, Ark., owns self-storage facilities. He likes the business. He’s pleased with the profit margins. He’s not so pleased, however, when it comes to finding markets for new sites.
“It gets harder every day to find new, profitable markets because of the saturation of these areas with new self-storage properties,” says Nolan, vice president of development. “We have already expanded into other areas, and we knew we needed to continue diversifying to really grow our overall business.”
Like many self-storage owners, company founder and President Chris Whitt, who launched the business in 1998, found himself grappling with two big questions: What would his next investment be, and would his team have the skills to make it a success? In addition to convenience stores, a shopping center, hotels and a business park, he found another worthwhile venture: short-term lodging.
New Product, Same Business Practices
Nolan turned to Value Place for Whitt’s next enterprise. Value Place, a new concept in lodging called “short-term residential,” is a hybrid of an apartment building and hotel. It provides apartment-like accommodations with weekly rates starting at $149, depending on the market. The franchise was founded by Jack DeBoer in 2003.
DeBoer invented the extended-stay hotel concept and founded three successful hotel brands: Residence Inn, Summerfield Suites and Candlewood Suites. He also developed more than 16,000 apartments in the 1970s and the second-largest apartment developer in the United States.
“Jack has always been a rule breaker and visionary. He doesn’t accept conventional ideas or approaches, which makes him a fantastic and profitable entrepreneur,” says Gina-Lynne Scharoun, president of Value Place Franchise Services. Scharoun is herself a new franchisee, having broken ground on a Tulsa, Okla., property in early 2005. Even DeBoer’s banker is on board. The owner of Kansas City, Kan.-based Security Savings Bank, he recently closed on a sevenproperty deal.
“We first heard about Value Place last July and signed our agreement to develop seven properties just two months later,” says Nolan. Whitt has already started construction on a facility in Bentonville, Ark., and will develop properties over the next three years in Little Rock, Ark.; Memphis, Tenn.; Reno, Nev.; and Addison, Texas.
What was so compelling about the venture? “The development and operations were similar to self-storage facilities—even the customer demographics were alike,” says Nolan. “We felt Value Place was a great way to leverage the business practices we already knew with a completely new product.”
That’s a sentiment Scharoun has heard again and again. “Self-storage owners want to make a good investment, without having to learn a new business,” she says. “That’s why they are very interested in learning more about Value Place.”
Value Place plans to be the national low-cost provider of safe, clean, apartment-style lodging. In fact, the brand is built around four concepts: simplicity, low cost, safety and cleanliness. The product caters to business owners, contractors and others who need temporary lodging for job assignments or individuals who need short-term housing.
“Before Value Place, most short-term residents had to settle for lodging that was dilapidated, overpriced or in undesirable areas,” says Scharoun. “We knew they deserved something better and wanted to provide a comfortable stay and options for extras.”
Value Place offers studios, studio sleepers and studio doubles. All include a full-sized bed with storage underneath and a kitchen with fullsize refrigerator, stovetop and microwave. The studio sleeper includes a sofa sleeper. The double includes an additional full-size bed. Design and furnishings are straightforward and standardized, yet of high quality.
Amenities include towels and linens, cable TV and biweekly housekeeping. Residents can purchase or rent extras, such as dishes, cookware, utensils, VCR or DVD players, and high-speed Internet. The property also features locked, interior corridors and security cameras.
The 105- and 121-unit Value Place properties can be developed for about $30,000 per unit, according to Scharoun. Staff requirements, similar to self-storage, are very low: just four to five full-time employees. Streamlined operations and management procedures should be familiar as well: limited office hours, no food service, and a minimal number of check-ins and move-outs each day. A large percentage of residents stay for more than a week.
“The facilities are very turnkey,” says Nolan. “Our employees don’t need a high level of expertise to rent or maintain the facilities. That was a key consideration for us.”Value Place can also be built on land suitable for storage sites—“B-grade” property bypassed by investors of higher-end properties.
Making It Work
Many self-storage owners are independent owners and want to stay that way. For this reason, they might question whether a franchise arrangement is right for them. According to Nolan, a Value Place franchise has several advantages:
- Expertise—DeBoer and his management team have worked together for years at several successful hotel brands.
- Turnkey operations—Value Place uses proven procedures that incorporate Harvard Business School principles. Nolan says these smart yet simple operations and management models actually enhance control.
- Nationwide appeal—Scharoun says the company has plans for more than 1,000 hotels over the next 10 years. The company estimates a market can support approximately one property for every 150,000 residents.
- Fast ramp-up of properties—Generally, self-storage facilities take anywhere from two to three years to reach occupancies higher than 90 percent. Scharoun says while performance may vary, a typical Value Place can achieve those occupancies in just six months. For example, one particular property had 67.63 percent occupancy in the first quarter of operation. By the third quarter, it was more than 95 percent occupied.
- Safety from a “down” economy—The travel industry is still trying to recover from the effects of 9/11. Scharoun claims Value Place is safer than most other lodging investments because many of its residents are regional and travel by car rather than plane to conduct business. Also, the affordable rates are attractive in a tough economy.
“As we have with our former franchise groups for Residence Inn and Candlewood Suites, we do whatever we can to help ensure our franchise family’s success,” Scharoun says. The team often consults with franchisees’ bankers, helping them provide the necessary documentation for lenders. The company also offers innovative ideas for economical site selection. Its strategy is to select sites that are ahead of development demand but still high in traffic.
Nolan still believes in self-storage as a profitable investment and will continue to look for opportunities in the industry. In fact, Whitt just opened another facility last year. “It’s a good business, and we’ll continue to look for markets,” he says. “We’re just pleased to be part of an entirely new business concept with a lot of potential for growth.” For more information, visit www.whittinc.com or www.myvalueplace.com.