Online Marketing and Facility Value

Michael L. McCune Comments
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Like many members of the Baby Boomer generation, I find computers to be a mixed blessing. They are certainly expedient, but they lack the flexibility and forgiving ways of old methods of doing things. They require you to execute tasks the right way and in the appropriate order. As my office colleagues can testify, my entry into the age of the Internet has not been graceful, but I am making progress.

Being in the real estate business, I have one principle concern at the forefront of my mind: What is a property’s value and why? Computers and the Internet allow us to make all kinds of calculations and comparisons. The data lets us plumb the depths of information to really understand a facility’s worth. But more important, technology can create and destroy self-storage value. This became true while the old curmudgeons were sitting on the sidelines, unaware of evolving trends and significant changes in industry marketing.

Three Short Stories

There are approximately 202 million Internet users in the United States, which is roughly 69 percent of our total population. Nearly two-thirds of those users have access from home. When you consider what portion of those users might also be potential self-storage customers, marketing your facility on the Internet only makes sense. Let me share a few anecdotes that will demonstrate how I came to the conclusion about the importance of online marketing in this industry.

First, about a year ago, I was at the ISS Expo in Las Vegas when I overheard two of the largest self-storage operators talking about getting 8 percent to 10 percent of their customers from the Internet. I was impressed. Talk about creating value.

My second awakening was during a visit to a facility in Denver. While I’m not in the habit of calling a project an “ugly baby,” this one was not pretty—a dilapidated old warehouse you would need a guide dog to find. It was, however, essentially full at good rental rates—a prosperity not typical of nearby competitors. When I asked the owner how he leased up so quickly, he said, “Since I couldn’t afford much Yellow Pages advertising, I just used the Internet. I get almost all of my customers from the Internet, and it doesn’t cost much.” From that moment, I was converted.

The third reason I believe the Internet is important in self-storage marketing is because of the progress of my company’s own website. Last year, it got 3 million hits. My webmaster pointed out that if there are 40,000 facilities in the United States, there were 75 hits for each one. She was quick to point out that not all of the hits were from people looking to rent storage; nonetheless, every day, there are a little more than 8,000 people poking around on the Internet, looking for information about our business.

Creating Value

Let’s just take a stroll through the math and see how much value is created by using technology to market a facility. Let’s assume a hypothetical project of 50,000 square feet and the average 8 percent increase in rentals cited by the large self-storage operators I mentioned earlier. (See the table below.) The first thing to notice is NOI and value go up by 11.4 percent, even though rents went up only 8 percent. That’s what’s called “operating leverage.” The value goes up a whopping $450,000—not bad! What’s even more impressive is what a mere 8 percent increase in occupancy can do for your equity, which actually increases by more than 46 percent. No wonder the “big guys” are into the Internet.

Sample Project
  Before Internet Marketing After Internet Marketing Net Change Percent Change
Revenue (50,000 @ $10/SF) $500,000 $540,000    
Expenses @ 30% $150,000 $150,000    
NOI $350,000 $390,000 $40,000 11.4%
Value @ 9% cap rate $3,890,000 $4,340,000 $450,000 11.4%
Loan @ 75% $2,918,000 $2,918,000    
Debt Service @ 5.5% $206,000 $206,000    
Cash Flow $144,000 $184,000 $40,000 46.3%
Equity $972,000 $1,422,000 $450,000 46.3%

Nothing to Lose

There’s also a downside involved with Internet marketing. Namely, if you are not marketing via the Internet and your competitor is, he could be getting renters that would otherwise come to your facility. I think it’s safe to assume that if a customer finds what he’s looking for on the Internet, he will not go to other advertising venues. With the technological maturation of younger generations, online purchasing behavior is more common than ever. I know my daughter and her friends wouldn’t think of using the Yellow Pages!

If you aren’t earning more business off the Internet, you might actually be losing it. Having seen the impact an 8 percent increase in rentals can have on value, consider what an 8 percent reduction does for a property. To save you from deciphering another of my charts, I’ll just give you the bottom line: The numbers are roughly the same, but in just the opposite direction, which is not a happy circumstance.

Online marketing services are actually inexpensive. A facility can have its own webpage listing for well under $200 per year. It doesn’t take long to break even, especially compared to the high cost of Yellow Pages advertising. When you compare the risks to the value and cash flow created, the cost is inconsequential.

Useful? Yes. Nirvana? No.

There’s a difference between hosting your own facility website and simply having a page on a niche website (one devoted to a single product or industry, like self-storage). There are advantages to both, but a large self-storage website that contains pages for multiple facilities in addition to general information and educational articles may have a more effective reach to your desired audience.

Can you expect a web page on a niche website to generate an 8 percent increase in business for your facility? Maybe. The site must be actively marketed and properly configured to appear on the first page of search results on most search engines. Even though consumers visit higher-traffic sites of general interest more frequently, this doesn’t mean the information is easy to find. Niche sites allow consumers to find you quickly and easily.

While some self-storage websites offer ways for customers to reserve or rent units online, most people just look up information about a facility and call. You may never know how many renters start with a web search because they don’t tell you they found you on the Internet.

While precision in measuring success is elusive, the anecdotal information indicates the Internet is productive and has a growing influence on revenue. As a self-storage owner, if you don’t use the web for marketing, you could be losing renters to other facilities. Likewise, you are passing up a chance to materially enhance your value and return.

It is imperative to include online methods in your marketing plan. If you look at history, those companies that failed to change with the times are no longer around. I’m not saying you have to toss out all of your current systems and equipment and break the bank, but the numbers show even small changes in occupancy have large effects on your net worth. If someone else gets renters who never even knew your facility existed, you get hit with a double whammy—you lose the customer, and you lose the potential for increased revenue.

Michael L. McCune is the owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. His company also hosts www.selfstorage.com, a marketing medium for owners in the self-storage industry. Broker affiliates of the Argus Self Storage Sales Network can offer a facility six months of free Internet advertising, allowing owners to reach thousands of potential renters monthly. Users can request a basic or premier listing through their Argus broker, securing their own web link and a customized web page. For more information, call 800.55.STORE or visit www.selfstorage.com.

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