Real Estate Roundup: Technology and Your Facility’s Value

Michael L. McCune Comments
Posted in Articles, Technology
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After more than 30 years in real estate, I am still surprised by advancements in technology that help us do business, and the Internet is no exception. We all know the importance of having a web presence for business purposes, but a principle concern is always foremost in my mind: What is a property worth and why?

Computers and the Internet allow us to make all kinds of calculations and comparisons to arrive at values. The technology also lets us analyze the information to really understand how the values are derived. More important, I’ve learned computer technology can create and destroy the value of a self-storage facility. This happens while many sit on the sidelines, unaware of trends and what is becoming a significant change in marketing strategy within the industry. Here’s what I found doing research.

Nielsen/NetRatings, a global leader in Internet media and market research, reports 207 million Internet users in the United States. In 2005, Americans spent approximately 18 percent of their Internet time engaged in commerce-related activity—up from 15 percent in 2004.

By comparison, users spent 4 percent of their online time conducting searches. This indicates people are more familiar with the Internet and will often bypass a search engine if they know exactly what they need. Therefore, having a recognizable, intuitive or well-advertised web address will help capture more users who avoid using search engines.

Creating Value

A few recent events have changed my mind about the importance of online marketing. When I was at last year’s ISS Expo in Las Vegas I heard two of the largest self-storage operators say they were getting 8 percent to 10 percent of their customers from the Internet. Not surprisingly, I was impressed by this number and wanted to see how an 8 percent increase would impact a facility’s bottom line.

Let’s just take a stroll through the math and see how much value is created when a project adds Internet marketing to its strategy. I have taken a hypothetical project of 50,000 square feet with an 8 percent average in rental increases from the Internet.

The first thing to notice is the net operating income (NOI) and value go up by 11.4 percent, even though rents increase only 8 percent. This is known as operating leverage. The value goes up a whopping $450,000—not bad! Even more impressive, a mere 8 percent increase in occupancy can increase equity by more than 46 percent. No wonder the “big guys” are into the Internet.

Now let’s see what an 8 percent reduction in revenues does for a property. After all, the Internet doesn’t create renters, it just directs them. Using the same model facility and math equation, the numbers are roughly the same amount and percentage, but in the opposite direction—a potentially devastating circumstance.

Risk and Reward

As with all marketing ventures, there’s some risk involved in adopting a new technology-driven marketing strategy. Clearly, the downside is if you are not marketing via the Internet, you are likely losing business to someone who does.

It’s safe to assume if customers find what they are looking for on the Internet, they will not research other advertising media. Certainly, with the maturation of the Internet generation, such purchasing behavior is increasingly common. The potential rewards of increased revenue and competitive advantage outweigh the risks.

Online-marketing services are actually quite affordable. A facility can have its own webpage listing on a national site for less than $200 per year, which boils down to two months rent on a 10-by-20 unit in most locales. It doesn’t take long to break even, especially compared to the high cost of Yellow Pages and other print advertising. When the risks are compared to the value created, along with cash flow from gaining or losing customers, the cost is really inconsequential.

Can you expect a webpage on a niche site (one that is devoted to one product or industry) to generate an 8 percent increase in business for your facility? The question is difficult to answer. The site must be actively marketed and properly configured to make sure it is on the first page of search results on most search engines. Also, the site should have a draw beyond just your facility.

A niche site can have a more effective reach depending on its targeted audience. Consumers tend to visit high-traffic, general-interest sites more often, but this doesn’t mean they’ll easily find what they’re looking for. If the information is buried too deeply, consumers become frustrated and go elsewhere. Niche sites allow consumers to quickly and easily find you.

In the End

It’s plain and simple: Self-storage owners who don’t use the Internet for marketing risk losing renters to other facilities. Likewise, they’re passing up a chance to materially enhance value and returns.

In today’s fast-paced, high-tech world, you must include online venues in your marketing plan. If you look at history, you’ll clearly see companies that didn’t change with the times are no longer around. This doesn’t mean you have to toss out all of your current systems and equipment and break the bank, but even small changes in occupancy can have substantial effects on your net worth. 

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 1994, he created the Argus Self Storage Real Estate Network, now the nation’s largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55.STORE; visit www.selfstorage.com

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