Industry Interview

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In 2003, Marcus & Millichap, one of largest commercial real estate brokers in the United States, formed the National Self-Storage Group aimed at becoming a renowned leader in full-service, self-storage brokerage. To provide insights into the genesis and future of the organization, ISS spoke with Steven M. Ekovich, national director of Marcus & Millicap’s National Self-Storage Group.

Why was Marcus & Millichap’s National Self-Storage Group started?

Launched in 2003, the the group was created to enhance and better serve the agents who specialize in the self-storage industry. We provide tradeshow support, upgraded research services, technology, self-storage specific education, a branding platform, and standards and policies to grow the division.

Our agents were essentially brokering self-storage investments as a result of client demand rather than a proactive business model. However, with the formation of the National Self- Storage Group, the firm has recognized self-storage brokerage as both a business model and an area in which the company can logically support clients with a much higher level of professionalism and service.

How has the NSSG evolved?

It’s grown from about three agents slugging it out in their own geographic markets to a nationally recognized self-storage force comprised of 30 agents who spend 100 percent of their time in the industry. Additionally, we’ve identified 170 agents in our firm who’ve listed, sold or have active buyers for self-storage investments on a special self-storage internal e-mail list. For clients this means we have by far the largest group of brokers in the United States who are involved in self-storage.

To demonstrate how that benefits our sellers, we just closed Rodeo Store ’N More in Kissimmee, Fla. for $5.35 million for a 2.83 percent cap rate. The property included some additional land to build more units. This was significant because the buyer was a crossover from the mobile-home park industry, and he agreed to pay more than any self-storage owner. That’s the power of having 30 dedicated agents as well as another 170 agents who are vested in the property sector but work other product types.

We’ve increased our training efforts, created standards of excellence within the group and developed a web-based platform for exchanging market research and case studies. Clients benefit from our specialized marketing proposals and tools, such as financial modeling for self-storage, customized executive summaries, brochures and marketing packages.

Today, NSSG is recognized as one of the industry leaders in self-storage sales, finance and research, as evidenced by the closing of several institutional and big-name transactions for clients like Storage USA, Guardian and Store America.

What unique experiences gave you a foundation for being the director of the NSSG, a position you’ve held since 2006?

In terms of my brokerage experience, I’ve been hiring and training brokers since 1985. I’ve been in the commercial real estate industry for more than 20 years and involved in countless transactions involving all property types. I’ve had the opportunity to draw on that diverse background of experiences to help support our agents.

I also have a proven track record of developing self-storage agents within Marcus & Millichap: I hired the No. 2 and No. 3 self-storage agents in the country, Michael Mele of Tampa and Burt Gay, based in Atlanta. I trained and coached them, and I continue to work with and support them.

Also, I own two self-storage properties in Florida, one of which is climate controlled; they have a total of 700 units. The experience of owning and operating two very different types of facilities has better equipped me for this position. I was presented with the challenge of adding value to one of those properties, which was only 50 percent occupied at the time of acquisition. To lease up the property, I developed indepth marketing and branding campaigns. As a hands-on owner, I really understand the issues owners encounter—such as the valuations process and pitfalls of buying a property not properly underwritten.

What major deals has your group closed in recent years?

By year-end 2006, we project NSSG sales volume will be up 160 percent, a figure based on dollar volume through June 2006. In 2005, we closed approximately 56 transactions, and we anticipate closing more than 90 this year. Our market share for 2005 was 50.5 percent of the self-storage market in the United States, according to CoStar Inc. Through June, 50 percent of our transactions were acquired by out-of-state buyers. Finally, at mid-year, we have nearly $500 million in listings and closings.

Recent notable closings include the Store America portfolio of 15 properties for almost $76 million. We sold a nine-property portfolio in Southern California for Storage USA for approximately $53 million. In the West, we closed a confidential transaction at a 6.14 percent cap rate totaling more than $30 million, and we closed a mini-storage portfolio for $15 million in Michigan.

Describe the current state of the self-storage property investment market.

The current climate is very healthy. In recent months, I’ve received calls from AIG and other institutional investors out of the self-storage market for years who now want to partner with developers to build some. Self-storage is no longer just a place to land bank a piece of real estate by throwing up some cheap units, or a way to develop an irregular lot.

Investors have realized over the past few years it’s a tremendous cash-flow vehicle, providing a steady revenue stream. As baby boomers move toward downsizing their possessions and living quarters, they must have a place to store important keepsakes. As a consequence, self-storage is a growing industry.

Recently we discovered that people expect to stay only a couple of months in self-storage. Yet in reality, the average occupancy is 12 months, which is comparable to the average stay of an apartment tenant. Today, self-storage is competing for prime retail sites.

Furthermore, these high-quality facilities can encompass from two- to three-stories. Many of the newly constructed assets feature beautiful facades and state-of-the-art surveillance technology. Since 1997, more than 20,000 new facilities have been added to the inventory across the United States for a total of 41,000 self-storage sites. The word is out in investment circles that self-storage is a good performer. Cap rates and yields tend to be about 50 to 150 basis points above apartment or retail yields, and are much better cash-flow vehicles.

What factors have contributed to your self-storage group’s success?

The NSSG just acquired some new research materials to help support the group, in demographic analysis, financial models and submarket market specific research. We’re now negotiating with the largest appraiser in the industry to acquire this knowledge and expertise to assist us in an even greater level of detail when underwriting properties in self-storage. We’ve developed a standard set of confidentially agreements and redesigned our tradeshow booths with self-storage graphics and a 48-inch monitor with scrolling pictures. For major shows, such as the Inside Self Storage Expo in Las Vegas in February, we’re going increase the booth’s size, allowing agents more space to conduct their business meetings.

Our company is the only entity in the United States providing specific self-storage brokerage training; and we have the only platform to cross-sell buyers from one product type to another. Approximately 35 percent to 40 percent of the self-storage assets we sold last year were to investors who owned other product types, such as apartments, hotels and retail.

Our technology and national platform allow our agents to receive real-time notification when a new listing comes into Marcus & Millichap’s database. Agents receive a signal to their cell phones when the listing comes into the system matching a client’s criteria. The agent can present the listing to clients before the competition even knows a property is available. The buyers we represent truly appreciate the competitive advantage.

In addition, we’ve created a board of directors, comprised of senior members, two mid-level agents and two one-year agents. The board guides the group’s collective wants, needs and objectives from the ground up.

Tradeshows have been important in building our brand on a national level and helping us spend more face time with clients. Approximately 50 percent of our clients are based outside the state where the listing originated. As a consequence, we don’t get to spend time with some of them.

The conferences are also great tools for learning about operational trends, which helps our agents improve their understanding of an owner’s trials and tribulations. They can better advise them on when to sell, refinance, when to hold a property and when to buy.

Any future speculations?

The NSSG will be the No. 1 provider of brokerage, advisory, research, consulting and financial services throughout the self-storage industry. The first thing someone does when they have a problem with the IRS is call their accountant.

The first thing they do when they have a lawsuit is call their attorney. I foresee a time in the self-storage industry when they call their M&M agent because of their specific submarket knowledge and because of a client-specific asset. We aspire to be the leader in full-service, self-storage brokerage.

In the next two to three years, we hope to have 100 agents with sales of $2 billion to $5 billion. We’ll continue to add support, research and services to allow our agents to provide clients with a better level of service than they receive today. 

For more information, Mr. Ekovich may be contacted at sekovich@marcusmillichap.com.

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