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Success in Self-Storage Real Estate: It’s Who You Know

Neal Gussis and Aaron Swerdlin Comments
Posted in Articles, Development

Whether it’s self-storage or another commercial asset, a property’s location is a key foundation for success, followed closely by well-managed operations and maintenance. In addition, there’s a famous saying that applies particularly to any real estate-based business: "It’s not what you know, but who you know."

Whether you’re buying or developing a storage property, its location is a variable that typically takes time to establish. On the other hand, your networks and contacts are factors you can manipulate and capitalize on immediately. "Who you know" is especially valuable in today’s market given the capital market volatility that has altered the self-storage real estate playing field.

Time to Tap Into Networks

Self-storage is an industry largely driven by life-changing events that create a demand for our products and services. While the nationwide housing slowdown and credit crunch have created a lower rate of residential sales transactions and thus a slowdown in demand for short-term storage during a typical residential relocation process, they have also produced a surge in home foreclosures and a corresponding up-tick in demand for self-storage. Thousands of consumers are downsizing their living arrangements from more spacious homes to smaller apartments with limited storage capacities.

During uncertain economic times like these, storage owners and operators should utilize their networks to support the changing needs of their customers. For example, this could be an outstanding time to tap into your network of maintenance vendors to strike good deals on curb-appeal facility improvements; build a referral network with area businesses and chambers of commerce; or promote your properties through marketing contacts. By making these connections, you can more effectively grab the attention of potential customers, improve your physical and economic occupancy levels, and better position your facility for a future sale or refinancing as market conditions inevitably improve.

The credit crisis has also affected the ability of self-storage owners to sell and finance properties, so the value of good contacts and networks is especially vital during this period. While some financing sources are simply not doing deals in today’s market, the ones who are providing loans are certainly more conservative in the amount of leverage they are willing to finance in their storage program lending terms and in their financing spreads. With bond markets at a virtual standstill, the conduit lenders who were a great source of financing for the pre-crunch boom times are not a practical solution for almost any financing transaction today.

This is where networking comes into play. Brokers can play a crucial role in reaching out to the lending community, and more important, engage in negotiations on behalf of clients during times like these where there is no longer such a thing as a standard deal. Conduits have been replaced by banks, life insurers, credit companies and private capital as today’s primary capital sources, and finding the right program for a given deal takes a proper network, determination and drive.

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