Talking With Bob Schoff: Observations of a Self-Storage Veteran

Teri L. Lanza Comments
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2. Mainstream media has often argued that the self-storage industry is reaping the benefit of consumers’ misfortune, renting units based on financial downturns and selling tenants’ goods to boot. They don’t generally consider our rising delinquencies and occupancies, or the role we play in assisting residential and commercial customers. What is your take on this?
 
We hate to sell tenants’ goods. I don’t know any operator who can say he makes any money on the process. However, it’s a part of our business. Everyone knows that some of the stuff in self-storage has much more “sentimental” value than true value. I guess the self-storage industry is reaping the “benefit” of consumers’ misfortune, but we look at it as providing a valuable service during personal or business transitions, and we are saving what’s left of their shattered lives so they have something to rebuild from.
 
When someone loses a home or business, self-storage provides a low-cost spot to retain family heirlooms and the tools of a trade so they just don’t have to start from scratch. The fact that self-storage has not seen as big of a decline in occupancies as other real estate sectors is further testimony on the role it plays in assisting customers.
 
3. What do you see happening with the self-storage REITs? Sovran just released a quarterly report in which it said concessions were hurting revenue and net-operating income was down from 2007. Is this a trend among larger operators?
 
REITs need to lead the way in financing and strategic efforts. Most have good FFO (funds from operations), but this won’t be respected by the financial markets until the credit markets start moving again and fear and politics take a lesser role in affecting investor expectations. Self-storage REITs are also getting a bad rap from the market.
 
I think one of the problems is the “RE” part in REIT (real estate). Those two words lump REITs in a category that is recognized as the cause of today’s economic crisis. But as noted above, self-storage is performing relatively well, and not all industry REITs are reporting NOI losses.
 
We are all competing harder for new tenants. The big companies use concessions or some kind of offer as a part of their marketing campaigns. Most operators will match the larger operators’ specials depending on their occupancy. The all too familiar “$1 First Month Rent” and “3 Months Half-Off” are soon to be joined by “Low Price Guarantee” concession programs by certain REITs. You have seen and will see more TV and radio advertising by the REITs and larger operators. They know now is the time to invest in marketing! 
 
4. Where do you see the industry headed in the next five years? Will development continue to waver? Will operators be forced to invest ever more time/money in marketing and customer service? Or will the business remain strong due to the plethora of uses for the product?
 
I think the industry will perform positively over the next five years. Development will continue to waver until construction and take-out financing become available. As demand fills in the current vacant supply, storage rates will begin to rise and new development will begin. So, in three years, we should be in a new development cycle.
 
Meanwhile, operators will have to invest more time/money in marketing and especially customer service to attract and maintain their customer base. There are a plethora of uses for the product, but who knows what threat lurks ahead. Mobile storage was pretty unheard of not too long ago. 
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