Stan the Self-Storage Owner is in a funk. His facility isn’t doing as well as it was just a couple of years ago. In fact, occupancy is down, there have been few rental increases, and he’s cycled through two full-time and one part-time manager in just 18 months. With a large family and several other investments that require his focus, Stan is struggling to find the time he needs to turn his property around. He’s not ready to sell and still believes he has the makings for a successful site—if only he could find someone to give it the attention it needs.
Lately, he’s been hearing a lot about third-party management companies, but Stan has his doubts. He’s worried that paying an outside source to run his business will cut into the little profit he’s making. How much control will this management company have? Will it change the facility’s name, ask for his input about major changes or just take over? What if it already operates a facility in his market? How will it be fair?
Hiring a management company can be an intimidating prospect, especially when you don’t have all the facts. Let’s help Stan clear up some common misconceptions about third-party management services so he can make a clear decision.
Myth 1: It’s a HUGE Expense
Let’s drill down on the biggest concern for most self-storage owners who are considering hiring a management company: How much will it cost? While each provider has its own fee schedule, they typically charge a percentage of a property’s gross income. Some offer a flat monthly fee. This can vary, depending on the needs of a facility when the management company is hired. For example, a property in need of major renovation, new branding or marketing, or updated software or security may have to pay a bit more.
“The fees we charge fund our operations just as rental income funds the operations of a self-storage facility,” says Matthew Van Horn, vice president of operations for Cutting Edge Self-Storage Management, which manages 22 facilities in seven states. “Our fees are a reflection of the costs of doing business in our industry. Our insurance costs, travel costs, supply costs and cost of living have continued to increase, so we must charge a fee that is in accordance.”
Even so, it’s likely not as costly as many owners imagine it to be. Plus, management companies bring a lot to the table in the way of experience, buying power, branding, marketing know-how and much more.
“The management fees paid by a third-party management client are modest in relation to the operational improvements that are normally realized,” says Guy Middlebrooks, vice president of third-party management for CubeSmart, a Wayne, Pa.-based self-storage real estate investment trust (REIT). “A good third-party management company will continually improve results by utilizing revenue-management systems, Internet-marketing strategies, professional call centers, and best-in-class operating practices.”
Essentially, if you’re property isn’t improving, the management company isn’t doing its job. “[They] should be able to show you how the increased revenue will outweigh their fees and expenses including the management fee,” says Noah Springer, senior director of third-party management for Extra Space Storage Inc., a Salt Lake City-based REIT.