The self-storage real estate investment trusts (REITs) do more than just operate their own businesses. Some of them also offer business solutions to smaller operators including third-party management services and industry exit opportunities. Here are some things to consider if you’re planning to hire a REIT to manage your facility or you’d like to sell your property to one of these publicly traded companies.
The decision to turn over the day-to-day operation of your storage facility to a management company should come only after intense research, consideration of your long-term goals and an understanding of what you hope to gain from the relationship. Then the real work begins. You must decide which firm will best meet your needs and desires.
With many great companies in the industry from which to choose, the task may seem overwhelming. An owner must determine if a smaller company is the right choice or if he’d like to capitalize on the brand name and economies of scale that come with larger teams. Three of the four publicly traded REITs—CubeSmart, Extra Space Storage and Sovran Self Storage (Uncle Bob’s)—offer management services, which can bring an independent operator new growth opportunities, an expanded Internet presence and greater revenue.
Management by a REIT comes with a number of benefits, in large part because of the firm’s sheer size. A bigger company translates to better economies of scale on many fronts including marketing, manager hiring and training, and other operational tasks. “These benefits translate into higher occupancy, revenue and net operating income,” says Guy Middlebrooks, vice president of third-party management for CubeSmart.
REIT management companies are also backed by a big name. “The property instantly becomes part of a nationally branded storage provider with a solid reputation. The owner may then take advantage of the breadth of the REIT’s marketing, revenue-management and technology capabilities at a fraction of the cost of attempting it alone,” says Dale Payne, client relations and sales manager for Uncle Bob’s Management. “Further, the audit controls that apply to a REIT also apply to the stores it manages. This provides an owner the peace of mind that his facility is being watched with a high level of scrutiny.”
When real estate investment firm NitNeil Partners began its search for a management company to oversee its new facility in Chattanooga, Tenn., its executives sought a partner with a national presence under a single brand name. “The REITs had the technology, marketing and management infrastructure necessary to keep our properties competitive in their respective submarkets,” says Neil Sapra, principal.
Ultimately, NitNeil turned to Uncle Bob’s to operate the property. Giving up control of the day-to-day operation freed NitNeil to focus its time and resources on developing new properties, Sapra says.
Similarly, Johnson Development Associates Inc. turned to CubeSmart to oversee its American Storage Rental Spaces brand. “By using a REIT to manage our facilities, we are able to leverage their platform and experience to manage our stores in a very competitive manner,” says David Berry, asset manager. “The access to the REIT’s marketing and revenue-management professionals provide our facilities and employees with the tools necessary to compete with all other facilities in the market place and region.”
Another bonus to hiring a REIT management company is obtaining a “second set of eyes” on the property, Berry says, to ensure it stays in superb shape and capital improvements are well-funded and not overlooked.
Finding the Right Partnership
Even with all the potential benefits, hiring a REIT to manage your multi-million-dollar asset should be based on more than a brand name and potential cost savings. Naturally, you should seek a company that has a proven track record of success and has shown steady growth year over year; but there’s much more to it.
“Occupancy is only one component of the equation,” says Noah Springer, vice president of strategic partnerships for Extra Space. “Operators need to look at the sophistication of the third-party management company’s operation—strength of online presence, ability to drive rates to achieve optimal occupancy, field personnel availability, skills, training and corporate support.”