Inside Self-Storage 2/98

Sydney James Chiswell, known better as Jim, is president of Chiswell & Associates Ltd., a Williamsville, N.Y.-based consulting firm that specializes in business development, sales and marketing, employee training, strategic planning and association management. A graduate of State University of New York at Buffalo with a degree in political science, Mr. Chiswell became active in the National Association of Home Builders in 1982, directing the headquarters' staff of 25 people and a national field staff of eight specialists. In addition, he was responsible for national membership operations and management of special-interest councils in the fields of sales and marketing, remodeling, commercial construction and multifamily development and management.

In 1984, Mr. Chiswell entered the self-storage industry by way of the Sovran Group Inc., also based in Williamsville, N.Y. As a Sovran vice president, he was responsible for management of the company's real-estate portfolio, consisting of 36 self-storage facilities with 1.9 million square feet of rentable space. He also managed a team of individual property managers and regional district managers, encompassing a nine-state area. Six years after joining Sovran, he left the company and established Chiswell & Associates.

A past regional president and board member of the Self Storage Association, Mr. Chiswell makes his home in Williamsville, N.Y., with his wife, Jackie, with whom he has raised two daughters, Alyssa and Christie. He has been a frequent contributor to Inside Self-Storage and has conducted numerous seminars at the Inside Self-Storage expos and trade fairs. Through the years, he has advised and inspired many self-storage developers, operators and managers--through his consulting services, speaking engagements and published articles--garnering a reputation as one of the most respected and revered members of the self-storage community.

We are honored to present an interview with Jim Chiswell...

Can you give us a brief synopsis of how you were first introduced to the industry and what the status of self-storage was at that time?

My first introduction to the industry was at the National Association of Home Builders in Washington, D.C. At that time, I was a staff vice president of NAHB and worked with the Commercial Builders Council--a special-interest council within the national organization. Some of the men on the council, like Jim Knuppe of California, were telling others on the committee that they were building facilities and renting empty units to people to store their belongings. They were very successful with these projects. I also remember some of the people thinking that they were nuts.

My in-depth involvement came when I joined the Sovran group in 1984. I joined the firm doing apartment acquisition due diligence. Bob Attea, now chairman of the board of the Sovran Self Storage REIT (real estate investment trust), had an interest looking for new investments for the company to key in on. He was really the one who got me focused on self-storage. At that same time, Buzz Victor (a former Buffaloian) was conducting his seminar program--similar to what he is doing today. I went to Las Vegas for one of the seminars, which was a great way to immerse yourself in the industry. The sessions helped to fill in some of my knowledge gaps and allowed me to get to know more about the industry from experts. I respect all that Buzz has accomplished in the industry and the influence he has had in shaping the early direction of self-storage.

Anyway, the industry in the 1980s was starting to take hold, more in the South and the West than in the Northeast. For the time that I was at Sovran, which was until about 1990, the industry experienced a considerable amount of growth, and people could virtually just throw together a building and tenants would fill it up. So the industry was basically in its infancy.

How would you say that things have changed over the years?

If you look at the last 10 or 15 years, the amount of money that has moved into this niche real-estate market has changed things a great deal. Investors now understand that self-storage is not a fad or a method to just "land bank" property. It started out with private limited partnerships and then public partnerships, and finally, a big role is played by REITs, such as Storage USA, Storage Trust and Sovran. I anticipate a couple of new REIT entries to come to market in 1998. Certainly the amount of money and attention self-storage has received from Wall Street is changing the industry. We are going through a consolidation phase as a maturing business. I expect that to continue for some time. The major players still control a minority share of the industry, but they clearly control many individual market areas.

As a whole, the industry has definitely matured a great deal. Probably the majority of owners have computerized their operations, and there's a great deal more attention being paid to facility design and the flow of traffic and people. We are also spending more money to provide increased levels of security for the property and our customers. And who would have thought that people would be carpeting the interior hallways of their projects and entire newly constructed projects are being built with 100 percent climate controlled units.

We also have a lot more commercial people who have recognized what self-storage can mean. One of the things I've said for years is that self-storage has never been given the credit it deserves for helping entrepreneurship in America. There are hundreds of thousands of small businesses in America, where people are working out of their homes. Their businesses exist because they have a place for the UPS and Roadway trucks to deliver their inventory--a place for them to warehouse their products and samples. Self-storage offers them a place that is close to home and convenient, but it's still a short-term arrangement. Therefore, if their business turns around or they can grow it, they can move out of the storage unit without any problem. We've never gotten the credit for the positive impact of making available short-term, affordable storage space to small-business owners, who otherwise would find themselves with problems with their neighbors because of the truck deliveries and stuck having to rent a much larger space on long-term lease.

Also, our residential customers have learned to use self-storage to help make lifestyle decisions. We are not used only when someone moves anymore. I see that also helping to continue growing the industry. It is creating an entire strata of occupancy that is never going to leave. If you look at the average residential customer, he rents for about six to eight months. On the commercial side, the average stay at many facilities is running 20 to 24 months. You still have a lot of ins and outs, but I think people are beginning to recognize that self-storage allows them to take more control of their lives--putting lawnmowers in storage for the winter and taking out the skidoos for the winter, for example, or women who live in small Manhattan efficiency apartments storing their change-of-season wardrobes in a self-storage unit.

I attribute some of the growing awareness about self-storage to college and military families. After graduation or moving into civilian life, it is a natural thing to continue to use self-storage when it has served you well for several years. Just the shear number of projects with all those doors serving as "silent signs" have also helped increase our visibility to the American public. Although I have not seen any scientific data, my guess is that the majority of Americans has still never used self-storage. So there is still a level of potential demand that has not yet been tapped.

We seem to be sailing through the '90s. Do you think that the industry has learned from the glut of the late '80s and early '90s?

Some people have, but many have not. The people who have learned have been in the business for a number of years. The people who haven't been in the business for long don't understand that this business goes through cycles and that you can overbuild an area. From what I can see, we're going to continue drawing new people to the industry. I've seen an awful lot of construction in the last couple of years. So, I do think we are going to see overbuilding in some markets.

The difference between this time and last time is that there are a lot more people standing on the sidelines--vultures, call them what you want--who are prepared to walk in if things go wrong. If by chance a bank has to take back self-storage facilities because of a group's inability to make mortgage payments, they won't have them for very long. Between the REITs and strong regional companies out there, they will step up to the plate quickly to buy any project at below-retail market prices.

Another factor to consider is the older facilities that haven't been maintained, that are in "B" and "C" locations; these facilities are going to pay a price.

Do you think the small-time operators (who run maybe one or two facilities at the most) have a fighting chance against the major players in the industry?

There is no question that the individual entrepreneur will always have an opportunity to make a success in this business. You can look at all the chain restaurants-the Applebees, the Olive Gardens, the Chilis--you might think that they monopolize the restaurant industry, but there's always room for the good quality restaurant run locally by a business person who is attentive to his customer and the community. I've said it before, and I always get in trouble for saying this: A committed local owner can always out-manage a national company. Because they're there, they bring more personality into the business and pay more attention to detail, the facility is generally kept in better condition. The other thing, too, that gives them a fighting chance, is that they know their local market better. Unfortunately, I've also seen owners who worked hard to get the project and leased-up to 80 percent to 85 percent occupancy then have started to neglect things because they are getting a great return and just assume everything will continue to sail along. Before they know it, problems have developed and occupancy is dropping. Many times it didn't have to happen if they had continued to stay involved in the facility.

How do small-time operators stay afloat?

They stay afloat by paying attention to detail. They continue to run a successful business by looking at it and considering how it can be improved, how it can be better maintained or how management can be improved. How can I stretch my managers so that they are better at their jobs and treat my customers better? Am I staying on top of what's going on in the marketplace in terms of possible new competition, new subdivisions or new development where I could generate new rentals? It's my attention to detail that assures me that I'm the cheapest facility in the market. I talk to people that haven't moved their rents in three years and I look at them and ask, "Why?" It just doesn't make sense.

Another thing that will help them stay afloat against the bigger operators is to keep the project looking sharp. For example, the curb appeal of the project can make a real difference. Keep putting out the seasonal annual flowers. Make sure the signs and paint outside and inside the office are always detailed. In many cases, I see the local operator creating a better end-product than what the national companies are doing by in large.

Do you think the industry will continue to grow at the same rate it has in the last couple of years?

I think there are markets that will continue to experience even stronger growth than they've been. I look at the Northeast and see an area that continues to be woefully underserved by self-storage. A part of that is because of zoning. I was down in Texas and met an owner who was able to put up a 4-by-8-foot billboard as a sign for his facility. I couldn't put up a 4-by-8-foot billboard for a facility in suburban Buffalo, where I live, if the land was owned by the mayor and the city council was all involved in the project. So, in some cases, the zoning is a lot more restrictive, and it takes a lot more creativity to successfully convert a building to self-storage than to build on a five-acre piece of land at the intersection of two great roads offering tremendous visibility.

What are the dangers ahead?

Some of the dangers are to believe our own press clippings...that this industry is on a tear and that it will continue to grow uniformly across the markets. That is not the case. Another area of danger is deferred maintenance. You do need to spend money to make money. I also see danger signs where owners are not involving their managers and other employees in the entire business. They're not involved in preparing the annual budgets or in designing the Yellow Pages. Those are all classic symptoms to me that you've got problems ahead.

What are the repercussions?

You run the risk of increased theft and the loss of tenants. Another problem is crime. Crime continues to be a problem for this industry, and requires that we take the time to know what's happening at our facilities. A lot of owners and managers think that the whole issue of "care, custody and control" means that we can't ask people, "What's in that canvas-covered truck?" But that's just not true. I have every right to ask you what you're storing in that unit in my building. Our occupancy agreement precludes things from being stored. But if you don't ask, how will you know? Unlike our President Bill Clinton's idea of "don't ask, don't tell," it doesn't work for self-storage. I've talked to managers that think it isn't right to watch while somebody is moving stuff into a unit, but if they're stacking the unit with propane gas tanks, don't you think the manager/operator has the right to say, "Wait a second. You can't do that. You're violating your occupancy agreement."

Managers should be visible on the site. The more visible a manager is outside the office, the less likely something criminal is going to happen. There are a few people who have criminal intent that will try to take advantage of this industry. I think it's up to all of us in this industry to work very diligently to maintain the excellent reputation that we enjoy all across the country, so we don't run into problems in the future.

How can we combat the crime problem?

Again, it's diligence in how you screen the tenants. Perhaps something as simple as how the facility is lit at night. What details are you considering? Do you have cameras up or are they just fakes? Well, we have people relying on the fact that they think they have video surveillance--and that's why they selected the facility to begin with. Where we lose attention to detail is when this industry gets into trouble.

One of the traps that we've fallen into is that we think computers run a self-storage facility. They don't; people run self-storage facilities. Computers are just a tool to help us do the job easier. They don't run a project; they just free the manager up so that they can run the facility more easily. On that note, I don't care how small your facility is, you should have a computer, because it is a great tool. But, it is just a tool.

What are the highlights of the future?

I think the future holds a growing level of professionalism for this industry. I think education is the key to that, and I think it's going to be one of the highlights over the next five to 10 years. I think you'll be able to walk into most facilities 10 years from now, and that manager is really going to do a quality job, making you understand the features of the facility. They're going to do a quality job on the phone in getting you to come the facility. Because, to me, self-storage isn't sold over the phone, it's sold when that person comes in the door.

If you could change one thing for the future, what would it be?

I'd put a cap and gown on everybody. Even though I've said it's one of the highlights of the future, it's the greatest need in this industry...to educate our people and make them better sales people. I also think that we're going to see a growing trend to the development of individual state associations within the industry. More and more people are realizing that there are very few national issues that the industry will face, but there are a ton of local and statewide issues. I look at the efforts within the Texas, New York, Louisiana and Atlanta associations, and see some very exciting things going on. This industry, like every other industry, is just starting to understand that by banding together you can lick your problems. If we take the "I don't need anybody else attitude," then we get divided and conquered. Maybe it will be a while before some areas--like North Dakota and South Dakota--that have their own associations, but certainly there is a reason for people to get together in major metropolitan areas. I think it is the responsibility of the leaders within each state to make it their business to create these associations so that if a problem does come up they have a structure that can be used to work through it. If I could create a state association in every state in the union, I'd do it. The entire industry would benefit.

What's your best advice for newcomers to the industry?

Talk to people. Read everything you can get your hands on. Educate yourself. Get to seminars, get to meetings. You need to know enough about the industry before you even think about picking out a site. You also have to spend a little money at the front end to get somebody knowledgeable to help advise you; it is the best money you'll spend...even if that person tells you the truth that you shouldn't build on a specific site. The other advice for newcomers is: Don't be misled by the outward appearance of this industry. There's more to it than meets the eye. And there's more to it every year because of competition and legislation. You can't do enough homework before getting into the business. Finally, join your state association and join the national association--the Self Storage Association.

From whom have you learned the most?

I've learned what unconditional love is from my wife, Jackie, and the simple joy of a smile and a kiss on the cheek from our daughters, Christie and Alyssa. I learned how to work hard from my dad, and I know about devotion to family from my mom. In terms of this business, I've already mentioned Buzz Victor. I've learned a lot from Bob Attea of Sovran. He taught me the discipline of real-estate acquisition. Joe Niemcyk and Mel Holsinger have taught me a great deal as I've watched them grow their business. I consider Executive Self Storage one of the finest managed companies in this business.

I've learned a lot over the years through my friendship with Hardy Good. I've seen him re-engineer his company and fine tune operations to meet the needs of the industry. One of the people that stands near the top of the list is Doug Sarini of Manhattan Mini Storage/Edison Parking. He was the chairman of board of the New York State Association while I served as the organization's president. Doug has a vision of where this industry could go and a strong commitment to the NYSSSA. He gave unselfishly as an organizational leader, and that has always meant a lot to me. I've also learned a great deal from Ken Piken. Ken was general counsel for the association and someone that I could always count on.