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Teri Lanza

Teri Lanza
Editorial Director
tlanza@vpico.com

Self-Storage REITs Flex Muscles, But Mom-and-Pops Are Up for a Fight

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Tony Jones***A guest installment by Tony Jones, Self-Storage Talk Community Manager

The process of digging out of a recession can be messy for any company, but for very small businesses (VSBs), it’s fraught with as many future uncertainties as present-day hurdles. Operational decisions made by business owners are personal and can be harrowing. The pressure and stress of steering a company that feels and acts like a family can be enormous.

VSBs make up the vast majority of businesses in America, and in the self-storage industry, these independent, mom-and-pop operations continue to drive the markets they serve. Independent self-storage operators built the industry and established most of the best practices and techniques deployed by young start-ups today. They are the industry’s legacy.

But given the slow growth of new, independent facilities coupled with heavy consolidation driven by the self-storage real estate investment trusts (REITs), it’s not unusual for small operators to be wary about their future or for potential new owners to wonder about the viability of entering the industry at all.

A potential investor recently started a thread on Self-Storage Talk (SST) asking the industry’s largest online community if mom-and-pop facilities were in danger of going away. The ensuing discussion has been a good one, with operator and vendor members both sharing their insight.

Terry Campbell, vice president of sales and marketing for building manufacturer BETCO Inc., indicated that toward the end of 2012, there was a notable increase in the number of new facilities and expansions by mom-and-pop storage operators. “If you do your homework and do it the right way, in the right location, with the right management, you can still be successful as a smaller operator,” he wrote.

“I agree storage can be a great investment,” commented SST member SMSSId. “Regardless of which way you decide on going, your rent-up is still only the difference between move-ins and move-outs. And the facility that has the higher quality facility and amenities will receive the higher benefits both in tenants and income.”

But for struggling operators or those looking ahead at an uncertain future or faraway exit strategy, it’s understandable that many would consider selling to a REIT, while the REITs are demonstrating keen interest.

“As a [mom-and-pop] owner, I have come to the conclusion that everything has a price tag,” wrote Joe Krezdorn (dakselfstorage) of DAK Self Storage in Leesport, Pa. “If the price is right, I will sell.”

As more than one SST member has mentioned, REITs are gobbling up smaller facilities in large part because it is less expensive than building new ones, and they now have a large pool of willing sellers who did not necessarily exist a few years ago. Large self-storage operators also have scalable infrastructures that enable them to leverage their operational strengths across multiple sites in different regions. For many small operators, the shake-up from the recession is a natural industry progression. For others it’s disheartening.

I’ve worked for small businesses with as few as five full-time employees as well as a couple of large corporations, including one that once boasted 36,000 employees worldwide. Both extremes had positives and negatives, but the one thing that always strikes me about VSBs is the energy and vitality that is often lost in companies bulging from economies of scale.

This is an enviable advantage in many industries and markets. The nimbleness of VSBs enables them to change courses very quickly, if necessary, and often leads to innovation. These are important drivers that will likely sustain many small self-storage businesses in the future.

The issue is complex and likely to be a focus of discussion throughout the coming year. In recent weeks, Inside Self-Storage has looked at various aspects of the changing industry landscape, including sharing insights from the REITs themselves to help operators gain insight into what decisions may be the right course of action for their businesses. These have included an article on what it’s like to pursue acquisition by a REIT, a story on what to expect from REIT third-party management and another in which REIT executives take their turns dispelling some of the competition myths prevalent in the industry. As always, there’s a plethora of content designed to maintain the vitality of independent operators, particularly on our Management and Marketing topics pages.

This year, ISS is also proud to introduce its 2013 Guidebook Series, featuring five instructional publications on self-storage ownership, management, building/investing, marketing and technology. All five may be purchased individually, but the package offers a 25 percent savings. The series covers the gamut of issues facing today’s operator, from the first steps of planning and development to enhancing the day-to-day operation and profitability of your business.

Daunting market fluctuations can be a great motivator for operators, and it’s easy to feel the feisty passion of independent owners and their managers in their posts on SST. That independent streak is important for propelling the industry forward and keeping it diverse. Owners who are deliberate and determined to make smart and strategic decisions are those best equipped to make confident choices with lasting success.

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