Hiring the Right Management Firm for You

One result of industry maturation is that many owners have turned to property-management firms that specialize in self-storage for the expertise needed to maximize the return on their investments.

Management companies can provide a competitive edge for self-storage operators. They have the expertise and experience necessary to contend with the large, well-financed regional and national companies. In addition, management companies can relieve an owner of the demands of day-to-day operations and provide certain economies of scale that a small operator would not be able to achieve.

What About You?

Typically three different types of self-storage owners seek the expertise of a self-storage management company. Perhaps one of these fits your profile:

1. Individual owners. Often, a self-storage store is owned by an individual who has other business interests and has gotten into the industry for investment purposes. The person generally has many other time demands and may lack the expertise (and interest) to operate a facility effectively.

By turning over operations to a professional management company, these individual owners get the best of all worlds. They still own the property and collect a monthly check without handling day-to-day operations. They have employed an expert management firm that has the tools and experience to help increase occupancy, decrease operating expenses or oversee capital improvements and repairs. This leaves owners time to pursue other ventures, knowing their properties are being professionally managed.

2. Investment/private equity groups. These groups are formed for the sole purpose of buying portfolios of self-storage properties, and they usually have no interest in managing properties themselves.

It is not unusual for these groups to use pension, insurance or securitized funds for the sake of securing a stable rate of return and future appreciation. Often the source of funds wont allow the groups to self-manage the properties. Having an experienced management company with a proven track record is often a requirement to close the deal.

These investment groups are under intense scrutiny from their funding sources to reach projected goals. A management company must be able to meet demanding reporting requirements, keep high standards for maintenance and appearance of the stores and, in general, have a very high level of sophistication.

3. Financial institutions. With the economic challenges of the past few years, banks, pension funds, insurance companies and numerous other funding sources have found themselves taking back properties after owners have defaulted on loans. Obviously, these "owners" are not in the business of managing real estate. Their goal is to quickly remove the loan from their books and recoup as much of their investment as possible.

Rarely does a store go back to lenders with 90 percent occupancy. In order to achieve a sale at a reasonable price, they must improve operations over the previous owners and increase revenues and occupancy.

Financial institutions use a professional self-storage management company to run the property and increase occupancy, while decreasing expenses and delinquencies in an effort to get the property ready for sale.

Helpful Hints

Hiring a company to run your property is a big step. Most management companies will require complete control over every aspect of daily operations. Below are some specific questions that should be asked before entrusting your valued asset to such a company:

  • How long has the company been in business and what is its experience in operating self-storage stores?

  • What is the companys track record? Does it have the proven ability to meet your goals, whether they are to increase occupancy, decrease expenses, or whatever?

  • Will the company provide references?

  • Is the company licensed to perform property-management services in the state where your store is located? Virtually all states require that companies managing property for a fee must have licensing, generally the same type and level as a real estate sales professional.

  • If your ultimate goal is to sell the store, does the company have experience in self-storage sales or will you have to hire another company when the time comes?

  • Will the company provide you with a written proposal that details what changes will be made and how your property will be marketed?

  • Will the company prepare an annual marketing plan and budget?

  • What fee will you be charged and how is it calculated? While most management companies charge 6 percent of a projects gross revenues, many increase or decrease this depending on the size of the store. Are there any other fees for setup or maintenance?

  • What is the company philosophy? Is it just a bookkeeping service that will maintain the status quo, or will it manage your investment with a goal of maximizing returns?

  • How does the company maintain control over each store? How often do representatives visit each property? What are audit procedures? How are cash inlays and outlays monitored? Does the company have contingency plans in case of an emergency? Does it have relief managers who can substitute in case a manger quits or goes on vacation?

  • If the company doesnt plan to keep your current managers, how are applicants screened? What type and level of training is offered for new employees and what kind of continuing education is provided for seasoned staff? Are the managers employed by you or the management company? How are managers compensated? Who is responsible for benefits? What happens to the employee if the management contract is terminated?

  • Are the management companys operations computerized? Does it require onsite computers as a condition of management? If your store is not computerized, will the company handle the computerization?

  • How does the company pursue delinquent tenants and what are its auction procedures?

  • When maintenance is required, who does it and who will authorize it?

  • Is the company affiliated with any national organization or state self-storage associations? Do its employees attend continuing-education seminars or conferences that allow them to meet other real estate professionals and exchange ideas?

  • What kind of reporting can you expect? What types of situations will involve you?

  • Finally, why should you hire this company instead of another management company?

Taking the Plunge

Once youve taken the plunge and hired a management company, there is a great deal you should expect for the monthly fee. It is important, however, to realize that you must give the management company time to implement plans. A complete turnaround wont occur overnight. Heres a list of what your management company should provide to you:

  • Turnkey operations. As the owner, your responsibility should be limited to ensuring that the management company performs to your expectations. Day-to-day operations are left to the management company.

  • Expertly trained resident managers. You want "self storage specialists" (not caretakers) whove been trained to determine your customers storage needs and to satisfy them.

  • Employee/vendor selection. Hiring, firing and supervising everyone from your resident managers to your maintenance personnel and outside contractors should not fall to you. Also, competitive bidding should be utilized to keep expenses down.

  • Operating guidelines. The management company should provide an operations manual that details procedures to have your store run at its peak efficiency.

  • Tough collections policies. This should be addressed separately and in considerable detail from the operations guidelines. It is easy to have a store that is 90 percent occupied but has only 70 percent financial occupancy. The difference is often the quality of collections.

  • Specialized marketing programs. Each store has its own attributes and a unique market. Marketing materials and programs must emphasize store features to effectively target specific demographics. What works on one side of town may not work on the other.

  • Constant supervision. Frequent store visits and audits are a must to maintain a professional appearance as well as to assure a smooth, honest operation.

  • Repair/remodeling recommendation and supervision . The management company should offer suggestions for capital improvements, along with ensuring that regular maintenance is done properly and timely.

  • Annual budget preparation. You should receive a reasonable budget that serves as a guideline for financial expectations and as a monthly check of operational efficiency.

  • Monthly status reports. These are accurate reports that compare cash inlays and outlays, occupancy rates and delinquencies, and gauge how well marketing programs are working.

No management company can be expected to perform real magic and totally compensate for a poorly designed store in a bad location or saturated market. It should, however, provide you with services that justify its fees, doing everything possible to increase occupancy and decrease delinquencies. A truly professional management company should have the experience to perform the best trick in the book: increasing profitability and turning your store into a more valuable asset. Thats better than a rabbit out of a hat anytime! 

Maurice Pogoda is president and Tom Berlin is vice-president of operations for Pogoda Management Co., based in Farmington Hills, Mich., with regional offices in Grand Rapids, Mich., and Dayton, Ohio. Pogoda is Michigans largest self-storage operator and one of the 25 largest in the United States, with approximately 3 million square feet of self-storage space under management in Michigan and Ohio in 38 stores. Founded in 1987, the firm provides brokerage, management, investment and consulting services to the self-storage industry. For more information, call 800.326.3199; or visit www.pogodaco.com

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