There are many ways to measure the operational health of a self-storage facility. Following are some categories owners should regularly review. This list isn’t meant to be an all-inclusive evaluation, but a guide. Depending on what’s uncovered, there could be cause for additional assessment, which might include hiring an experienced self-storage consultant or accountant.
The key to any successful storage operation is the proper hiring and training of managers. Ideally, your employees will have general public experience, from sales to property management. Each should be a customer-service extraordinaire with a positive aura and professional in appearance. After all, they’re the face of your multi-million-dollar asset!
Storage managers must be confident self-starters who can function with minimal supervision and work under pressure, with multiple tasks going at one time. If a manager is timid or comes with an unhappy or negative attitude, it’s time for a new one. The right employee will be excited for the opportunity to prove his worth and work toward monthly goals without complaint. He’s a part of the solution, not the problem.
Set the standard with seminar training at annual or state self-storage conferences. Make your managers buy in on bonuses based on revenue production, not longevity. This will get you more bang for the buck. It’s also a way to measure manager performance and your return. Non-productive managers should be terminated.
This is one of the most important categories, and yet it’s often overlooked. Yes, you might have high occupancy, but it may be due to high delinquency. Bad collections can sink your site quickly, especially when timid managers don’t make collection calls or enforce late or lien fees. They make excuses as to why the computer didn’t print the late notices or why they couldn’t keep track of the necessary days to enforce the statutes.
To remedy this and avoid excuses, set up your software to print automatic lien letters. Make a cheat sheet or checklist so you can check it against the managers’ work for compliance.
Employee training is the key to staying on track. Make staff accountable after watching you or another trained manager review the paperwork and conduct two or three auctions. Make sure they know to never, ever sell a unit that has violated any part of the lien law, or you and your insurance company will be sorry.
Ideally, total dollar delinquency beyond 30 days should be in the range of 2 percent to 3 percent. At 4 percent, you should be evaluating the collection efforts, if there isn’t a timing issue. Beyond 5 percent, there should be an auction in the works to reduce this bad debt. Stale delinquency over 7 percent without an auction is a red flag and a manager issue, unless there’s a severe city economic issue in the submarket. Guidance, additional training and a performance evaluation is needed if this is repeated.
Don’t hold delinquent units more than 30 to 45 days after your state’s minimal sales date, barring any unforeseen circumstances. Sell them in accordance with your state guidelines. This type of enforcement will signal to your tenants that you mean business when collecting rent.
The most important item on your checklist is economic occupancy, which is the amount of the dollars measured by gross potential income divided by actual occupied income or effective income. It’s then compared to the square-footage occupancy of the site. This financial gauge is affected by high delinquencies, vacancies, specials or low rates.
Ideally, the spread between your square-footage and economic occupancy shouldn’t be more than 2 percent to 3 percent. You might see higher percentages if money isn’t collected, managers give away discounted rent, you fail to raise rents, you have high vacancy, or money collected doesn’t make it to the bank. I’ve come across owners who boast 90 percent occupancy but actually have an economic occupancy of 60 percent to various factors. When the spread gets as high as 30 percent, it’s definitely time to fix holes in the pipeline.
Lease and Insurance Audit
Review all your leases and insurance paperwork as well as any addendums for missing forms, signatures and addresses. These omissions are often unnoticed or ignored until it’s time for an auction.
The weekly walk-through to compare your actual unit inventory to the computer inventory should be done after a weekend or holiday. This exercise will give the manager an idea of unit movement and inventory, and the ability to catch errors and evaluate rents. Once a year, all required paperwork should be matched against rented units, as missing leases may indicate sloppiness.
Expense control is just as important as revenue generation. Payroll and taxes are major categories for evaluation. Can the site operate with one full-time and one part-time manager vs. two full-time managers plus a relief manager? Are you in control of overtime, or is the manager allowed to work unchecked and submit payroll without prior approval?
Real estate taxes can also drastically affect operational performance. If your taxes have increased, have you given any thought to a real estate tax appeal? Is your city/county tax assessor evaluating taxes on sales or income of your site? If you don’t know, it’s time to find out, as the savings can be significant.
Discounts and a failure to raise rental rates can and will drastically affect your economic occupancy. Market rates and specials should always be on the radar, and it’s your manager’s job to keep up with the local submarket pricing. If the market is charging higher rates, your site will be missing out if no one is paying attention.
Today’s software allows for pushing rates up or down with little effort from the manager. It can send automatic rent increases based on parameters set by the owner. There are still operators who like to handle increases the old way by evaluating each tenant, but this is a waste of time and effort when it can be done automatically. That said, there are times when you might need a special to fill slow-moving units or those with high vacancy. This is when discounts can be used to get tenants in the door, but make sure you program all specials with an auto-ending date.
If your store doesn’t have a professional website, you’re leaving money on the table. Hire a website developer immediately. Prospective tenants are trolling the Internet whether they live next door, across town or around the world. The younger generation doesn’t use Yellow Pages. They shop for their every need on the Internet, often from a smartphone.
Many operators use various social media apps and lead-generators to drive tenants to their website. Embrace change and build a website today or upgrade the current one to add all the bells and whistles. Your website is the first important impression a prospective tenant gets of your business, so invest the money to do it correctly.
The above categories are just a few gauges of facility functioning. They can be used to set owner and manager goals as well as for strategic planning. As always, the manager is the key ingredient here. A happy employee is a happy performer who strives to improve your business’ financial and operational performance.
Andrew Kelly is principal of Sierra Self Storage Consulting LLC, which was founded in 2004 to help new and existing facility operators enhance their return on investment. The company offers facility brokerage, consulting for new development and due diligence, facility audits, owner and staff training, and property management. For more information, call 520.323.6169; visit www.sierraselfstorageconsulting.com.