Dispelling Competition Myths: REITs Discuss the Advantages They Bring to the Self-Storage Market

In a recent series of interviews, Inside Self-Storage asked industry real estate investment trusts (REITs) to comment on the advantages they bring to independent self-storage operators. This article includes comments from CubeSmart, Extra Space Storage and Public Storage executives. They address issues of competition, corporate reputation, community relations and more.

In a recent series of interviews, Inside Self-Storage asked the industry real estate investment trusts REITs to comment on the advantages they bring to independent self-storage operators. Below are responses from David Doll, senior vice president and president, real estate group, Public Storage Inc.; Clint Halverson, vice president, corporate communication and investor relations, Extra Space Storage Inc.; and Chris Marr, president, chief operating officer and chief investment officer, CubeSmart. They address issues of competition, corporate reputation, community relations and more.

Most independent operators view the REITs as competition. Do you feel there are advantages you provide to independents, even when they arent contractually connected to you? If so, what are they?

Doll: Yes. We have a view of the national landscape, and as such often see trend (good and bad) developing in regions or states that help or hurt the industry. As an example, the REITs and other public companies have been working side by side with the national Self Storage Association to advance legislative changes that are beneficial to all owners and operators.

Halverson: Research shows that most customers cannot tell you the name of the company that they store with. They can tell you where the property is located and what color the door on their unit is. Marketing by the larger operators for product awareness is definitely a benefit to all operators. With the larger operators being public and having disclosure requirements, smaller operators can benefit from the transparency to get ideas on how to improve their operations.

Marr: Absolutely. One clear advantage of operating in the same market as a REIT is that we spend a lot of money to raise customer awareness about the availability and advantages of self-storage. This helps lift the tide for all boats.

Additionally, large operators can help bring pricing discipline to a market. A small operator is less likely to face a devastating price war when ownership of facilities within a given market is consolidated with a couple of large operators.

Can an independent operator effectively compete with your company in individual markets? Are they more successful in certain types of markets over others?

Halverson: It is definitely more difficult for a smaller, independent operator to compete with us. This goes back primarily to the technology platform that we can deliver. Self-storage used to be a game of Yellow Pages and drive-up, in which anyone could compete. Today, Yellow Pages are less than 2 percent of our business. The Internet has become the great divider in this industry, and only large operators can compete in that space. Again, we have a team of 42 people who work exclusively on Internet strategy, buying keywords and delivering ads in very targeted geographic markets. A small, independent operator simply cant compete.

Marr: It really depends on the market and, more important, the specific locations of the independent operators facilities and the depth of their portfolio footprint. A location on the corner of Main and Main will continue to benefit from significant drive-by traffic despite the growing importance of the Internet in attracting customers. A location one block off the main drag will find it increasingly difficult to compete as customers are no longer able to find the facility through conventional marketing channels such as the Yellow Pages.

Facilities without prime locations can still do well, but it takes a sophisticated online presence and a concentrated portfolio of assets that affords economies of scale in marketing expenditure. Some independent operators have the scale and sophistication necessary to compete toe to toe with the REITs in their respective markets, but most do not.

Do you feel your company is often viewed as the bad guy simply because it is a big player in the business? If so, how does your company respond to this perception?

Doll: How we are viewed should not be based on size. All we can do is provide each customer with great service, many choices and a positive storage experience. If we do all of those things, our perception will be positive.

Halverson: Competition is healthy. It is the key component of any free-market system. Obviously, the larger you get, the more people you will compete with. We welcome healthy competition and would hope that other operators also see it as a driver to become the best at what we do.

Marr: I dont think we are viewed as the bad guy, but we are undoubtedly viewed as the big guy by some small operators with whom we compete. We compete fairly, but we are unabashed about our intent to compete effectively and take market share. This is the essence of healthy business competition.

Our message to smaller operators who may be struggling to compete is that this industry is still profitable enough for many operators. But as the economics become less and less attractive for the smaller players, we think there are very attractive opportunities for them to view us as a partner, either through disposition or third-party management.

How does your team interact with residents and other self-storage operators in new markets you enter?

Doll: We have generally expanded into markets where we already have an existing presence. Again our goal is to provide the best product, the best price and the best service, and if we do those things well, the consumers will interact very positively.

Marr: We become an engaged member of the community. We start by providing a valuable service to local residents. Importantly, with CubeSmarts enhanced service model, we are offering a level of service that exceeds the customers expectations for self-storage, so we spend a great deal of time educating customers about the many ways in which we are raising the bar for them.

Also, when we enter a community, we want the community to be proud of the asset we are operating, so we meticulously maintain the condition and appearance of our facilities. With other operators, we often exchange customer and market insights and operational updates through an open dialogue. We view our peers as competitors rather than enemies, and we approach these relationships as such.

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