From single-store operators to well-known representatives of real estate investment trusts (REITs), a diverse group of self-storage stakeholders made their way to the Great Lakes Self Storage Owners Summit on June 6 at the Conrad Hotel in downtown Chicago. The Illinois Self Storage Association (ISSA) and platinum sponsor Extra Space Storage Inc. co-organized and -hosted the half-day event, which consisted of four seminars, 12 vendor exhibits and networking at an outdoor cocktail reception with a terrace view of the Magnificent Mile. ISSA Executive Director Mike Lane said the event drew 126 attendees.
Revenue Growth and Development Strategies
The presentations began with a question-and-answer session with Robert Mathias, principal of Chicago-based Harrison Street Real Estate Capital LLC. Mathias specifically mentioned tenant insurance as a big revenue source outside of traditional rent for operations and pointed to the importance of revenue diversification.
He was asked to make development projections about the United States and global markets. Speaking on the United States, he said watching unemployment and overall economic health will be very important for the next one to two years. He also said self-storage's growth capacity depends on the housing market, and the industry is benefitting from the declining rate of homeownership, citing a pre-housing-market crash rate of 70 percent and a current rate of 62 percent.
"More rentals is good for the business," Mathias said. However, the development of multi-family and rental housing is currently being "propped up" by federal government support, and he anticipates that support will eventually wane. Though he doesn't know how low the homeownership figure will dip, he expects it to eventually correct and rebound.
Other regions of the world have much lower homeownership rates, Mathias commented. Though he doesn't see Europe as being the hottest of hot spots ("I don't see specific debt-purchase opportunities there"), he did remark that generally low home ownership rates, with Germany's 40 percent range being the highest, means that European consumers definitely need storage. The biggest concern for development is the Euro Zone crisis, which has threatened currency and financial market stability and makes investment a very risky proposition.
So where does Mathias look to as the best international development area? Brazil. He cites very low levels of personal debt where virtually no one has a mortgage, a thriving and growing retail economy, and small dwellings without basements as a perfect recipe for self-storage.
"No one (in Brazil) is going to bed worrying about paying bills," he shared.
Electronic Marketing and Data Tracking: The Aggressive Techniques of Extra Space
In the second presentation, Noah Springer, the director of strategic partnership for Extra Space Storage Inc., gave a glimpse into some of the REIT's most effective strategies. He said the company is enjoying its current momentum from an aggressive online-marketing and customer-tracking strategy. The company spends $25,000 per day on online marketing, everything from pay-per-click advertising, "cookie" tracking (which reveals about what self-storage customers look at online), and manpower invested in social-media outreach.
Extra Space increased same-store revenue by 5.8 percent and net operating income by 9.3 percent from the end of 2010 to the end of 2011. It also acquired 28 facilities and grew its third-party management network to 185 stores, which Springer attributes to the company's unified aggressive approach to attracting new customers and gaining more market share.
For example, he attributes the company's vast network of customer information to a simple survey at the point of sale. All new tenants take a quick electronic survey on a keypad, similar to a credit-card payment processor. The survey asks questions such as, "Have you ever used storage before?" and "How far away from this facility do you live?" In addition to being a method for data collection, this equipment allows tenants to sign their leases electronically and immediately receive a copy via e-mail.
Last, Springer recommended all operators to run their own call centers or partner with an outside call center. In his opinion, onsite managers shouldn't need to make phone sales or worry about bringing customers to the doorstep. They should take over when the customer actually visits the property. Extra Space has reaped the benefits, he said, of having an efficient call-center process.
Financial State of the Industry
Marc Boorstein, principal for self-storage real estate broker MJ Partners Inc., followed Springer, sharing a summary for first-quarter financial results from the REITs: Cubesmart, Extra Space, Public Storage Inc. and Sovran Self Storage Inc. (which operates as Uncle Bob's Self Storage). Most attendees were engaged in hearing which U.S. markets earned "top revenue status." Cities and regions mentioned included Chicago, Dallas, Denver, Detroit (which drew incredulous reactions from the crowd, but Boorstein added that Detroit has been a top performer for Public Storage for two straight quarters) and all of New England. Phoenix was singled out as a low performer by multiple REITs with shrinking revenue in the first quarter.
Boorstein shared the fourth session with Shawn Hill, principal for Chicago-based The BSC Group. Hill gave a presentation of nationwide and regional cap rates and other investment risk assessments, providing scenarios under which it would be smart to acquire and sell properties.
Aggregators: Good or Bad?
The last session of the event focused on self-storage aggregators and whether they help or harm to the industry. Mario Feghali, co-founder and chief operations officer of SpareFoot, and Nick Bilava, director of sales and marketing for USStorageSearch, took turns answering questions about how their websites work and what they provide to consumers and operations.
In self-storage, four large REITs control only 10 percent of the facilities, making the industry incredibly fragmented, Feghali said. Aggregators are useful for much of the other 90 percent, giving them a chance to compete in search engine optimization. Most self-storage-related searches return results from the REITs on the first page. The aggregator representatives believe their products give others a chance to get on the first page.
The Great Lakes Self Storage Owners Summit had previously taken place in Chicago suburbs or other downstate locations. The downtown location was designed as a destination event, intended to encourage people to travel and perhaps draw from other states. Though next year's location hasn't been announced, this one wowed attendees with tremendous views of the city from the terrace of the cocktail reception.