3 Ways for Small Self-Storage Operators to Compete With REITs and Other Large Players in Their Market

With the self-storage real estate investment trusts (REITs) in acquisition mode, many smaller operators are wondering how theyll possibly compete with these industry giants. Fortunately, single operators have an arsenal of tools at their disposal. Here are three ways independents can compete with the REITs and other competitors in their market.

Matthew Van Horn, Founder

November 7, 2012

7 Min Read
3 Ways for Small Self-Storage Operators to Compete With REITs and Other Large Players in Their Market

Over the last few years, the real estate investment trusts (REITs)CubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self-Storage Inc.have gone on an impressive acquisition streak. With a perfect storm of low interest rates, a solid inventory of properties available for purchase, and the inability of the financial sector to provide acceptable construction loans for self-storage, the market has been ripe for consolidation.

According to an infographic recently released by Sparefoot, an online self-storage marketplace and provider of Web-marketing tools, the top five self-storage companies now control 4,850 facilities. If you compete in a populated metropolitan statistical area (MSA) such as Dallas, Houston, Los Angeles, Orlando or Salt Lake City, it may seem as though all 4,850 of those are in your individual market. I know self-storage owners who have upward from eight REIT-owned facilities located within a three-mile radius of their facility.

Although the numbers may seem overwhelming, are they really? As independent operators, do you look at the REITs differently because you know how large their operations have become? Do your customers really know the difference, or care that one facility is part of a national chain and the other is a locally owned with a single location on Main Street?

Even with 4,850 facilities, the REITs only control about 1 percent of the entire self-storage market. As former Speaker of the House Tip ONeill once said, All politics is local. On the same note, all self-storage is local as well. Here are three ways to compete, not only against REITs, but all of the competitors in your market.

Better Marketing

Just because you dont have a $200,000 marketing budget, doesnt mean you cant create successful marketing campaigns. Money for shiny toys can be nice, but creativity and tracking can be better. There are plenty of different ways to market your facility including:

  • A referrals program. A solid referral program will help the customers who are already in love with your services to spread that love to their friends.

  • A website. Its time to get on the Internet. If my father can learn to use the Web, all of your customers can as well. You can have a solid and effective website without spending your entire marketing budget. The costs will vary, but if you plan to spend $2,000 to $3,000 on the design of your website and $200 to $500 per month on the optimization, you should be fine.

  • Social media. Use social media to your advantage. It costs nothing to create a Facebook, Twitter and Google+ account.

  • Print. Consider newspapers, Yellow Pages and local papers only if youre completely committed to tracking these items. These types of advertising are hit and miss in different markets.

  • Direct mail. According to Borrell Associates Inc., a research and consulting firm that tracks local advertising, spending on political direct mail in 2012 will top $288 million, an increase of 11.6 percent from 2008. If politicians are spending more on direct mail, you should be looking at it as well. The art of politics is getting and keeping a persons attention long enough to get a message to register. Create some direct-mail marketing thats fun and catchy and see what happens.

To compete within your market regardless of who owns competing facilities, you must have a well-planned and solid marketing plan. Notice I didnt write a random and sporadic advertising plan. To be effective, regardless of the medium used, your plan must include two things. The first is the ability to track campaign performance. How many rental inquires and actual rentals did the particular campaign produce?

The second is the ability to calculate the return on investment (ROI) of each campaign. For example, if the campaign provided three rentals at $100 per month, and the average stay at your facility is 10 months, then the assumed revenue generated is $3,000. If the marketing campaign only cost $1,000, then it was successful. This can be calculated in a simple spreadsheet. If you dont have Micosoft Excel, try Googles free spreadsheet application as a replacement.

Consider placing telephone-tracking numbers on all your campaigns to track the inquiries they generate. Phone-tracking numbers are a convenient and cost-effective way to measure your marketing efforts.

If you need help designing your print materials, consider using a service such as 99designs.com. Its actually fairly cost-effective to create solid and good-looking marketing collateral.

Customer Service and Curb Appeal

When the national Self Storage Association asked potential customers to identify the most important criterion for choosing a self-storage facility, the answer was a simple: close to my home or business. Your potential customers want a facility thats geographically close. Typically, your facility will pull customers from a three- to five-mile radius. The more urban the area, the more the radius may shrink; the more rural the area, the more it may expand.

Customers also want great customer service and amenities. Here are some of the simple things they desire:

  • Cleanliness. Sweep out your hallways, keep trash off of the property, wash your doors and windows, keep your office clean and clutter-free, and make sure your units are always kept in a presentable fashion.

  • Friendliness. I cant tell you how many times Ive visited a self-storage facility and thought the office manager was being held against his will. Potential customers will rent where they feel comfortable. I look for a manager whos great with people and has empathy and a great personality. You can train the rest.

  • Services. Consider offering free bottles of water, WiFi or a conference room. If you have someone moving items from a 30-foot truck, order them a pizza. A pizza costs $10, but the goodwill is endless.

Revenue Management

The REITS are phenomenal at revenue management. They know how to increase revenue and NOI on an annual basis and dont apologize for it. Smaller operators typically have issues with rate management. As an owner, you must raise your rates on your existing tenants and monitor the rates of your competitors. Your expenses go up on a regular basis. Whether it's payroll, utilities or property taxes, it just happens.

Most REITS control unit rates from a central office, not at the facility level. As a smaller operator, this allows you the ability to adjust facility rates and specials at a faster pace. Consider using the revenue-management function built into your management software to help you with this process. Regularly conduct competition studies. In addition, most REITs have rates posted online, so use this information to your advantage. This must be a part of your operational strategy.

A number of the independent operations people in the self-storage industry, including myself, have worked for a REIT at one time or another. REITs are corporations and are managed as such. The manager at the facility level of a REIT will never be allowed to be as fast or creative with his location as a smaller operator.

When I review each of my stores, the REITs arent what scare me. I can compete with companies that are actually trying to maximize revenue and NOI. Its the small facility owner who decides to run a six-month half-off special, or another who promotes that he will never raise rates on existing tenants. These are the issues that create downward pressure on smaller facilities. Use the tools and speed thats available to your facility, and you can compete with anyone.

Matthew Van Horn is vice president of Cutting Edge Self-Storage Management, a full-service management company specializing in management, feasibility studies, consulting and joint ventures within the self-storage industry. Hes well-known for finding hidden profit centers in self-storage operations. For a complimentary Hidden Profit Discovery Session and a free whitepaper, e-mail [email protected] . For more information, call 866.970.EDGE; visit www.cuttingedgeselfstorage.com . Follow the company on Twitter at Cuttingedgemgt, and on Facebook at Cutting Edge Self-Storage Management.

About the Author(s)

Matthew Van Horn

Founder, Black Swan Storage Advisors

Matthew Van Horn is the founder of Black Swan Storage Advisors, which specializes in self-storage consulting, feasibility studies, underwriting and investment analysis, site selection, and facility management. To reach him, call 855.720.6030 or email [email protected].

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