By Jeff Kinder
Self-storage is a great business—just ask the people who are in it and those who think they want to be. It’s just walls, a door, a ceiling and a floor. What could be easier? But there’s a danger in that attitude that could cost a facility owner a lot of money. Just like the goose that lays golden eggs, our stores need care and feeding.
Those of us who have been in the business a while know the days of “build it and they will come” are over. Self-storage is a retail industry in which there are some very sophisticated operators. Management is no longer just renting space, making deposits and putting out a profit-and-loss report for your lender. Maintenance is no longer just sweeping units and changing light bulbs.
As we watch the real estate investment trusts (REITs) rack up double-digit gains quarter after quarter, we need to understand how their success impacts smaller companies. Their gains in same-store revenue come from state-of-the-art marketing platforms that increase their occupancy at the expense of independent operators’ market share. It also comes from revenue-management practices that help them maximize the value of their existing customer base.
When the REITs make acquisitions, they apply those same principals, increasing the value of each new property. Just as they manage their revenue, they manage their physical plants, so there’s full value in the product they sell.
What should the rest of us be doing to increase the value of our own facilities, putting more cash in our pockets when it comes time to sell? Sometimes, you still have to spend a little money to make a lot more. Here are a few pointers to maintain and even improve your asset value.
Self-storage is a top-line business. Your basic operating expenses are relatively fixed whether your property is empty or full, so concentrate on the revenue. Can you compete with the REITs’ technology? Yes! There are Web designers, search engine optimization consultants, self-storage product aggregators and management-software packages available to all of us. There are also good management companies that provide economies of scale and have already done the research to take your store and drive your revenue in the right direction.
Consider Curb Appeal
To compete, you need a good product. Most of the self-storage properties on the market today are from the last century. It’s time to face the fact that depreciation is not just a tax deduction.
You need to see your facility through fresh eyes. Your curb appeal is a big part of the merchandising that drives your revenue.
Take a look around. Is there anything getting a little “frayed around the edges” at your site? For example, consider the following:
- How’s the asphalt in the driveway and main drive aisles?
- Do those trees the city made you plant when you developed the store 12 years ago block your sign? Did the roots kill your grass? Has the mulch pile around the tree base turned into a trash collector?
- Are there vibrant flowers in the planter area or has that faded barrel that used to be a planter somehow turned into an ashtray?
- Are all the fence poles standing straight? Is the fence getting rusty?
- Are the keypad stands and bollards painted?
- What about your facility signage? Is it still clean and legible? Front and back? Don’t just look at your main sign; think about all the little signs around the property.
- Is there something you can do to upgrade the look, feel and first impression your store gives?
- When’s the last time you were at your store after dark? Do all the exterior lights work? Should you upgrade the lighting design? What about adding spotlights or backlights to some of the landscaping to change the nighttime curb appeal?
You get the idea. There are a lot of little things you’ve looked at so many times that they’ve become invisible to you. It’s a few dollars here and there, but to properly maintain your property, you have to keep it fresh.
Stay on Top of Repairs
They say “a stitch in time saves nine.” When it comes to facility maintenance, you can pay a little now or a lot more later. Handle repairs in a timely fashion. It’ll save you money and time down the road.
For example, consider your parking lot and drive aisles. Regularly filling the cracks will delay if not prevent the breakdown of your asphalt. Ignoring them will allow water to get into the base, and the failure will spread quickly. Some experts say regularly sealing the asphalt is a waste of money. Others say that using a slurry seal with a high coal-tar ratio and aggregate every five to seven years will extend the life of your asphalt indefinitely. Whatever your plan, make sure the asphalt leading up to and around the front office and gate area always look good.
The same goes for all the other normal wear-and-tear items on your maintenance list, such as roll-up doors, hallways, HVAC equipment, elevators, etc. Depending on the age and configuration of your property, you’ll need to spend 30 to 50 cents per square foot on maintenance. Spend it gladly. It’ll have a positive impact on how many people rent with you, how long they stay, and how much they’re willing to pay. When your facility looks good, you can make more money.
Save for a rainy day. Put 3 percent to 4 percent of your facility’s rental revenue into a capital-replacement reserve. Your gate, fence, roofs, asphalt, paint, doors, furnaces, air-conditioning compressors, elevator, water main, sewer pump and who knows what else are getting older every day. Deferred maintenance and pending capital improvements are not just expenses waiting to happen, they are revenue lost.
If you looks for ways to improve and upgrade your major systems before they fail, you’ll able to charge a higher rental rate to new customers and give regular increases to existing ones. This will result in a higher value to you, whether it’s in the form of better cash flow or a higher price when it comes time to sell you property. Take the time to consider the little things you can do to improve your facility. You’ll not only maximize the value of your self-storage asset, you’ll be the one every other operator is attempting to emulate.
Jeff Kinder is president of Advantage Advisors LLC, a self-storage syndication and management company he founded in 1997. Besides operating its own portfolio, Advantage provides direct investment, syndication, management and consulting services to the self-storage industry. For more information, e-mail [email protected]; visit www.advantagestorage.com.