Nixing the Myths Surrounding Third-Party Management Services for Self-Storage

Hiring a third-party management company can be an intimidating prospect for a self-storage owner, especially when he has misconceptions about the service. This article clears up some of the most common myths and separates the facts from the fiction.

Stan the Self-Storage Owner is in a funk. His facility isnt doing as well as it was just a couple of years ago. In fact, occupancy is down, there have been few rental increases, and hes cycled through two full-time and one part-time manager in just 18 months. With a large family and several other investments that require his focus, Stan is struggling to find the time he needs to turn his property around. Hes not ready to sell and still believes he has the makings for a successful siteif only he could find someone to give it the attention it needs.

Lately, hes been hearing a lot about third-party management companies, but Stan has his doubts. Hes worried that paying an outside source to run his business will cut into the little profit hes making. How much control will this management company have? Will it change the facilitys name, ask for his input about major changes or just take over? What if it already operates a facility in his market? How will it be fair?

Hiring a management company can be an intimidating prospect, especially when you dont have all the facts. Lets help Stan clear up some common misconceptions about third-party management services so he can make a clear decision.

Myth 1: Its a HUGE Expense

Lets drill down on the biggest concern for most self-storage owners who are considering hiring a management company: How much will it cost? While each provider has its own fee schedule, they typically charge a percentage of a propertys gross income. Some offer a flat monthly fee. This can vary, depending on the needs of a facility when the management company is hired. For example, a property in need of major renovation, new branding or marketing, or updated software or security may have to pay a bit more.

The fees we charge fund our operations just as rental income funds the operations of a self-storage facility, says Matthew Van Horn, vice president of operations for Cutting Edge Self-Storage Management, which manages 22 facilities in seven states. Our fees are a reflection of the costs of doing business in our industry. Our insurance costs, travel costs, supply costs and cost of living have continued to increase, so we must charge a fee that is in accordance.

Even so, its likely not as costly as many owners imagine it to be. Plus, management companies bring a lot to the table in the way of experience, buying power, branding, marketing know-how and much more.

The management fees paid by a third-party management client are modest in relation to the operational improvements that are normally realized, says Guy Middlebrooks, vice president of third-party management for CubeSmart, a Wayne, Pa.-based self-storage real estate investment trust (REIT). A good third-party management company will continually improve results by utilizing revenue-management systems, Internet-marketing strategies, professional call centers, and best-in-class operating practices.

Essentially, if youre property isnt improving, the management company isnt doing its job. [They] should be able to show you how the increased revenue will outweigh their fees and expenses including the management fee, says Noah Springer, senior director of third-party management for Extra Space Storage Inc., a Salt Lake City-based REIT.

Heres another bonus to hiring a management team: more free time, which is exactly what owners like Stan need. In addition to the direct financial benefit that third-party management companies offer, they free up their clients time, which is very valuable in its own right, Middlebrooks says.

Myth 2: They Dont Have Skin in the Game

One of the biggest myths about hiring an outside company to oversee daily operations of a self-storage facility is it wont treat your store as its own. In other words, the third-party provider doesnt have any skin in the game, so it wont work as hard at attaining success as, say, the facility owner, whose livelihood depends on it.

This is a concern that comes up in almost all initial sales communications with potential clients looking at third-party management, says Dale Payne, client relations/sales manager for Uncle Bobs Management, the third-party management arm of Sovran Self Storage Inc., a REIT headquartered in Buffalo, N.Y.

The opposite is true if you go with a company that has the staffing, buying power and expertise to oversee many properties at once. Typically, these management companies will standardize their services.

The larger third-party management companies treat their owned and managed stores the same, operating them in concert as one single portfolio, Middlebrooks says. For example, a single operator managed by a third-party company will receive the same website placement, search engine optimization and marketing, sales-center treatment, and training support. There really is no difference. Managed stores actually have the added oversight of a dedicated third-party management team, Middlebrooks adds.

Essentially, the best management companies operate stores blindly to ownership, says Springer. But dont take a companys word for it. Ask referrals how this has worked for them and if they feel that their properties receive the same level of service as the management companys owned stores, Springer advises. I would question a company that differentiates between the two so as to provide gain for their owned stores at the expense of those managed.

Moreover, the proof is in the doing. A good management company will have a plan for your facility, including a budget, maintenance schedule, sales goals, staffing or training agenda, marketing strategies, and everything else tied to the successful operation of a storage facility. And they must be willing to share this information with ownership.

A good management company should provide the owner a detailed budget every year and reports to show how theyre performing compared to that budget on a regular basis, says Mel Holsinger, owner of Tucson, Ariz.-based Professional Self Storage Management, which oversees 44 properties in Arizona, California, Colorado and Texas. Each line item should be thoroughly explained so that there are no misunderstandings about how they will spend your money.

This also ensures a level playing field between your site and those owned by the management company. Make your management company accountable to the results promised early on, Payne advises.

Myth 3: Ill Lose My Branding or Employees

Self-storage operators work hard to establish themselves as part of their community, and its more than just the facility name. They join the local chamber of commerce, support kids sports teams and host community events. Changing the facilitys name or even color scheme may be unfathomable for some operators. But not all management companies require an owner to adapt this way.

We realize your facility is very much like your baby. As an owner, you have put a lot into it. You have invested not only millions of dollars, but a lot of blood, sweat and tears as well, says Stacie Maxwell, vice president of marketing for Universal Storage Group, a Smyrna, Ga.-based third-party management company that oversees 50 properties in 13 states. We recognize that you are placing a lot of trust and faith in us by allowing us to manage and operate your multi-million-dollar investment, and we always vow to handle it as if it were our own. Bottom line, the brand name under which you choose to operate is your decision, and yours alone.

Other owners may see a name change as a way to generate awareness through an established brand. Owners take pride in the name they worked so hard to establish in self-storage. They feel by changing to the management companys brand they are starting all over in creating a link between their store and customers in the market, Payne says. One way to overcome this is by using a national-branded management company that already has a presence in your market.

Some owners also worry signing on with a management company is a pink slip for their current employees. This isnt always the case, but a possibility, particularly if staff is a key component to the facilitys current negative state. However, many companies will try to work with the existing staff by offering professional training and mentoring.

Whether a manager is terminated or kept on, it is imperative the owner let the third-party management company handle that decision, Payne says. Management companies can take the emotion out of personnel decisions that many owners have a difficult time handling or, in many cases, ignore.

Myth 4: Im No Longer in Control

Heres another fear many owners have: zero decision-making power. In reality, the majority of third-party management companies prefer to act as your partner, not take over your facility completely. Yes, there will be some changes, but self-storage owners arent completely powerless.

Most third-party management companies allow their clients to interact directly with those making day-to-day decisions, Middlebrooks says. This includes communication with everyone from the marketing manager to the property manager.

In fact, regular communication is a key to symbiotic relationship and future facility success. Don't be afraid to ask a lot of questions, Van Horn says. Often times, most issues can be cleared up through a phone call or meeting. Also, take advantage of our knowledge and contacts. If you need something for your facility, such as new financing, real estate or legal advice, your management company will know someone who can help you.

Myth 5: Managing a Facility Is Easy

Anyone who thinks overseeing the security, marketing, maintenance, collections, sales and legal aspects of a self-storage facility has never stood behind the counter. The fact is, managing a facility is hard work!

Like our friend Stan, many owners have other jobs, family commitments, interests or investments, leaving little time to focus on the daily operation of a self-storage property. Those who assume they can hire an inexperienced family member or even an experienced manager to oversee their million-dollar asset shouldnt be surprised when the property doesnt perform well.

Just as you would not act as your own surgeon or attorney, you are probably equally unqualified to take on the task of managing full-time a self-storage facility worth millions of dollars in todays very complicated and competitive self-storage environment, says Kenneth E. Nitzberg, chairman and CEO of Emeryville, Calif.-based Devon Self Storage, which owns or manages 32 facilities across the country.

Just keeping up with the legal aspects of lien sales is a job. The legal landscape is constantly changing as various state legislatures pass new laws, state agencies implement new regulations, new court cases are decided that could impact the facility, and new and various taxes are imposed, says Nitzberg, noting that someone needs to not only review these changes but implement them as well.

Myth 6: All Management Companies Are the Same

While it may seem on the surface that all management companies are alike, that couldnt be further from the truth. Some are nationwide, others concentrate their services by region. Some offer the full gamut of servicesfrom hiring managers to overseeing marketingwhile others allow owners to pick and choose the services they need.

Some companies create a machine that manages many storage facilities in a cookie-cutter fashion, based on years of experience and a lot of data. Other companies are very involved on a daily basis, focus on training, drive local marketing and customize strategies for each location, says Alyssa Quill, vice president and managing partner of Storage Asset Management Inc., a York, Pa.-based company that oversees more than 25 properties along the East Coast. Third-party management companies in self-storage also vary in the way they work with owners of the facilities they manage.

If youre considering hiring a third-party management company, do your homework. Ask for referrals, make sure you understand all their fees and the services they provide. Then let your new partner prove its worth.

There are a number of great management companies in our industry. Once you make a choice, trust your management company to make any necessary changes to your facility's day to-day operations, Van Horn says. Our goal is to manage all of the important metrics of your facility and sometimes that means we have to change something. Sometimes we need to make these changes, and we need your support.

One thing Stan the Storage Owner knows for surehis current course is getting him nowhere. Now that he has some facts, he can evaluate his short- and long-term goals to determine if hiring an outside management company is the right move for him.

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