By Kevin Bledsoe
Self-storage owners often wonder what they can do to improve and preserve the value of their facilities. Whether you’ve owned a property for 20 years or one day, there are countless ways to achieve this goal. Some strategies include streamlined operation, site maintenance and capital improvements, and value-add products. When discussing operation and how it plays into a facility’s value, it’s important to focus on site audits, rate management, vacant-unit pricing, collections, staff training and marketing.
Each of these is part of the heart and soul of a successful self-storage business. Once you implement best practices in each area, you’ll be able to maintain and even maximize the value of your assets.
How a site audit is conducted will largely depend on who handles a property’s day-to-day management. Owners who manage their own sites should consider hiring an industry consultant to audit the facility annually. Those who hire property managers should develop a site-audit program to verify the facility is being maintained at a high standard. Those using a third-party management company should ask to see quarterly audit results.
A comprehensive site audit should an inspection of:
- Units rented
- Facility-maintenance standards
- Vacant units
- Financial data
- Facility cleanliness
- Marketing messages
- Curb appeal
- Past-due accounts
- Sales processes
More often than not, the audit process is skipped, which results in poor operational processes and lost facility value due to a lack of attention to detail. Don’t let this happen to your business. Make site auditing a priority.
The cost of doing business continues to rise each year, and if you aren’t increasing your rates, you’ll see lower profit year over year. Implement a program that increases each tenant’s rate within the first nine months of renting a unit and continues to increase the rate annually thereafter. The cost of doing business increases 3 percent each year, so shoot to increase rates for all tenants 5 percent to 8 percent annually.
Every month, it’s important to analyze the occupancy level of each unit size, the rate being charged, and the pricing and specials offered by your competition. Property owners often set prices when they open and revisit this model once a year to make adjustments. In the meantime, the competition has increased prices five times, resulting in lost profit for your facility. The effect over time is a tremendous amount of lost value that’s difficult to recapture.
Here are a few good pricing strategies:
- Adjust rates monthly.
- Make rate changes, plus or minus, based on occupancy levels in each size.
- Identify your busy season when pricing units.
- Consider geographic factors in your pricing strategies.
A good example of a geographic consideration is if your facility is near a college. Increase prices in the spring because students will provide you with guaranteed rentals from May through August.
Many times, facility owners and their staff are far too lenient on customers who’ve become past-due. Thankfully, each state has self-storage lien laws in place to handle delinquent accounts. It’s important you use these laws to your benefit.
Most states allow a unit to be sold at auction within 90 days of the tenant becoming past-due, which provides you with a way to remove the delinquent tenant and rent the space to an income-improving one. Maintaining receivables of more than 30 days at or below 5 percent of actual occupied rent rates is generally considered a healthy barometer for a facility.
A good policy is the “one and done” late-fee strategy. Allow your managers to waive one late fee per customer during the lifetime of the rental. This will teach them not to waive fees and limit the amount of money being given away. The ability to effectively collect rent goes a long way toward preserving a facility’s value.
A well-trained and dedicated property manager is well worth his weight in gold. He’s the face of the business and often determines its success or failure. Spend time and money training your staff and helping them develop into great representatives of you and your facility.
Upon completion of the training program, it’s always a good idea to set benchmarks to measure its effectiveness. Identify measureable goals that allow you to understand whether your investment is paying off. The time and money you invest into your management team will help maintain occupancy levels and preserve the bottom line.
A good website-development company that understands search engine optimization and offers all of the latest techniques to drive business to your front door is the key to successful marketing today. Additionally, implementing a local and consistent marketing strategy for your facility will help capture many networking leads that would otherwise be missed or lost to your competition.
Offer customer-referral programs to your current tenant base that incentivizes them to send business your way. Last but not least, focus on signage and curb appeal to help drive-by traffic notice your facility. All of these marketing strategies combined will make your facility successful and optimize new rental leads each month.
Site Maintenance and Capital Improvements
Identifying annual capital improvements and reviewing monthly maintenance needs is one of the most important areas on which to focus. At some point, you’ll want to sell your facility, and pride of ownership is a key aspect of preserving the value the property can earn at the closing table. Allocating funds each year to pay for the projects that’ll keep the facility in mint condition is absolutely necessary.
Take time each month to review ongoing maintenance needs and verify you have appropriate service contracts in place for items such as elevators, gates, and heating and cooling devices. Often, a little attention paid to monthly maintenance will reduce larger capital improvement down the road. Ultimately, both types of requirements should be at the top of the list to help preserve the value of a facility in the long term.
Implement value-add programs such as truck-rental services and tenant insurance. Owners sometimes fail to understand that something as simple as a $9 or $10 monthly sale can result in huge revenue and gains in facility value.
For example a $9 per month tenant-insurance policy would pay a commission of $4.50 for each tenant that signs up. A facility with 400 storage units at 85 percent occupancy would have 340 renters. Assume that 70 percent, or 238, of those renters would buy the insurance, resulting in $12,852 annual revenue. At an 8 percent capitalization rate, this revenue provides an additional $160,650 worth of property value.
Insurance and truck rentals are just a couple of the many value-add products being offered in the industry today. Others include moving and packing products, pack and ship services, wine storage, records storage and management, and cooperative unit-rental options. All of these services generate new revenue and boost business value.
Finding ways to improve and preserve the value of your self-storage facility will require time and effort. At the end of the day, however, it’s worth the energy. Find time to attend industry tradeshows, and spend money to educate not just yourself but also your staff on best operating practices. Set measureable goals that can be used to identify the effectiveness of the training that’s being completed. Hire industry consultants and allow them to audit your facility as well as provide one-on-one training for you and your organization.
The ability to maintain and grow the value of your self-storage business is completely in your hands. The decisions you make today about how to operate your facility will affect the value you receive at the closing table in the future.
Kevin Bledsoe is a brokerage advisor with Investment Real Estate LLC, a York, Pa., firm that offers self-storage facility brokerage, full-service design-build and construction management, and feasibility studies. He’s responsible for property sales, due diligence, financial analysis and feasibility studies for properties throughout the northeast and midAtlantic states. Bledsoe has been in the self-storage industry for 11 years and has managed more than 100 storage properties for large and mid-sized operators. He was formerly director of operations for Storage Asset Management Inc., a third-party management company. To reach him call 717.779.0804; visit www.irellc.com.