Vital Insight for the Self-Storage Owner Who’s Considering Third-Party Management

The thought of giving operational control of your multi-million-dollar self-storage asset to an outside company may make you nervous, but there are advantages to outsourcing. Here’s insight on when and how to partner with a third-party management firm.

Michael Baillargeon, Chief Operating Officer

July 27, 2022

7 Min Read
When self-storage operators should consider third-party management

Hiring a third-party management company to operate their facility or portfolio has become an increasingly popular option among self-storage owners. After all, the right firm can add tremendous value by introducing efficiencies, providing new resources and positively impacting the bottom line. It gives the owner the freedom and flexibility to explore potential expansion or other ventures. On the other hand, the wrong company can lead to headaches, frustrations, and even unnecessary costs and expenses.

Outsourcing self-storage management to a third party is a big decision you want to get right. Here’s an overview of when it makes sense to consider it, how to evaluate potential providers, and best practices to ensure your partnership is productive.

When It Makes Sense

When should you consider putting your self-storage operation in the hands of a third-party management company? That depends on several variables. The most obvious is size. If you’re an independent owner with a modest, 300-unit facility, outsourcing may not make sense for you or the provider. Other factors include your financial goals, level of management expertise and ability to compete.

Can you go head to head with the big brand down the street? Do you have a detailed strategy for meeting your debt covenants? A good third-party manager is fully equipped to do the research, make plans and ensure you hit your numbers. They’ll handle things like marketing and search engine optimization, budgeting and payroll obligations, and other essential tasks with a level of sophistication that’s often impossible for independent owners to match.

In many cases, the expertise and added efficiencies you gain by outsourcing offset the expense. While every contract is unique, a good management firm will structure the deal to minimize impact to the owner while covering costs to operate at roughly 5% of gross revenue.

What happens to existing staff is a legitimate concern for owners and often part of the final decision-making. A third-party management company will evaluate your team members individually to ensure they have the skills, tools and support to effectively perform their roles and succeed

Ultimately, deciding to hire a management firm is a personal decision. It’s all about what’s right for you as a self-storage owner. Facility operation quickly becomes a full-time job. If you’re a developer, investor or entrepreneur who wants to have the time and resources to do anything else but manage your facility, you’ll almost certainly benefit by retaining the services of a reputable provider.

Essentials to Consider

Even knowing all of this, trepidation is understandable. As a self-storage owner, you may have invested years of your life and millions of dollars in your asset. Relinquishing control to an outside party can be difficult. You may even have had poor past experiences that soured you on the whole idea.

The way to avoid that doubt and connect with the right partner is to pursue your options with confidence and clarity. The most common mistake self-storage owners make when looking for a management company is failing to ask the right questions or focus on the right priorities. When it comes to evaluating candidates, focus on four critical areas:

Performance. Any reputable firm should be able to provide you with documentation of its underwriting, a model showing projected performance, and detailed financial reporting with concrete examples of assets it oversees. While the expected rate of return can vary considerably depending on facility size and type, confirm that any projections the company provides track with real-world performance from comparable properties.

Integrity. The best way to gauge the character of a prospective management partner is to look at past performance and ask for references. Proven experience and a history of delivering on promises is the best evidence of reliability. Be leery of any firm that overpromises. Pie-in-the-sky statements and unrealistic guarantees are a warning sign.

Scale. Consider the scale of your company and theirs. Recognize that there may be a trade-off between the size and resources of the management firm and the level of personal service you can expect. For example, ask how many account managers they have and if you’ll be working directly with a district manager. If not, who’ll be your primary point of contact? Details such as who you’ll be communicating with, when and how often can have a tremendous impact on your overall experience, so don’t hesitate to get details.

Innovation. Self-storage technology such as self-serve kiosks, digital facility access and online rental platforms can make a meaningful difference in facility operation and the customer experience. Ask about the resources a prospective management partner will bring to the table and how they’ll use them to fulfill the promises they make to you.

If you don’t get satisfactory answers to your questions in any of the above areas, consider it a red flag.

Common Blind Spots

Here are three important areas that are often overlooked by self-storage owners when considering third-party management services.

Contract length. An honest management company will tell you that making this partnership a profitable endeavor will take a few years. If they’re truly invested in improving your asset, it’ll likely require some upfront and ongoing investment. So, while management contracts can be as short as one year, a five-year term is fairly typical and generally a good idea.

Severance terms. Make sure you’re clear on the process for ending the relationship if necessary. Make sure any early-termination penalties aren’t overly punitive. If they are, that’s a concern. The best management companies are more focused on building a strong relationship than making it difficult for you to exit a bad one.

Counsel and communication. Don’t be afraid to ask questions about strategy, but be concerned if your management company never pushes back. Remember, you’re looking for a partner, not a lackey. The best providers understand what it takes to succeed and won’t hesitate to explain what they’re doing and the logic behind it. Keep in mind, too, that they’re going to do what they believe is best for your self-storage asset, which isn’t necessarily what you would do.

Here are a few additional points to ponder:

  • Firm size: Bigger isn’t always better. The primary fiduciary responsibility of some of the industry’s largest management companies is their shareholders. Your personal priorities may be secondary or tertiary. There can even be a conflict of interest if the provider is managing multiple assets in the same market.

  • Brand value: You may have the option to decide whether your self-storage facility keeps its name or is rebranded under the management company’s operating name. While you can succeed under your own moniker, recognizable brands add meaningful value and typically pull from a deeper well of resources.

  • Points of differentiation: It can very quickly start to feel like every third-party management company is pitching the same thing. Cut through the chatter and focus on key differentiators like track record and resources.

  • Relevant technology: Recognize that technology isn’t just about cool new toys or fancy extras; it needs to be about convenience and service. Things like mobile apps, contactless rental capabilities and a 24/7 live call center can make a dramatic difference to the bottom-line performance of your self-storage asset.

  • Security: Ask about surveillance and security measures and how they impact your costs. Some third-party management firms have invested in their own proprietary equipment and monitoring to avoid expensive fees.

  • Fairness: When considering providers that own their own facilities and manage assets on behalf of other owners, look to ensure there’s no distinction between properties. The best companies take pride in delivering the same level of service and commitment to all facilities in their care.

What It Takes

For the partnership to work effectively, it’s important that you and your and third-party management company establish a high degree of transparency and trust. Ultimately, owners who are willing to let the provider lead will be rewarded. This means being receptive to recommendations that can enhance profitability.

Yes, outsourcing is an investment; but you need to think beyond how long it’ll take for you to break even. For the partnership to flourish, consider what you need to do early in the process to drive sustained growth and long-term profitability.

Michael Baillargeon is senior vice president of operations for Store Space Self Storage, which owns or manages more than 100 facilities in 20 states. The company fuels growth and value through operational experience, its state-of-the-art Storage360 proprietary platform, and strategic digital-marketing programs.

About the Author(s)

Michael Baillargeon

Chief Operating Officer, Hearthfire Holdings

Michael Baillargeon is chief operating officer for Hearthfire Holdings, a private-equity firm specializing in acquiring and operating self-storage. He has more than two decades of industry leadership experience, with wide-ranging responsibilities that have included operational management as well as third-party and asset management. 

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