In the self-storage industry, we often ask each other, “How is your property doing?” Usually the response is something along the lines of, “Good, OK, had a few rough months, etc.” This brings up an interesting idea: How well do you know your property’s performance? Do you have all of the facts in front of you? Are you looking at the complete picture or just pieces of the puzzle?
Is your manager or third-party management company using the correct tools to ensure the proper management of your facility and giving you all the right information for view? The answer to this question is crucial to your facility’s success.
Management Summary Reports
When you walk into a self-storage facility and ask the property manager, “How’s business?” they will usually pull out a management summary report and rattle off a few numbers. The report is one of the most important tools you can use to review the performance of a property. However, there are some steps you should take to make sure your management summary report is working in the best way possible for you.
The first step is making sure the report gives you the information you need, including money collected; any concessions given to tenants; rental activity; economic, unit and square foot occupancy; potential rent; and rents that are past due.
The second step is to double check how the metrics are calculated. Metrics can be calculated in many ways and can skew the analysis if not calculated properly. For instance, a metric called “actual total rent” on one report could be called “projected rent” on another, and both are calculated as the sum of the monthly rent rate for every renting customer on a given day. The metric names are not necessarily indicative of their calculation. However, one cannot live on a management summary report alone. Without a frame of reference, the report does not tell you enough about how the property is performing compared to its potential.
Think Big Picture
In order to get the full and complete picture of your facility’s performance, look at the following:
Open lines of communication. Nobody knows your self-storage property better than the people managing it every day. Ask the manager to compose his thoughts and observations for you at least monthly. If you employ a third-party management company, ask them for updates on the property manager and any training they are working on; the current occupancy, delinquency, ancillary sales; and capital improvements or maintenance work that needs to be done. Also, get information regarding the marketing efforts and the local market in general. This communication will often give you more information about what’s really going on at the site than the combination of all other reports.
Profit-and-loss statement vs. the budget. Let’s say you are looking at a management report that tells you your property collected $27,200 in revenue last month. That sounds pretty good, until you look at the budget and realize you had budgeted to collect $35,000 in revenue for that month. Wait a second ... now you know you need to look into this. Has the market changed since the budget was prepared? Is there a different manager running the facility now? Did you lose a big tenant with multiple units? Make sure to look at expenses as well. Get the full and complete picture before jumping to conclusions.
Follow the trends. Sometimes looking at a chart really helps identify positive or negative trends. Implementing a change as soon as you see a trend start to turn the wrong way can save thousands in lost revenue. For example, you can see on the management summary report that occupancy at “Site 1” is currently 78 percent. You remember the facility was a little higher in the summer months but suspect it’s just normal season shifts that’s driven it down slightly.
If you look at the accompanying chart for the occupancy at that facility and compare it to the trend for other facilities in the same geographic region, you can quickly see that you have an issue beyond normal season fluxes at Site 1. Something happened in June to dramatically change the trend.
The next step of the investigation would be to look at the trends of move-ins and move-outs to determine what’s driving the drop in occupancy. Looking at trend charts could mean increased revenue.
Potential revenue reports. Sometimes this report is called a unit mix report or occupancy statistics report. Whatever the name may be, this is an important report that lists all existing unit types at a property, tells you how many of them you have, how many are rented and at what rate and the current street rate for that unit type. If your move-ins are slow, you may want to study this report along with the competitive rates to make sure you are priced correctly.
If your existing tenants are paying much more than your street rates, you may be able to increase the street rates marginally. If you have one or two unit types with many vacancies, you can use this report to determine if you should do a conversion, taking down some walls to create larger units. You need to have the right unit mix at the right price to maximize profits.
Demographics report. Most management software systems have a survey tool built into them. This allows you to ask new and potential tenants a few critical questions at move in such as:
- How did you hear about us?
- What is the most important factor to you when deciding where to store your belongings?
- Did you use a printed phone book to look up our telephone number?
- How far away do you live?
The answers to these questions will help you determine if your marketing efforts are working and, subsequently, where to spend your marketing dollars going forward to get the highest return on investment. Study who your customers really are so you aren’t marketing to those who aren’t.
Audits. Make sure your third-party management firm or someone working for you who isn’t at the property every day is auditing your facility at least quarterly. This will help protect you and your asset from any liability that could arise from wrongful sales, ignored maintenance issues, incomplete paperwork and items of that nature. Don’t be afraid to ask the management firm to see a copy of the latest audit completed at your property. Protect yourself and your company.
Keep an eye on everything and be ready to take action should the need arrive. Professional property management firms will study the reports, watch trends and react quickly and proactively for you. Creating an additional $1,000 in net operating income can create $12,000 in asset value for your property.
Knowledge is power and the key to the success of your self-storage facility. If you don’t have the time to look at all this information every month, invest in someone who does. Hiring a management company or a qualified manager will give you access to the data whenever you need it, help you rest easy knowing your asset is in good hands and drive up the value of your self-storage facility.
Alyssa Quill is vice president of Investment Real Estate Management in York, Pa. She has worked in the self-storage industry for eight years in finance and operations roles. Investment Real Estate LLC provides self-storage brokerage, construction and management services to owners and investors in the Mid-Atlantic and Northeastern United States. For more information, call 717.779.0804; visit www.irellc.com.