Hiring a Third-Party Management Company for Self-Storage

Third-party management companies can relieve self-storage owners of the demands of day-to-day operation and provide certain economies of scale that can boost a facilitys occupancy.

April 25, 2009

7 Min Read
Hiring a Third-Party Management Company for Self-Storage

Third-party management companies provide self-storage owners with a tremendous resource. Not only do they have the expertise and experience necessary to be competitive with the large, well-financed regional and national companies, they can provide certain economies of scale that might not be possible otherwise.

By hiring a professional management company, an owner gets the best of all worlds. He still owns the property—and gets a monthly check—without having to handle day-to-day operation. He has an expert with the tools and experience to help increase occupancy, decrease operating expenses, and oversee capital improvements and repairs. This leaves the owner with time to pursue other interests while knowing his property is being well-managed.

The Benefits

The decision to use a third-party management company is a big one. Most companies will require complete control over every aspect of day-to-day operation. Their contracts generally provide significant latitude in running the business, including making financial, personnel and policy decisions.

The management company is hired for its experience and expertise. Day-to-day operational burdens are removed from the owner's plate, but so is day-to-day control. If letting someone else run your business makes you uncomfortable, a management company is probably not for you. However, if you're open to letting a professional help you achieve your property’s maximum success, consider using one.

Finding the Right Company

There are many third-party management companies in self-storage today. They run the gamut from great to awful. Doing your due diligence before signing up with a particular firm is important to your ongoing peace of mind. When evaluating potential companies, consider how they answer the following questions:

How long has the company been in business and what is its experience in operating self-storage ? What is its track record? Does it have the proven ability to meet your goals, whether to increase occupancy, decrease expenses, etc.?

Is the company licensed to perform property-management services in your state? All states require that property-management companies have some type of licensing, generally the same type and level as a real estate sales professional.

What fees will you be charged and how are they calculated? While most management companies charge 6 percent of a project’s gross revenue, many increase or decrease this percentage based on faciilty size. Are there any other fees such as setup or additional maintenance?

How does the company maintain control over each site? How often do its representatives visit each property? What are the company’s audit procedures? Does it have contingency plans in case of an emergency? Does it have relief managers who can substitute in case a manager quits or goes on vacation?

If the company does not plan to keep your current managers, how are applicants screened? What type and level of training is offered for new employees? What kind of continuing education is provided for seasoned staff? Are the managers your employees, or are they the employees of the management company? What benefits are offered? What happens to the employee if the management contract is terminated?

Is the company’s operation computerized? Does it require onsite computers as a condition of management? If your store is not computerized, will the company introduce technology? If it is, will the company use your current software or does it require use of another package? If it requires a change, how much will it cost for conversion and annually?

Will the company prepare an annual marketing plan and budget? Will it create and maintain a website for your store? Does it use an optimization company to make sure your website comes up in the first few responses to a potential tenant’s Internet browser search?

What kind of reporting can you expect? When will you receive financial reports and how extensive are they?

What You Should Expect

One of the most important issues to address with a potential management company is its decision-making process and how you will be involved. This is an area that can be negotiated but needs to be established up front. Also, setting clear financial-approval standards is important so both parties understand the management company’s authority.

Once you've decided to take the plunge and hire a management company, there's a great deal you should expect for the monthly fee you pay. However, it's important to realize that you must give the company time to implement the plans on which you agreed. Change will not occur overnight. When working with a management company, keep the following in mind to get the most out of your investment:

Turnkey operations. Your responsibility should be limited to ensuring the management company performs to your expectations and to the terms to which you both agreed. Day-to-day operation is left to the management company.

Expertly trained managers and assistant managers. Your employees should not be caretakers. They should be “self-storage specialists” who have been trained to determine and satisfy customers’ storage needs in addition to marketing your facility.

Employee/vendor selection. The hiring, firing and supervising of everyone from your managers to your maintenance personnel and outside contractors should be handled by your management company. Make sure you fully understand your financial and legal responsibilities for the actions of the company and its employees. Competitive bidding should always be used to keep expenses down.

Operating guidelines. The management company should provide a policies and procedures manual that details how your store should be run. It should standardize your operation so your store will run at peak efficiency.

Tough collections policies and procedures. Though you might consider collections policies and procedures to be a part of the operating guidelines, this is an area that should be addressed separately and in considerable detail. It's easy to have a store that has 90 percent physical occupancy but only 70 percent economic occupancy. The difference is often the quality of collections.

Specialized marketing programs. Each facility has unique attributes and a unique market. Marketing materials and programs must emphasize the features of a site in a way that effectively reaches the local demographic. Something that works on one side of town may not work on the other.

Constant supervision. Frequent facility visits and audits are a must to maintain a professional appearance as well as to ensure a smooth, honest operation.

Repair/remodeling recommendation and supervision. The management company should offer suggestions for capital improvements, along with ensuring that routine maintenance is done properly and in a timely manner.

Annual budget preparation. You should receive a reasonable budget you can use as a guideline for financial expectations and as a monthly check of operational efficiency.

Regular contacts with management company personnel. You should have regular contact with management-company personnel from to keep you apprised of what is happening, good and bad, at your facility. Keep in mind that you are the client and paying for services. If you have questions or are unhappy with anything, contact with the company so it can work with you to resolve issues.

No management company can be expected to totally compensate for a poorly designed facility in a poor location or a saturated market. It should, however, be expected to provide you with services that justify its fees. The company should do everything possible to run your store in a professional manner that will not only increase occupancy and decrease delinquencies but, most important, improve the site's profitability, resulting in a more valuable asset.

Maurice Pogoda is president and Tom Berlin is vice president of operations for Pogoda Management Co. in Farmington Hills, Mich. Pogoda has approximately 3 million square feet of self-storage space under management in 38 stores in Michigan and Ohio. For more information, call 800.326.3199; visit www.pogodaco.com.

Related Articles:

Partnering With a Self-Storage Consultant or Management Company

Being the Best We Can Be: Self-Storage Management

Choosing a ManagementCompany 

Do You Really Need a ManagementCompany 

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