While many self-storage owners choose to oversee their own business, it’s becoming increasingly important to keep pace with industry trends, particularly as they relate to data and technology. Depending on your level of expertise in these areas, the idea of hiring a third-party management company may become attractive to you.
A good partner will assume responsibility for all day-to-day operations; and as a fiduciary, they’re required to act in your best interest, putting your needs over their own. There are many benefits to be derived from this arrangement, but it’s a critical relationship that should not be taken lightly. Let’s look at some benefits as well as what you can expect by way of services, costs involved, and how to choose the right provider for your ownership goals.
What You Gain
Though self-storage is a high-profit-margin business, it’s also a retail business—and retail means detail! According to Spencer Kirk, former CEO of Extra Space Storage, succeeding in self-storage today requires “harnessing the power of technology to keep pace with the changing world.” He views the ability to do that as the industry’s “great divider,” resulting in larger operators taking a “disproportionate share” of online customers.
Because of this, it’s essential for smaller companies to gather and use their marketing and operational data. In fact, data analytics has revolutionized the self-storage industry and is a powerful differentiator among operators, providing the insight required to maximize performance. It not only can help you better understand your customers, it can help you identify trends and opportunities that may otherwise be invisible. But the fact is, while you may have a cache of data for your business, it takes time, systems and personnel to properly aggregate and dissect it.
One the key advantages of hiring a third-party management company is many providers have in-house business-intelligence personnel who can use all of your facility data to create strategies that improve your operation. For example, you might instill a new revenue-management model with data-driven pricing for new renters and existing tenants. Operators without this valuable information are more prone to extend unnecessary discounts and concessions.
Management companies have the expertise, technologies and systems to unlock the potential of your self-storage business, but they also bring a wealth of additional resources including written policies and procedures, and guidelines for almost every situation. As such, they may be better equipped to resolve an emergency, a difficult employee or customer issue than an owner who’s uncomfortable doing so.
Another advantage is the economy of scale a management company can often provide. Anyone who’s ever been to Costco knows that buying in bulk means paying less and getting more. A management partner can leverage its scale to negotiate and purchase products on your behalf, for example, property insurance or digital advertising.
The Service Provided
A reputable self-storage management firm should be able oversee every facet of your day-to-day operation; but let’s look at some of the services that are generally available. The right partner can:
- Keep the property clean and safe
- Ensure the site is staffed by friendly, competent, well-trained personnel
- Supervise all aspects of human resources, including employee benefits and compensation
- Reconcile bank accounts and provide you with detailed financial reports
- Establish a revenue-management strategy to ensure maximum income and occupancy
- Handle facility lien sales and related issues
- Implement technology to improve productivity and performance
- Maintain a strong online presence and digital-marketing strategy
Simply put, the management company should make your life better. It should remove the heavy burden of self-storage operation from your shoulders, giving you time to focus on other things. Finally, it’s systems and processes should enhance the value of your property.
The Question of Cost
Because the purpose of hiring a management company is to drive revenue and reduce expenses, any company under consideration should take a deep dive into your existing business and demonstrate exactly where and how it’ll make improvements. This audit should not only how the company will improve net operating income but also provide transparencies into its fee structure.
While the fee charged by each management company can vary, expect to pay a percentage of gross revenue. The industry standard is 5% to 6%. That said, you should never lose money by outsourcing to this partner. A good provider should always pay for itself, and the pro forma should prove that.
Choosing a Partner
There are many factors to consider when researching a management company for your self-storage business. Because providers come in all shapes and sizes, choosing among them ultimately depends on your expectations. Understanding that there’s no one-size-fits-all solution, be like Goldilocks and look for the one that’s just right! It should have the scale to deliver best-in-class data, technology systems and buying power, but small enough to provide personal service.
To determine the level of service you’ll receive, ask a lot of questions. For example, find out if there’s one bookkeeper or an entire supervised department, and how many properties each district manager oversees. Ultimately, too few people doing too much work will adversely impact store performance and staff morale, creating an environment in which things may fall through the cracks.
Larger self-storage management firms, including those operated by public and private chain-branded companies, have the staff and scale to integrate all aspects of operation, from human resources and site maintenance to digital marketing and accounting. That said, if you’re considering one of these providers, measure the risk of becoming a number within a vast portfolio and understand where their allegiance ultimately lies. Is it with their shareholders or you as an independent owner?
Rebranding is another aspect to ponder when considering a brand-name partner. This can be expensive. It can also make things difficult if you later decide to self-manage or transition to a different management firm.
Additionally, it’s important to understand any other revenue streams your provider has outside of self-storage management and how much of its attention will be diverted to that endeavor. For example, if the company offers real estate brokerage, how much energy will go into buying and selling of properties? If it has an active facility-acquisition program, it may be interested in buying any properties it manages, which can be a conflict of interest.
If direct communication between you and the management provider is a crucial factor, a small or mid-size company might be the better choice. These companies tend to have a local or regional focus. That said, they also have a smaller staff. That might mean that each employee is trained across multiple departments, or that the company hires external vendors for support with things such as call answering, human resources, digital marketing, etc.
Whatever management company you choose, they should be active with national and state self-storage associations and have broad knowledge of current issues and trends. We only need to look back to the recent pandemic to realize the importance of being ready to meet challenges proactively rather than reactively.
Together … Forever?
While some self-storage owners fear losing their voice and autonomy by delegating management of their facilities to a third party, the company you hire is simply the steward of the business. They should fully understand—and support—your concerns and goals. This symbiotic relationship should be like a marriage, where two parties encourage and assist each other so that both may thrive.
Choosing a management company for your self-storage operation is a very big decision that shouldn’t be taken lightly; but hopefully, it’s something you’ll only do once. So, ask for references and talk to existing clients. Ask about the candidate’s budgeting process and how they reconcile differences. The goal is a long-term collaboration that makes both companies stronger!
Stephen Mirabito is founder and president of StoragePro Management, a third-party management company specializing in self-storage since 1986. Steve has pioneered management systems and training programs used throughout the industry. He’s also authored several articles on financing, management and development, and has been a speaker at self-storage conferences. For more information, call 877.915.7806 or email [email protected].