Over the last five years, the self-storage industry has been experiencing almost unprecedented growth, and our markets are becoming much more competitive. You may need help adapting your operation to this new climate. You aren’t alone.
If you’re like most owners and investors, you were drawn to the industry for two reasons. The first is self-storage assets are typically stable. The second is, if operated correctly, they can produce a solid investment return. So, you acquired or developed a facility, and then you had to decide who was going to operate it.
Maybe running the business yourself wasn’t an option for you, and you immediately handed it over to a third-party management firm; now you’re wondering if the asset could be performing better. Perhaps you ran it initially, but never had the intention of doing it for the long term. Or maybe you’re just ready to retire or move on to the next thing. Regardless, you now have one critical question to answer: How are you going to manage your asset moving forward?
It could be time to hire a self-storage management company or, if you already work with one, consider changing partners. In that case, there are many other important questions to ask.
The first question is which type of management company will best meet your expectations and needs? There are three types:
Real estate investment trusts (REITs). Several of the publicly traded industry REITs have a division devoted to managing self-storage on behalf of other owners. The benefit of working with a REIT is your facility can be integrated into its network of hundreds of facilities very quickly, and the operating systems, marketing campaigns, sales programs and facility reporting come pre-installed. The flip side is you’ll most likely have to rebrand with a new name and corporate identity—at your own expense. If you ever leave the REIT, you’ll need to rebrand a second time to something independent.
Private. This type of company isn’t publicly traded but can still manage anywhere from a few to hundreds of sites. The main differences between the REIT model and a private one are that you’ll rarely have to rebrand, you won’t be just one of 1,000 facilities under management, and the costs are typically more palatable. Like the REITs, private companies provide operating systems, marketing campaigns, sales programs and facility reporting. Some will be stronger in certain areas, but all will streamline your existing operation and integrate the pieces you already have available.
Boutique. These firms are also privately owned, but they limit their client base and the number of facilities under management. They provide all the same services of a traditional self-storage management company but have a more one-on-one relationship with their clients. This typically allows you to have one point of contact rather than multiple.
In the end, it all comes down to team-building and the management system that works best for you. With whom do you feel comfortable and what are your goals? How much control are you willing to give up?
The costs of hiring a self-storage management company are fairly homogenous across the industry. The monthly price is normally a set monthly fee or a percentage of gross revenue. Though the monthly fees tend to be similar, the cost of rebranding a store, if necessary, is quite variable.
What You Need to Know About Candidates
When hiring a company to manage your self-storage investment, specifics matter. Cost isn’t always the deciding factor because there are always intangibles. Overall, these are the things you want to know about each candidate:
- Where’s the company located?
- What kind of self-storage experience does it have?
- Who’s your contact and how often will you communicate with this person?
- How does it communicate with facility managers?
- How often will it conduct site visits and what does that entail?
- Does the company institute policies and procedures?
- What’s the structure for human resources and does it have a hiring system?
- How is staff training conducted?
- Is the facility manager an employee of the facility or the management company? (If you have a Small Business Administration loan, the manager may be required to be an employee of the facility.)
- Who’s responsible for payroll and tax reporting?
- Are you required to change your management software?
- Who handles accounting? Does this include paying invoices? If so, what’s the dollar limit for management-company approval?
- How is accounting handled—on an accrual or cash basis?
- What financial reports will you receive and how often?
- Does the company install a preventive-maintenance schedule?
- How are vendors chosen?
Once you move through the general questions, it’s time to get more specific. As competition heats up in our industry, you need to know how your new management company plans to take on the challenge, especially when it comes to marketing your business. Ask for details about the marketing plan for your site.
- What’s the marketing budget?
- Which campaigns does the company plan to launch, including online, offline and social media?
- Does it plan to market to local businesses such as apartment complexes, realtors, moving companies, etc.?
- What kinds of rental specials will be offered?
- Will the company institute a referral program?
- Can you review sample materials to ensure they’re in line with your brand and have a clear call to action?
- How does the company track marketing and the expected return on investment for each campaign?
The answers to these questions will give you a good idea of the kind of exposure your investment will receive in your local market. You should also receive reporting for all marketing efforts.
As important as marketing is to the day-to-day success of your self-storage facility, the sales program is equally critical. Well-designed campaigns will increase traffic to your site, but you’re your managers must be able to close the leads. Most will need some sales training, so it’s vital that any management company you choose takes the time to implement it. Here’s what you need to know in this area:
- What sales training will staff receive?
- Who will conduct the training and through what platforms?
- Will sales scripts be provided?
- Will special offers or discounts be available and, if so, what latitude will managers have in offering them to customers?
- How will potential customers be tracked?
- How often are managers expected to follow up with leads?
- Will the management company provide a bonus program?
The most important thing is that your managers are properly trained in sales and that they know what’s expected of them.
Next, you need to understand how your self-storage management company will handle the financial aspects of your business. Request a budget projection for your facility, review it and ask yourself if it seems reasonable.
What kinds of expenses are in it? Will your expenses increase or decrease? If your facility is just opening, you might not know what the expenses should look like, so do some research. Do the costs for line items such as payroll, utilities, maintenance, office supplies, property insurance, taxes and management seem realistic?
Here are some other questions to ask:
- What’s the strategy and system for revenue management? Is it manual or automatic?
- How often are street and existing-tenant rates adjusted?
- What’s the typical increase percentage?
- Does the company charge an administrative fee?
- Will it promote ancillary income from merchandise sales, truck rentals and tenant insurance?
- What vendors does it use?
- What’s the process for delinquent customers?
- What kind of late fees are charged?
- What does the company consider to be an acceptable level of delinquency?
- Is the company familiar with the lien laws in your state?
- What’s the lien-sale process?
- Who conducts lien sales?
- Will the company conduct an audit? If so, how often?
The financial viability of your self-storage operation is paramount, so ask as many questions as you need to feel comfortable.
The Hardest Questions of All
As a self-storage owner or investor, you need to be honest with yourself about two things: How much control are you willing to give up, and how close is your current operation to the goals you want to reach? You’ll need to feel comfortable relinquishing day-to-day operation. The relationship between you and the management company will suffer if both parties are constantly tripping over each other. It also becomes an exceedingly difficult situation for facility managers when they don’t know who’s in charge.
Understand this: If your facility has major issues in terms of occupancy, revenue or debt service, you must give the management company time to address them. A self-storage facility doesn’t get into deep water overnight, and it won’t get out of it quickly, either.
One of the most important parts of hiring a self-storage management company is finding a company that meets your expectations. Your level of comfort with the provider you choose will be a big factor in determining the length and success of the relationship. In the end, your choice is going to come down to something more intangible than money.
Matthew Van Horn is a co-founder of Atomic Storage Group, a boutique self-storage management company specializing in management, marketing, facility operations and consulting. To schedule a free 30-minute self-storage strategy session, visit www.atomicstoragegroup.com/strategysession.