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Self-Storage Facility Management: What to Expect When Outsourcing to a Third-Party Provider

Self-Storage Facility Management: What to Expect When Outsourcing to a Third-Party Provider
The way a self-storage facility is managed determines its success or failure. If you need help running your asset, outsourcing to a third-party management company can provide real advantages. Read what they are and what to expect from a partner.

Day-to-day management is the most critical aspect to the success (or failure) of a self-storage property or portfolio. This holds true whether you’re the newest facility in your market, have the best location or the most amenities, offer the most competitive rates, or garner the best Google ranking. If your operations are poor, the asset will suffer.

Some owners have the financial resources to enter the industry, but not the time or inclination to run the individual properties. In these cases, it’s better to hire someone who specializes in self-storage to oversee your investment. Fortunately, you have options. You can partner with one of the industry real estate investment trusts (REITs) or hire an independent third-party management company.

REITS offer the power of brand recognition, but they can also be expensive, and you run the risk of them owning or managing other facilities (competitors) within your market. On the other hand, independent management companies often have experienced leadership and staff who’ve worked with or for a REIT, and therefore, have a good understanding of how to compete against these giants. In addition, smaller firms can have the advantage of more creativity and flexibility, able to react quickly to issues and market factors.

Ultimately, a third-party management firm will help your self-storage facility reach its highest potential. For the purposes of this article, we’ll concentrate on what a quality, independent company should bring to the table. Here’s an overview of what it can provide, what to expect and how to choose the right partner.

Staff Support and Training

When working with a self-storage management company, you can choose from a range of services; but the most important element to renting units and having a successful facility is the quality of your onsite manager. This person must be fully equipped to run the day-to-day operation as well as maintain the professional look and feel of the office and grounds. They must have the right training and support, so they can make decisions with confidence when problems arise.

All management companies typically offer some staff training when they first take over a self-storage property. They might provide ongoing education or conduct annual sessions to provide employees with more extensive learning. The coaching might take place onsite or through regularly scheduled webinars and video conferencing.

The training provided by your management firm should cover sales, marketing, financial/budget considerations, rental agreements, rate management, collections, site maintenance and curb appeal, and industry technology. It should also address company policies and procedures. In fact, you can expect to receive a manual that outlines organizational structure and roles as well as the responsibilities and expectations of employers and staff.

Your management company should also help your team set goals to gauge facility performance. Expect to receive daily, weekly and monthly reports that include all key metrics. Your partner should help you and your team regularly review and interpret these numbers. 

Marketing

The second-most important aspect to self-storage management is marketing. To compete, you must have a consistent, solid plan. You must also be able to track the performance of your campaigns, including the number of inquiries and rentals each produces and the return on investment. Your management partner should have expertise in these and other marketing-related aspects, including:

  • Internet strategy (pay-per-click campaigns, Google Maps and Places, craigslist, social media, etc.)
  • Website development and optimization
  • Reputation management (online reviews on Google, Yelp, etc.) 
  • Promotions (referral programs, local business alliances, tenant promotions, direct-mail campaigns, fliers, etc.)
  • Signage (external and internal, onsite and off)
  • Community outreach (hosting events, working with local charities)
  • Video content (customer testimonials, property tours, etc.)

Budgeting

It might seem odd to consider finances as the third most important aspect to self-storage management, but if you don’t have your operational and marketing programs firing on all cylinders, you’ll never be able to accurately predict financial results. Your third-party management partner should offer the following:

  • Projections: Advice on annual budgeting and long-term forecasting
  • Profit-and-loss (P&L) statements: A review of your key financials
  • Revenue management: A review of your rental rates including street prices, existing-tenant rates and size-code occupancy adjustments
  • Expense management: A review of all existing and potential costs
  • Collections: Strategies and tactics to reduce delinquent accounts
  • Financial options: Advice and industry contacts that can help with decisions, whether you want to sell, bring on an investment partner, build or acquire another asset, or refinance

As part of this financial guidance, your management company should provide a monthly report that includes, at a minimum, year-to-date information, a P&L, a balance sheet, general ledger and information that shows the bank statement and reconciliation. It should also include an explanation for square-footage and economic occupancy, not just physical. I’ve seen properties where the physical unit occupancy and square footage were in the 90% range, but economic occupancy was in the upper 60s. This should never happen. Finally, your report should reflect delinquencies and collections, customer complaints, employee concerns, and any necessary repairs.

Choosing a Partner

Any self-storage management company you use should recognize that this is your property and allow you, as the owner, to be as involved as you’d like. Its services are simply tools to help you realize the best return for your investment. Find a company that goes beyond operational issues to understand your vision for the business. The right partner can develop strategies to help you achieve your goals. Here are some items to consider when making your choice:

Cost. The typical monthly fee for management support runs 5% to 7% of gross income, with a minimum of $1,500 to $3,000 per month per property. Some companies offer a discount for multiple locations. Start-up fees run $3,000 to $7,500 per property. This covers the setup to meet the vendor’s guidelines for accounting, reporting and more.

Branding. Some management companies require that all the properties they manage use their brand name, colors, etc., which can result in additional licensing or franchise and signage fees. If you wish to keep your own brand identity, ask about this early in the process.

Contract terms. Most management firms offer a one-year agreement, while some go as far as three years. A good question to ask is whether the company offers an out clause in case things just don’t work out. The firm should also include a non-compete clause in its contract, stating that it will not manage another self-storage facility in an agreed market area without your written consent.

Staffing. One decision you’ll need to make is whether staff will be employed by the property (you) or the management company. Both approaches have advantages, so talk to potential partners to see which will work best. In either case, the cost of employees comes out of the business income. In some instances, there may also be a supervisor who’s also paid through the property. Make sure you get what you expect for staffing, including initial and ongoing training as well as a policies and procedures manual for each site.

Auctions. Not all management companies will handle the lien-sale process. This is something you need to discuss with any supplier you interview.

As a self-storage owner, you should expect your management partner to improve your property’s performance in all areas that contribute to the bottom line. After all, improving operations, marketing and income is a win-win for everyone.

Stephan Ross is owner of Cutting Edge Development LLC and a managing member of Cutting Edge Self Storage Management & Consulting. He’s been in the self-storage industry since 1984 and has performed hundreds of feasibility studies in the United States and Canada. During his career, Steve has directed the development and daily operations of more than 2 million square feet of storage space. He’s been a contributing writer for industry publications and a featured speaker at self-storage events. To reach him, call 801.273.1267; email [email protected].

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