Add Value to Your Self-Storage:  Strategic Planning

By: Scott Eckert, Advisor

Implement a Strategic Plan

Self-storage is a unique asset class with its own set of challenges. As with any investment, it is critical for operators to develop a strategic plan that identifies those critical challenges and builds an approach to dealing with them effectively. Most operators know that developing a strategy is important, but almost all find it daunting to implement or difficult to communicate. Savvy operators have learned to navigate through unpredictable markets and prosper by developing, implementing, and committing to a strategic plan. In certain instances, the potential to create or add value is significant when a strong strategic plan is put in motion.

A strategic plan is a roadmap to grow your business. Goals must be specific and realistic. A well-crafted plan clearly defines the goals or desired outcome and includes a subset of major steps or actions needed to reach it. However, constructing a plan is only one part of the process. Once designed, a strategic plan should be used as a communication tool that coalesces all the stakeholders around a shared vision. Without implementation or failing to communicate your strategies, a strategic plan is worth no more than the paper it’s printed on.

Operators often have a plan and know what changes they should implement to increase revenue or gain efficiencies but fall short in taking the appropriate steps in achieving their desired outcome. This may require rental rate analysis, a change in procedures, or new approaches to marketing.

Markets are unpredictable, volatile, and susceptible to threats. The fear of the unknown is what scares so many operators. Whether it is the fear of losing customers or relinquishing control to management, the owner must overcome their fears and face their challenges head-on to generate new results. Making good decisions can lead to profits, but mistakes are costly. Leap out of your comfort zone and take decisive action, even in the face of uncertainty.

The following information provides tips and considerations for owners and managers to explore throughout the strategic planning process:

Raise Rents and Keep Customers Happy

Owners suffer through paying bills for a less than full facility and leave money on the table when they fail to increase rents on a scheduled basis. Prudent operators, however, will enhance revenue by raising rents on existing tenants. From my experience talking with owners, many continue to keep long term customers at the same rent that they’ve paid since the beginning of their lease, even if the rent is well below market levels. Most of the time it’s because they fear the customer will leave and they’ll be stuck with a vacant unit.

Rental rates vary across markets. Before you raise the rent on a tenant, you will want to do some market research. Speak with other owners and managers to see where your rents stack up. A weekly market survey of competitive properties located within your 3 to 5-mile trade area is the best way to estimate the achievable market rents for your facility.

Be realistic in your assumptions and commit to a plan. Planning, cost management, and revenue forecasting are essential to any business and must be done. However, these activities can be dangerous traps for a strategic operator if their plans are reliant on poor assumptions.  Make sure your unit mix is optimized and determine what unit types are in the greatest demand.

Many owners fall into the trap of applying an across-the-board rent increase to all tenants instead of assigning value to each particular space. A blanket increase essentially weakens the operator’s position by falsely assuming all units can absorb an increase. Conversely, a savvy operator will analyze the market rents for each type of unit and base their estimates on specific unit types all while measuring the tenants’ capacity to pay. Paying attention to tenancy, length of stay, and in-place rents are highly important.

When notifying your tenants of a rent raise, provide a list of any recent upgrades and encourage them to check nearby pricing. If priced appropriately, you should experience less turnover and keep more happy customers. Many customers will accept the rental increase as reasonable if they know what value they’re getting in return.

Increase Economic Occupancies

Occupancy is typically split up into two categories: physical and economic. Both numbers are important measurements when evaluating a property’s performance and are used in the valuation of a property.

Physical occupancy measures the percent of net rentable square footage that is occupied.

Economic occupancy measures the actual gross income as a percent of the potential gross income.

When evaluating vacancies, it is important to compare the actual rent received to the potential rent, and not just focus on the physical occupancy. Oftentimes, the asking or offering rents at self-storage facilities are higher than the actual collected rent or contract rent. This is a consequence of discounts or concessions that are offered to customers initially to get their business. Increasing the contract rent levels at a facility is a must for all storage owners. Limit or eliminate concessions on unit sizes with high turnover rates. An increase in contract rent levels will maximize economic occupancy.

Monitor Operating Expenses

Typically, the operating expenses should approximate between 30 percent and 40 percent of gross income. Many of these expenses are fixed and others are variable. Managing the variable expenses, or the ones you can control is essential to monitoring your operating expenses.

• Administrative Costs – When is the last time you price shopped for all your administrative needs? Whether it’s for your internet and phone bill or office supplies, taking the time to call a few competitors can translate into significant savings each year.
• Utilities – Many self-storage facilities offer climate-controlled units. These are indoor air-conditioned or heated units. Try to maintain the temperature at 60-80 degrees, or whatever range you think you can truly maintain and ensure tenant satisfaction. Installing motion detector and LED lighting is another way to reduce your electricity costs.
• Advertising – For some existing facilities, especially those located along roadways with excellent visibility and signage, an extensive advertising campaign may not be necessary. However, as nearby competition increases, owners are recognizing the importance of proactively marketing the store. Analyze your marketing and advertising costs and reevaluate where you are spending your marketing dollars. As trends evolve, so do marketing tools. Make sure you market the facility across online and social media platforms.
• Repairs and maintenance – Repairs and maintenance expenses typically include all third-party maintenance service contracts and the cost of maintenance and repairs supplies. Proper maintenance includes trash removal, landscaping, pest control, security gate maintenance, and other maintenance items. Repairs and maintenance expenses are very property specific. Much of the preventative maintenance can be done by a handy owner or manager. Otherwise, get a few quotes from local contractors to make sure you get the best price and the work is done right.

Maximize Other Income

Other income is typically associated with items such as forfeited deposits, late charges, locks, insurance, and other miscellaneous charges. It also includes sales and commission income such as truck rentals, box and packing supplies, towing accessories, etc., and the income derived from these sources is a net figure. The additional services and products offered at your facility should provide convenience for your customers, and as a result, you can expect a boost in additional revenue.

Stay Customer Focused

Managers are viewed by your community as the face of the company. As a self-storage manager, it’s your duty to provide excellent customer service. Honesty, flexibility, and dependability go a long way in the eyes of the customer. Master these skills, and you will already be ahead of the pack.

Focus your energy on the important choices that influence customers to spend money at a storage facility. Get feedback from tenants on a routine basis. The customer will always decide to spend their money at the location that provides a superior value proposition.

Navigating the self-storage industry can be an ongoing process that is best achieved by utilizing the help of industry professionals.  This is why our company offers a variety of industry-specific reports and facility valuations to storage owners at no cost.  Before you consider investing in your facility, reach out to one of our advisors to see how your market is performing and the best use of your time and money.

Scott joined The Storage Acquisition Group in 2017 to source acquisition opportunities throughout the Mid-Atlantic region. Scott’s background is in real estate appraisal and valuation assignments of multifamily property throughout Virginia.

Building Relationships:  How they Enhance your Self-Storage Investment

By: Fred Paris, Vice President & Senior Advisor

People like to do business with people they like, and people like others who appreciate them.  Someone may forget what you said or what you did, but they will never forget how you made them feel.

The most powerful tool in developing relationships is to appreciate other people, and the two most powerful words in building a relationship are ‘Thank You’.  The concept seems simple enough, but all to often people forget to invest in building the relationship and rush to discuss “the deal”.

There are small steps you can take when initiating the building of a relationship which pays off tremendously in the long run.  From when I began my career in planning and economic development, and throughout my 18 years in commercial real estate I have relied on some key attributes of building successful business relationships:

• Authenticity – Be who you are and accept others as they are. It is incredibly transparent when you are working with someone and they are not being authentic.  By definition being authentic comes from within.  It is when our actions and words correspond with our beliefs and values. It is being ourselves, not an imitation of what we think we should be or have been told we should be, and when you choose to add this to your business relationships it builds respect and trust.
• Mutual Respect – Be patient, attentive, truly engaged, and interested in the other person’s point of view. One of the best and easiest ways to show respect to the people you are working with is to get to know them on a deeper level. Take the time to listen and get to know their motivations and goals.  At a professional or personal level, their goals will allow you to work more meaningfully as a team.  You will also learn what the best way to communicate with them is and they will get to know you better as well.
• Be Personal – Show interest in the other person’s beliefs, family, leisure activities, etc. This can be achieved by focusing on two qualities: listening and sharing.  If you truly listen to someone speaking, they know it. They feel it. Are you responding as they speak to show them you hear what they are saying?  Especially when conducting business over the phone, it is necessary to respond appropriately to show you heard what was said.  It’s also important to start sharing. A trusting relationship can grow because both sides are opening up. By sharing the relationship has the best opportunity for growth and future success.  If you do not feel comfortable sharing personal information, that is fine, you can share your business knowledge and allow a connection to be developed, but sharing personal aspects of your life demonstrates the personal connection that is so important to fruitful relationships.
• Goals & Values – What are the other person’s business/personal goals and what values do they live by. We touched on this with mutual respect, but understanding someone’s values as they relate to their goals provides you with a better understanding of them and the decisions they make.  A person’s values are what they find important in life and understanding if it is their family or their bank account makes a difference in how you build the relationship.
• Referrals – Be ready to offer contacts and referrals that fit the situation and don’t compromise your relationship with these people. Referrals are a reflection of you.  When you refer someone, it helps to build trust but can also have the reverse effect.  This is why it is essential to have a good network of business partners that you trust.  You would never want a referral to hinder a relationship you are trying to build.
• Loyalty – This may be one of the most important traits a person can have for a long-term personal relationship. This trait seems to be less prevalent in today’s world, but may well be the most important one for securing a long-term relationship.  Knowing that someone truly has your back often leads to the deepest and most trusting personal and business relationship.  It is important not to confuse loyalty with longevity.  It has nothing to do with the length of employment and everything to do with actions. Loyalty can be seen by people who work hard, are committed to success, and respect relationships that have been built with the right motives in mind.

When I entered the storage industry in 2014, I began to build my network of relationships.  Over the past 6 years, I have maintained relationships with several self-storage owners that were among some of the first I contacted.  They may not have had an interest in selling then, but I continued to build the relationship.  Many have come back to me or became open to working with our company on acquiring their facilities.  This is due to always being authentic, demonstrating mutual respect, showing interest in their personal values, and staying loyal to them over the years.  I firmly believe that building personal relationships is the best investment you can make to enhance your opportunity for success in the self-storage industry.

Fred joined The Storage Acquisition Group in 2014 and specializes in finding facilities for acquisition in the Mid Atlantic and South.  Fred currently serves as the company’s Vice President and a Senior Advisor.

Due Diligence & Self-Storage:
What is the Process?

By: The Storage Acquisition Group

Definition of Due Diligence:

In plain terms, due diligence is simply the process of taking reasonable steps to ensure the terms and conditions of a transaction meet a particular standard before proceeding. That analysis can be as superficial as walking around a used car and giving the tire a sturdy kick, or it can be as in-depth as an investigative audit. In the case of a self-storage facility, the complexity of the requirements will fall somewhere in between. This article will examine common terms, processes, and best practices to shed some light on an often-misunderstood step of the purchase and sale transaction.

The Due Diligence Process:

During the due diligence period, the prospective buyer and seller have agreed to work together. The seller is not actively marketing their facility for sale to others. They are giving the buyer a chance to examine the facility in-depth so that the buyer can determine whether or not moving forward to closing is prudent.

Ideally, both buyer and seller will have given some thought to the review process before contract negotiations begin. The details of the due diligence period are spelled out in the purchase and sale agreement. Both parties will need to agree on what is often a lengthy list of documents to be provided to the purchaser (Table 1.0), access to the property, and most importantly, timing. Generally speaking, one can expect the review period to last between 30-90 days depending on the resources of the buyer and the scope of the deal. The due diligence process can feel like a very pervasive experience.  While many of the documents required by the buyer are non-negotiable because they are fulfilling a bank requirement, some other terms are negotiable, and the seller is not without recourse before the terms of the agreement have been set.

In addition to document requirements, sellers will need to be prepared to provide access to a number of third-party consultants. Common visits include environmental testing, property condition visits, appraisals, and surveyors, to name a few. By adhering to normal business practices and continuing to address facility maintenance, marketing efforts, and occupancy all the way through to closing, these visits should not pose an interruption or cause undo strain for the seller.

Buyers & Sellers:

So, what is the point? What exactly is the prospective buyer doing with all of those documents?  A buyer is using the financials and operational reports provided to recreate and simulate the current state of the facility and make high-quality projections about future growth. It benefits both seller and buyer when those projections are based on plenty of reliable data points that account for seasonality, changes in the community demographic and area development. In the end, the shared goal is for the transaction to move forward with feelings of confidence on all sides and that is best achieved through patience and cooperation.

Just as experienced buyers often rely on a proven checklist of due diligence requirements and procedures, sellers too can take the strain out of the process with a little forward preparation. Keeping well-organized financial and operational records will not only make the due diligence process easier but conducting a monthly review of said documents can give an owner/operator valuable insight. Treating record maintenance as another line item on the to-do list is a best practice that can have far-reaching benefits, but perhaps nowhere will those benefits be felt more than when it comes time to collect data during the due diligence period of a facility sale.

Table 1.0

The Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

Selling Your Facility or Portfolio

By: The Storage Acquisition Group

Self-Storage facilities are valued based on a range of factors, including occupancy, location, size, condition, and financials.

See how your facility measures up.

The Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.

The Pros and Cons of Selling your Storage Facility

By: The Storage Acquisition Group

The Storage Acquisition Group specializes in purchasing storage facilities and portfolios nationwide. Uniquely, we allow owners to sell direct without having to list their facility. With our 4-tiered approach, Market Analysis, Acquisitions, Underwriting, & Closing Support, The Storage Acquisition Group is able to help owners navigate a simple sales process while netting the highest possible profit.