It all started when you found some land in a great location and thought, “Why not self-storage?” You were still new to the industry and, at times, unsure of yourself, but you kept going. You had to work with the municipal leaders to get your facility approved, and then with contractors to get it built. Finally, the doors opened.
Now, fast forward a couple of years, and you couldn’t be more proud. Your facility has done well. It’s met occupancy and revenue targets, employs several highly talented people and is a solid business in your community. Even with all this success, though, you’re starting to feel something—getting that itch. You’d like to see your kids more or take your significant other on that trip you’ve been talking about. One day, you sit up in your chair, look at the clock, walk over to the coffee-maker, and it hits you: “I want to do something else.”
You’re not alone. Every year, many self-storage owners and investors go through a similar experience.
Maybe you acquired your property, or maybe inherited it or just decided to invest in a friend’s project. Maybe this is just a passive investment and the thought of managing the day-to-day operation of a storage facility isn’t that appealing. Maybe your facility isn’t even built yet.
The question is: What do you want to do with the business? You could sell it, but what would you do with the return? Perhaps you like the property, and it could possibly be a great business for your kids. No matter the situation, there’s a solution: You need to find someone to take care of your investment. It’s time to hire a management company. But where do you start?
Two Models
First, consider how you want your facility to be operated. There are basically two options for self-storage management: Hire a real estate investment trust (REIT), or hire a private company.
The first benefit of REIT management is your facility can be integrated into large network of facilities very quickly. The operating systems, marketing campaigns, sales programs and performance reporting come pre-installed. No mess—it’s just like flipping a switch. Also, since REIT branding is national, there’s the potential a prospective customer will recognize your business over a local “no name” facility. In addition, working with a REIT may provide you with an exit strategy should you ever want to sell.
The flip side is that you’ll most likely have to change your facility’s name and identity. If that’s an idea you’re fully against, this model may not work for you.
Alternatively, you can hire a private management company to operate your investment. The main benefits of choosing this model are that you’ll rarely have to rebrand, you won’t be just one of 1,000 properties in the management portfolio, and the cost could be more palatable. Like REITs, private companies provide operating systems, marketing campaigns, sales programs and facility reporting. Some will be stronger in certain areas, but they’ll typically streamline your operation and integrate the pieces you already have available.
At the end of the day, it all comes down to team-building and finding the 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 Basics
When hiring a company to manage your self-storage investment, specifics matter. The cost is usually straightforward. The firm will normally charge a set monthly fee or a percentage of gross revenue. Generally, this isn’t the deciding factor because there are intangibles each owner seeks. The choice is going to come down to something more than money.
Overall, you want to know how the company defines the word “management.” Let’s start with some basic questions to ask your candidates:
- Where’s the company located, and what’s its level of industry experience?
- Who is your company contact, and how will you communicate?
- How often will the company conduct site visits, and what happens during the appointment?
- Does the company institute policies and procedures?
- What is the structure for its human resources department?
- Does the company have a manager-hiring system, and how is training conducted?
- Are your managers employees of the facility or of the management company?
- How does the company communicate with site managers?
- Are you required to change your self-storage management software?
- Who’s responsible for payroll and tax reporting?
- Who handles the accounting and does it 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, and how are vendors chosen?
Marketing
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 this challenge. Ask the following:
- Does it have a marketing plan? If so, what does it entail and how much will it cost?
- Does it include offline and online marketing?
- Does the online component include the facility’s website, overseeing its social media channels or pay-per-click advertising?
- Will the company market to local businesses such as apartment complexes, realtors, moving companies, etc.?
- Will it install a referral program?
- What kind of rental specials are offered during marketing campaigns?
- Is there a call to action in the marketing materials? Can you review examples?
- How often does local marketing take place and how is it tracked?
- What’s the return on investment for each campaign?
- What kind of marketing reporting will you receive?
Most self-storage managers aren’t natural marketers, so training in this discipline is extremely important. The answers to the above questions will give you a good idea of the kind of exposure your investment will receive in your local market.
Sales
A quality sales program is equally important to the daily success of your self-storage operation. Well-designed marketing campaigns will increase traffic to your facility, but managers must be able to close these leads to make a difference. When speaking with management companies, ask:
- What kind of sales training will be provided?
- Who conducts it and through what medium?
- Are managers provided with sales scripts?
- What specials or discounts will the facility offer?
- How much latitude do managers have in regard to pricing?
- How are potential customers tracked?
- Is some type of customer-relationship-management software used?
- How often should managers follow up with potential customers?
- Is there a bonus program for managers?
As with marketing, most storage managers will need some sales instruction. It’s vitally important that any management company you choose takes the time to implement this training. Customers have less patience than ever, so the best sales plan will win.
Finances
Next, you need to start asking questions about financial management. First, request and review a budget projection for your facility. Does it seem reasonable? What kinds of expenses does the projection include? Will expenses increase or decrease? Does it seem realistic for line items such as payroll, utilities, maintenance, office supplies, property insurance, taxes, etc.? If your facility is just opening, you may not know the correct level for each cost, so do some research.
Another important component to a property’s financial performance is revenue management. What’s the management company’s pricing strategy for street rates and existing tenant rates? Will it implement administrative fees or other fees?
It’s also important to ask about ancillary income from moving and packing supplies, truck rentals and tenant insurance, which is a key source of revenue for many properties. Ask what services and products your facility will offer and which vendors will be used.
How the management company handles collections and lien sales should also be considered. What’s the process for delinquent customers, and what fees are involved? What does it consider an acceptable level of delinquency? Is it familiar with the lien laws in your state, and how will lien sales be handled? Who’ll conduct the sale, and will it be a live or online event?
The financial viability of your self-storage facility is paramount. Don’t leave this to chance, and ask as many questions as you need to feel comfortable.
Communication
Finally, it’s time to talk about communication. This is what determines how well the relationship will work. A regular reporting schedule will keep you informed on the health of your property. Most management companies will provide a monthly report, which will typically include a facility summary, financials, bank reconciliation, software reports, etc. When researching property-management candidates, ask the following:
- What kind of reporting does the company provide, and how often?
- Who authors the reports?
- If you have a question, who do you contact? Who do you contact when your representative is unavailable?
- How should questions be submitted (e-mail, phone, text)?
- How quickly should you expect a response?
- Are there any additional meetings, conference calls or other types of reports you should expect?
Understanding how the communication process works will directly impact the relationship you have with your management company. If you need to speak with someone regularly to increase your comfort level, be up front about that.
Final Thoughts
As a self-storage owner, you need to be honest with yourself about two things. First, how much control are you willing to give up? Second, how close is your operation to achieving the goals you want to reach? You’ll need to be comfortable relinquishing control of the day-to-day operation. Your relationship with the management company will suffer if both parties are constantly tripping over each other; and it becomes a difficult situation for a facility manager when he doesn’t know who’s in charge.
Also, if your facility has major challenges in terms of occupancy, revenue or debt service, you must give the management company time to address these issues. Remember, a self-storage business doesn’t typically get into large problems overnight, especially financial ones, so it might take time to correct them.
One of the most important parts of hiring a self-storage management company is finding one that meets your level of expectation. In the end, your comfort with the company you choose will make or break the relationship.
Matthew Van Horn is co-founder of 3 Mile Domination Self Storage Services, a full-service operations company specializing in self-storage management, marketing and consulting. He’s also co-author of “Self Storage Domination.” To speak with him about your self-storage operations, schedule a free 60-minute strategy session at www.3miledomination.com.
