In the self-storage industry, some owners invest for the long term while others have a much shorter exit strategy. There’s no one-size-fits-all formula to success; however, there are some principles all owners can follow to generate strong yields and, therefore, higher facility values. To keep your business financially sound, pay attention to the following key performance indicators.

Site Analysis and Planning

I’m starting with the planning process because it can save time and money on the front end, if skillfully executed. As you conduct a thorough market analysis, project prospective rents, assemble a dynamic unit-mix table, roll out your pro forma and gear to lease-up, strive to bridge any gaps between acquisition, development and operation. What looks good on paper may not work in reality, and reforming your analysis based on the latest trends is tricky. If you’re not soberly approaching this process, it can negatively impact your stabilization timeline.

For example, think about unit mix and rental rates. These play a huge role in potential income for a self-storage property, and yet they’re easily overlooked. If you build units that yield a higher price per square foot rather than those that are truly in demand, you’ve glossed over the due diligence. We all like streamlined product roll-outs, but again, self-storage isn’t a cookie-cutter business.

Success comes through a market-specific approach that supports present and future demand, especially if you plan to penetrate a new market. My point is economic needs should drive innovation, not the other way around.

Rental Rates

Proper revenue management allows you to increase your price per square foot. It’s a quintessential step resulting in cash-flow growth, and any decent operation uses this framework. There’s only so much net leasable square footage on your land, so as you absorb more occupancy, keep a finger on the pulse of your market. A revenue-management system is good to have in place, but it requires cunning adaptation based on dynamic variables:

• Street rates
• Existing tenant rates
• Unit occupancy
• Average length of stay
• Market comparables
• Seasonality
• Residential vs. commercial renters
• Tenants who rent multiple units

These give bearing on the rates new renters receive, and how often you push up rates for existing tenants. It’s also important to temper your algorithm with a human touch.

The idea is to shrink your “loss to lease” (occupied rate variance) while capitalizing on your actual occupied unit rates. This process eases your actual occupied closer to your gross occupied. Once your actual exceeds your gross, you’ll achieve a “gain to lease” rather than a “loss to lease.”

Essentially, you’re doing a dance, swaying back and forth between recalibrating gross potential income through increased market rents and closing in on your gross occupied through proper management of existing-tenant rents. This leads to fractional gains in your net income as well as long-term increases that impact total revenue.

Staff

Your facility value per square foot is also affected by your conversion rate. Measuring your conversion ratios is helpful in that it reveals how well you’re performing with in-store sales. If you’re trying to increase your actual rents, it’s crucial that managers close deals. This is where a staff assessment comes into play. Remember, we’re discussing undercurrents that influence asset value.

Having a good product is critical, but investing in those who “grind it out” demands equal if not greater attention. As an owner, you should encourage organizational balance by placing emphasis on people over product.

There are few businesses in which success or failure is so intricately intertwined with the site manager’s skills, personality, customer-service attitude and common sense as self-storage. Your staff needs professional skillsets that directly contribute to the successful management of the facility. Cultivating your team is an ongoing effort that requires energy, training and much mentoring. It must be intentional and strategic. Your investment here will never come back empty! Once you know you have a solid, sales-oriented team in place, it’ll be easier to focus on financials as you scale up.

Property Condition

In real estate, robust returns are always linked to excellent stewardship. It’s the cornerstone that drives growth. There’s more to facility valuation than simply dividing net operating income (NOI) by the capitalization rate. We’re seeing a considerable volume of new supply in self-storage, and it’s imperative to remain competitive in the marketplace by sufficiently maintaining your properties. Of course, the emphasis here would be more on stabilized assets, but facility condition is important. It sounds basic, but at the end of the day, it’ll help you negotiate from higher ground.

Take a good look at your repair and maintenance budget for the year. Are you allocating the cost? This can be indicative of how fit your facility is (or isn’t). Don’t let this fee scare you just because it’s above the NOI line. Skimping on routine repairs because you didn’t work it into your projections is short-term thinking. I’d argue this is true even in a rural or tertiary market, even in the face of lower margins on your debt-service coverage spectrum.

Make the choice that’ll lead to long-term profit. You can feel the pinch now by soberly anticipating this operating expense or suffer on down the road. The last thing you want are excessive capital deductions from undone projects, or to be dinged on deferred maintenance due to responsibilities that lingered at the point of liquidation.

Branding

I want close with brand awareness. After all the blood, sweat and tears you put into acquiring or building a self-storage facility, the best way to position yourself for growth is to establish a connection with your target audience and make them aware of your services and brand. Modern technology can be a powerful vehicle to help you accomplish that. Diversify your communication platforms and jumpstart traffic generation with aggressive online campaigns coupled with community-driven, grassroots outreach.

One to 3 percent of your total revenue should be devoted to advertising. It takes money to make money. Investing in marketing will always result in your property becoming stronger financially because it drives action on the leasing front!

The operational strategy for each self-storage property will be different, based on the market. Whether you’re dealing with a stabilized asset or opening a new facility, your tactics should have an ebb and flow based on seasonality and location. There’s a time and place for everything, and it takes a team effort to see it all come to fruition. Hopefully, these guiding principles will help keep your asset value strong and attractive!

Cody Reynolds is regional director of operations for The Sterling Group, an Indiana-based real estate investment firm that specializes in self-storage and multi-family housing properties. The family-owned company owns and manages both property types, with a concentration in the Midwest and Southeast. Cody got his start in self-storage in 2006 and has held resident, area and district-manager positions. To reach him, call 469.955.2837; e-mail [email protected]; visit www.ministoragedepot.com. 

The Federation of European Self Storage Associations (FEDESSA) and investment-management firm JLL (Jones Lang LaSalle) have released research findings from a 2018 survey of the European self-storage market. The organizations polled more than 700 facility operators. The results indicate the market continues to grow, though there’s uncertainty about how economic factors may impact future supply, according to a press release.

This year, there are 3,792 facilities comprising 9.7 million square meters of storage in operation on the continent, an increase of more than 500 properties for the second year in a row. On the development front, a group of respondents that collectively operate 1,186 facilities indicated they plan to add a total of 381 locations between them over the next three years. If all those projects come to fruition, it would equate to 32 percent growth, or a compound annual growth rate of 9.73 percent.

“The outlook for the self-storage sector in Europe is positive. With good macro and demographic fundamentals, the next few years should see this entrepreneurial sector continue to evolve. We are seeing innovative operators adopting technology in new ways and developing better buildings,” said Ollie Saunders, lead director of self-storage Europe for JLL. “There are some young portfolios which are growing steadily, and some more established players who are both consolidating and developing new stores. There is plenty of room for both the independents and the big players, with a variety of ways for new capital to invest in the market.”

Despite the growth, the amount of rentable storage space available is just .02 square meters per person, compared to .87 square meters in the United States. Further, more than 82 percent of European facilities are concentrated in six countries, with 40 percent in the United Kingdom. Those figures are down from 85 percent and 44 percent, respectively, from a year ago.

Similarly, the region remains “highly fragmented” in terms of operating companies, with the 10 largest brands comprising 23 percent of all European facilities and 39 percent of total storage space, according to the report. Those figures are essentially identical to last year.

Among the countries outpacing the continental average of storage space per capita are Iceland and the Netherlands. Along with the U.K, these markets each have three times the European average of rentable square feet per person. Still, average rent across the region has risen to €262 per square meter per year, despite average occupancy falling from 81 percent to 78 percent year over year.

“The self-storage industry in Europe continues to perform well, with solid returns along with increasing levels of supply and a strong supply pipeline,” said FEDESSA CEO Rennie Schafer. “However, this increase in supply, combined with the current economic uncertainty, may test certain parts of the market in the coming years.”

The survey also revealed that 76 percent of operators believe they’ll achieve an increase in profit in 2018 vs. 2017, though just 40 percent indicated they expect an increase in rental growth, the release stated.

Founded in 2004, FEDESSA consists of 14 self-storage associations across Europe and represents about 1,400 self-storage facilities.

JLL is an investment-management firm specializing in real estate services for property investors and occupiers. The company has about 300 corporate offices in more than 80 countries and a global workforce of more than 86,000 employees.

Stor-Age Property REIT, which operates self-storage in South Africa and the United Kingdom, has raised R400 million in a recent stock placement, beating its goal by R50 million. The company intends to use the capital to fuel expansion in both nations. The capitalization was achieved “despite the constrained domestic environment and subdued” Johannesburg Stock Exchange real estate investment trust (REIT) sector, according to a source.

“Self-storage is a niche, specialized asset class, which is not subject to the same macroeconomic factors that drive demand and supply dynamics for traditional REITs,” said Gavin Lucas, CEO. “Self-storage benefits from having a consistent level of demand throughout the different economic cycles. It’s this consistent level of demand which sustains the performance of the assets through the economic cycle. In today’s market, it would be extremely difficult to replicate a portfolio of self-storage properties like those in our managed portfolio in South Africa, as the barriers to entry are high.”

Earlier this month, Stor-Age exercised its pre-emptive right to purchase 12 facilities from its managed portfolio. It also recently opened its 50th location in South Africa. It expanded to the U.K. last year by acquiring the Storage King brand for approximately £77.13 million.

“Despite the uncertainty created by Brexit, self-storage as a sub-sector of the commercial-property market continues to trade positively in the U.K.,” Lucas told a source. “Our Storage King brand continues to deliver in line with our forecasts, and we remain excited about the growth prospects for our U.K. platform.”

Headquartered in Cape Town, Stor-Age was established in 2005 by Stor-Age Property Holdings Pty. Ltd. to acquire, develop and manage self-storage assets. Today, Stor-Age operates a 63-property portfolio, primarily in four South African metropolitan areas, that comprise approximately 407,000 square meters. The company was listed on the Johannesburg Stock Exchange in November 2015.

Source:
Property Wheel, Stor-Age’s Oversubscribed Bookbuild Raises R400 Million

Canadian development firm Ulmus Development Ltd. plans to build a mixed-use, eco-friendly project in downtown Kelowna, British Columbia, that’ll include self-storage and co-workspace. Slated to open next summer, the five-story EcoLock Kelowna will be the first of its kind in North America, and one of 16 projects to participate in Canada’s “Zero Carbon Building Pilot Program,” according to the source. The 112,000-square-foot building on Bay Avenue and Ellis Street will generate 105 percent of its electricity through solar and won’t be attached to the natural gas grid.

“Buildings are the No. 1 producer of greenhouse gasses in North America, and this project is raising the bar for sustainable development,” said Ulmus CEO Don Redden. “With 2.5 billion square feet of self-storage facilities in North America, many of the facilities are low-density, unproductive spaces that don’t contribute to the fabric of a neighborhood. EcoLock Kelowna will demonstrate that there are greener, more customer-focused alternatives to enable dense, walkable urban living and creative storage solutions.”

The building’s internal walls will sequester carbon by using Just BioFiber blocks. Made in Canada from waste hemp stock, each block can store 6.5 kilograms of carbon. The blocks can be used to replace a significant amount of steel and concrete in a project, which will lead to continuous de-carbonization of materials over time, the source reported. EcoLock will be one of the largest building-specific “sinks” of sequestered atmospheric carbon dioxide in the world. In addition, a 62,000-litre tank under the building will collect, filter and reuse rainwater for landscape irrigation.

The project was designed by Jason F. McLennan, a Canadian and the founder of McLennan Design, an international architecture and planning firm. McLennan is considered one of the most influential people in the green-building movement, the source reported. He’s a recipient of the Buckminster Fuller Challenge, an annual international design competition that awards $100,000 to the most comprehensive solution to a pressing global problem. He’s also the creator of the Living Building Challenge, an international certification program for sustainable building created in 2006 by International Living Future Institute.

“EcoLock Kelowna is pursuing the most stringent green-building standard in the world through the Living Building Challenge,” McLennan said. “Most commercial development hasn’t yet caught up with the trends toward high-performance sustainable design, and I believe this project will help lead the way.”

In addition to self-storage units, the building will contain Werkright co-workspace areas designed for local business owners who require a professional work and meeting area. “EcoLock and Ulmus Developments are excited to be bringing this innovative project to Kelowna to demonstrate how [British Columbia] companies are on the leading edge of combating climate change with creative environmental solutions,” Redden said.

The privately funded project has been approved by the Kelowna City Council. “The City of Kelowna is committed to building connected, strong neighborhoods and urban centers that help us limit our greenhouse gas emissions,” said Kelowna Mayor Colin Basran. “We also have corporate goals to reduce [greenhouse gases] in city-owned buildings, so it’s great to see a company like EcoLock come to Kelowna to build one of the greenest buildings in North America.”

Source:
Kelowna Capital News, Kelowna to Be Home of Green Self Storage Facility

Store Space Self Storage, which operates 13 facilities in four states, has acquired three Storage King USA properties in Philadelphia from Andover Properties LLC. The properties at 3100 C. St., 5134 Lancaster Ave. and 335 E. Price St. add 235,000 square feet of rental space and 2,146 units to the Store Space portfolio, according to a press release.

“The acquisition of these three properties gives us a foothold in the Philadelphia market,” said Rob Consalvo, chief operating officer and president for Store Space. “Through strategic capital expenditures and additional acquisitions, we'll position ourselves as a leader in the market.”

Store Space plans to upgrade the facilities. “The prior owner did a fantastic job rehabilitating these properties after purchasing them as [real estate owned] several years ago,” said Store Space CEO Chris Harris. “We will continue that rehabilitation to convert these properties to solid, class-A facilities and support the broader gentrification already starting in the surrounding neighborhoods.”

Both buyer and seller were represented in the transaction by Luke Elliott and Michael A. Mele, investment specialists for Marcus & Millichap, a commercial-property investment firm with more than 1,500 investment professionals in offices throughout Canada and the United States.

Launched by industry veterans Consalvo and Harris earlier this year, Store Space also provides third-party management services to other self-storage operators. The company is headquartered in Orlando, Fla.

Founded in 2003 and based in New York City, Andover owns and operates 29 self-storage facilities in 9 states. The firm focuses on the acquisition, development and management of industrial, retail and self-storage facilities, primarily in the North and Southeast.

Source:
The Virginian Pilot, Store Space Acquires Three Self-Storage Properties