Random Thoughts on Self-Storage Management

I was cleaning out an archive folder and came across a few articles that I had written for the managers at our self-storage facilities. Below are a few excerpts that may speak to some of your concerns with running a self-storage business:

The operation of your self-storage location is a very involved undertaking.  Although your inventory is simple, you have to exercise a lot of organizational skills to keep your store running properly.  Sometimes it’s hard to know where to start.  With so much going on, what are you going to focus on?

Here are the essential tasks of a good self-storage operator:

  • When the phone rings, answer it
  • When you say you’re going to be there, be there.
  • Every customer has a complete, signed contract in the file or stored electronically.
  • The company’s money goes into the company’s bank account.

When you carry out these tasks effectively and consistently, the performance of your facility will improve, and that’s what we are all about.

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Nationwide studies show that 1-in-3 phone calls to self-storage facilities is converted into a visit. This means that an average potential customer is going to call at least three facilities before choosing one. It also means that you have an opportunity to convert more of these callers into visitors. This is your primary job: get this person off of the phone and into your store! When answering the call, don’t even think about getting them to sign a contract. Your goal is to create a strong enough impression, a real connection, that this person will come see you. You will not be successful by giving the same information that they hear from the other two facilities that they are calling. You have 45 seconds to make a connection with the person on the other end of the line, and the clock is ticking…

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When managed correctly, self-storage is a very simple business.  If, however, you don’t stay in front of the daily tasks and occassional challenges, this business will wear you out.  I think that there are a couple key ideas that will help you keep it simple.  First:  know what you do.  You rent self-storage units and create satisified customers.  This bit of self-knowledge must guide you in everything that you do at your store.  Second: ask yourself good questions.  What do I need to do now in order to rent my next unit?  What else can I do to enhance my store?  What skill do I need to improve today so that I am a better manager tomorrow?  Third:  ask me any question.  Managing a self-storage facility is a growth process.  What worked today will not necessarily be adequate tomorrow.  I am continually learning from you, from other owners, from literature and web sites, and from other businesses.  I am a resource that’s always available to help you elevate your skill set,  increase your competence, enjoy job satisfaction, and ultimately, rent more self-storage units.

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It’s my experience that life is fundamentally challenging.  Learning how to walk.  Going through adolescence.  Getting the dog to mind.  Using a new software program.  Working with a new boss.  Opening a cereal package without scattering it across the kitchen.  We all have plenty to deal with.

Knowing this, we have a goal of being part of the solution, not the problem, for each of our customers.  Here are some ways (in no particular order of importance) that we can be a solution-oriented company:

  • Answer the phone when someone calls…every time.
  • Carry the customer’s box purchase to their car
  • Remove overlock immediately when rent is paid current
  • Enter gate codes correctly and show tenant how to use keypad entry
  • Get fast at completing leases so that you don’t obligate the customers time
  • Send out correct invoices promptly
  • Call your customers to give them fair warning of upcoming fees
  • Do what you tell them that you are going to do
  • If you don’t know the answer to one of their questions, find out

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Creating a base of new customers is the key to managing an exceptional self-storage facility.  Our business is unlike any other real estate business in that we are completely comfortable with move-outs.  We expect good tenants to move-out like clockwork, and we are always preparing to replace the outgoing with the incoming.  Although we can slow the departure of customers (mainly by never giving them a reason to leave until they are absolutely ready to leave), the only way to maintain the vitality of our stores is keep refreshing our base of customers.  Think of your self-storage facility like a pool of water with new customers flowing in and old customers flowing out.   You can’t build a dam; so the only way to keep the pool full is to bring in fresh water.

You have to be generating new customers everyday if you are going to operate a top-flight facility.  We have discussed many ways that you do this, including maintaining a clean office, having units ready to rent, fully satisfying current customers, building relationship with other businesses, training your support staff, knowing your facility.  The single most important tool that you have for bringing in new customers is the telephone.  Use it well!  We have customers that have rented multiple units for many years.  What if you had missed that phone call?  What if you were filling out a really important form when the phone rang?  What if you were helping a current customer on the other line and you let that call go?  What if I was talking with you about a problem customer when that call came?  You cannot afford to miss that call.

Here’s a rule of thumb:  1/3 of the new calls are going to come to us no matter what.  They know us or our location is next door.  They heard we’re the best or something like that.  1/3 aren’t going to rent no matter what.  They really aren’t ready for storage yet or they plan on renting from the competitor after price-checking.  1/3 are truly still up in the air.  This is where we make our money.  You must capture the undecided prospect in order to create the flow of new customers.  When the phone rings, you never know which third is calling.  Get to that phone call every time and connect to that prospective client.

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Self-Storage as an Asset

For many years, self-storage was a called a recession-proof investment by owner/operators in the industry. This designation was based on anecdotal experience from those of us who had run multiple facilities in multiple markets for at least twenty years. It made a good story, but like most business stories, it glossed over many salient facts in order to tell a compelling, albeit misleading, tale.


The consistent growth and lack of failure in self-storage development was a function of historical circumstances that consistently benefited this asset class. This notion will be vehemently challenged by maverick developers and REIT executives who can tell you what they have uniquely executed to become over-achieving successes. Being in the right place at the the right time and not making a catastrophic error is a more accurate explanation. California and Texas were the birthplace of the business in the seventies, serving as a precursor and testing ground for the national growth of self-service storage facilities, and the industry emerged in the eighties across all U.S. markets. High interest rates at the end of the Carter-era put pressure on landowners to generate revenue from their holdings. The lingering recession impeded the opportunities for traditional real-estate plays like office and retail; without economic growth, new buildings were not needed. With interest rates at high double-digits, the proforma for a self-storage facility was not particularly promising, but they were more enticing than simply servicing the land loan out-of-pocket. At this time, prefabricated metal building companies had established a stable industry with consistent design, fabrication, delivery, and erection. Building departments gave minimal push-back to these packaged products, and few municipalities had yet established guidelines on the ascetic presentation of self-storage projects. Furthermore, retention/detention of surface water had not become a critical planning issue for most communities. Simply put: it was cheap and easy to build self-storage.


By the end of the eighties, self-storage operators were seeing solid returns on their ventures. Declining interest rates and looser lending practices promoted additional growth of the industry. The next big push occurred in tandem with the S&L crisis. Failed/failing institutions began off-loading REO at prices extremely favorable to developers. The land portion of a self-storage development deal cost only 10% of the budget as compared to the 25-30% that is typical today. Pricing got even better when the RTC took over hundreds of failed thrifts and began fire-sales on property. Self-storage developers in Texas and California maximized this opportunity. It is estimated that the national inventory of self-storage doubled between 1995-2006. In just over a decade, the amount of product increased by a factor of two. No other real estate class has experienced this type of growth, and self-storage developers took this as normal and continued to grow as fast as they could. This growth was further fueled by syndicators who saw an opportunity to take a highly visible, poorly understood asset to overly eager, uninformed investors. A broad range of debt products promoted the growth at a still faster rate. Only the stoppage of virtually all real-estate growth halted the expansion of the self-storage industry in 2008. And at that time, we found out that self-storage is not recession-proof.


Self-storage is recession-resilient. Occupancy and rates dropped by over 10% industry wide (Some sources reported this as low as 6% and some up to 15%). Smaller markets were hit harder. The nature of the asset is the source of its flexibility: self-storage facilities typically have a 50% annual churn rate. A good facility loses half of its customers every year. The larger than average move-out in 2009 certainly caused damage to the bottom line, but the decrease in occupancy and resultant discounting was an increase in a normal business process not the introduction of new problem. The industry also benefited from other consequences of the recession. Homeowners downsized and utilized self-storage. Businesses broke retail leases and moved inventory and fixtures into self-storage. Business expansion was non-committal and preferred month-to-month leasing in self-storage. By 2011, the industry had recovered from the setback and started a new development cycle.


Self-storage is an industry that is moving into adulthood. There are an estimated 45,000-50,000 self-storage facilities in the U.S. Only about 15% are controlled by institutional owners, and another 10% are owned by large, private companies. That leaves a huge portion of the asset class in the hands of very small operators. The institutional entities are highly concentrated in core MSA’s, and they continue to focus on expansion via acquisition rather than construction. This indicates a growth opportunity for developers able to identify and develop in-fill sites in major MSA’s. The REIT’s want to acquire because they can quantify growth and risk within their business model. They buy an existing facility in California at a sub-5% cap rate because their cost of funds is zero. They add 2% in expenses to cover their high administration fees, and they can continue to return a 3% dividend to their stockholders while their stock price increases 14% for the year. New development creates a revenue void during lease-up and introduces the uncertainty of lease-up projections. The large private companies have a different set of challenges. In particular, they are driven to grow because of their increased administrative expenses as they grow. They are disinclined to pass on marginal deals and they look for cash streams from non-core sources. For example, they handle a lot of third-party property management contracts. They deny that there is any possible conflict in interest, e.g., a poorly managed property has low revenue causing the owner to sell and the property management company informs another client (or themselves) of a good buying opportunity. The principals are also investors and they disavow in problem in cherry-picking the best deals. The next tier of operators is the large independent, running between 10 and 20 properties. The two biggest challenges to this group is raising equity when a good deal is found and keeping growth down so that a new level of administration is not required. The conflict of these two points is evident: your business can grow but growth creates a problem you have not handled before. Lastly, the single facility owners are preserving what they have; their business model is usually to do what they have always done and hope that nothing bad happens. There is rarely an exit strategy in place.


The interesting part about all the challenges described above is that none of them have anything to do with self-storage. They are business model issues, and there are many resources available for effective business management. We, self-storage operators, tend to come from small business models, and we tend to be better at running self-storage than building the business operations. It’s common to find a self-storage operator who has let their facilities slip while trying to figure out what they want their business to look like. The more effective route is to find outside assistance in reorganizing to accommodate for expansion.


The successful operator is the one who is still looking for the next good acquisition or development, one project at a time. Self-storage is fundamentally a 10 cap business. There are plenty of appropriate reasons for buying or building below that rate, but it needs to be justified for explicit reasons. The industry is at the furthest reach from this pricing, and there will be a correction, just a surely as the interest rates will go up. There are thousands of fundamentally unsound self-storage projects across the country, and many were on the verge of failure when financed at 6.5-7%. No action was taken by lenders on these non-performers, and refinancing at historically low rates bailed out these problem projects. Still, the problem of too-high first costs has not been resolved, merely delayed. When refinance occurs for these projects currently with a 85% LTV at 5.5%, they will have to add capital when the best financing option is 75% LTV at 6.75% with no interest only. When refinance coincides with historically average rates, these opportunities should abound. The two key areas for growth are infill development and opportunistic acquisition. The diligent, consistent, flexible self-storage operator will continue to find solid opportunities at all cycles of the economy.

Styles of Property Management for Self-Storage

For such a simple business, self-storage is highly deceptive. It looks like a real estate. Ittrades like real estate. It is taxed as real estate. However, the value of self-storage haslittle to do with real estate; the value is created through sales, just like retail. There arethree fundamental methods of managing this retail component of self-storage: 1) The“we don’t really know what we do” approach; 2) the System approach; 3) the Grassrootsapproach.In the first approach, the owner runs it like they have always run it. They really don’tknow why they do what they do. They just keep doing it. This method works until itdoesn’t, and frequently, it has stopped working long before the owner is aware of thefailure.The second approach is implemented by the larger operators in our industry, and there isample evidence of the success of this approach. All staff, e.g., call center operators, deskclerks, regional managers, are completely interchangeable. When one person quits,another one is in place the next day. Sales are conducted by script, and on average, this issuccessful. This model works best when you are averaging the productivity of dozens orhundreds of facilities. For this to work, owners must treat employees and customersalike: always replaceable and completely interchangeable.At Grow Your Storage, we utilize the grassroots approach to property management.Each facility is its own operation, and we develop a unique approach for every facility.The property managers are the key to our strategy, and they thoroughly understand andutilize our simple approach: connect with your customer. Our managers represent,promote, operate, and care for each of our properties. We provide the initial and ongoingtraining so that our property managers know how to convert contacts into satisfiedcustomers. We measure success of each property individually and we constantly work toimprove the return at each facility. In self-storage, success is a moving target, and ourobjective is to consistently evaluate our performance so that we let go of strategies thatno longer work and initiate new actions that give us a chance at increasing our successand give our customers the best storage experience in every market where we operate.

The Roles in the Business of Self-Storage

The purpose of this article is show you an important new way to to look at your self-storage business. By seeing your operations from a new perspective, you will develop the means of making more productive strategic decisions.

Let's get conceptual about the organizational structure of self-storage. Whatever you do in the business, just put it into parentheses for a while. Temporarily forget what your perceived tasks and responsibilities are in your specific self-storage. Here is an opportunity to change you mindset about how a successful self-storage business can be organized.

You have to start with an understanding of roles. Roles come before the people or the groups or the companies that fill them. Multiple roles can be filled by the same person, and multiple people can fill the same role. So, what are the roles for an independent self-storage buiness?

The first role is the leader. The leader provides the vision and direction for the company.​ Naturally, this role is usually taken by the owner of the property. The leader is always providing the direction for the company whether he or she is aware of it or not. This means that leaders who are not actively defining the direction for their team members are likely sending an ambiguous, detrimental message. For example, has the leader of your company told them the vision for customer retention? Is your goal to keep existing customers for stability or to turn over customers to push higher rates? If the leader hasn't told them the objective, the team will not be taking the right action to achieve it.

​The next role is the director. The director oversees the implementation of practices and policies. In addition, the director makes sure that business requirement, e.g., payroll taxes, insurance, accounting, etc., are being handled. This role is typically fulfilled by the owner or the property manager. The crux of this role is communication and follow-up. The director must understand what the leader wants to accomplish, and the director must communicate to the leader what resources are available in order to reach goals. The director must also communicate the leader's goals to the on-site staff. This communication is in the form of an action plan, and the director must follow-up to verify that the right actions are being taken.

​The most important role is the operator. This is the person who has the most interaction with prospects, customers, and vendors. This is the critical role for the self-storage business operation, and this role is filled by the manager. The operator is on-site to see that units are being rented and customers are being retained. The operator sees that the property stays in the shape necessary for units to be rented to prospects. The operator communicates with the director and the owner about resources needed to achieve stated objectives or about new challenges that need to be addressed. The operator is the identity of the business.

The last role is the support. These are critical on-site staff members who are surrogates for the operator. Support staff handle essential operations in the absence of the operator. Their key task is sales, i.e., renting units to prospects. It is their responsibility to keep regular operations moving and to report any extraordinary activity to the operator.

If a self-storage business does not have these roles sufficiently filled, the property is losing money and is being set up for bigger problems. For more information about how to fill these roles so that you make more money with less stress, visit us at www.selfstoragescience.com