U-TURN FOR PROFITS How The Pros Turn Around
An Underperforming Property
By John Gertenbach

After 20 years in the self storage business, I’ve had the opportunity to manage a variety of storage properties. Large, small, class A, and some that you would swear were salvage yards rather than storage facilities! While it’s always nice to take on a shiny, brand new property with all the bells and whistles, I find the neglected properties the most challenging as well as the most fulfilling in the end.

While every property is need specific, I generally concentrate on four areas of concern when taking on an underperforming property: the on-site management, aesthetics or “curb appeal,” marketing, and best use of space. Sometimes, an underperforming property is nothing more than a “diamond in the rough” that only needs polishing in critical areas to change it into a sparkling jewel. In fact, with the right attention, a facility can make a sharp u-turn from being the least profitable self storage business in a market to the most profitable.

Facility Management
The key element of a successful self storage business, facility managers come in a variety of shapes and sizes. They have different backgrounds, personalities, and ways of doing things. Overall, facility managers have changed dramatically in the past 20 years. Back then, it was common for a facility to be 100 percent occupied with a waiting list. Those days are long gone. The competition has become fierce and the demand to compete for a share of the pie has become critical. Today we are in search of capable and educated managers with sales and marketing abilities.

If you asked 100 site managers what their ultimate goal was, I would bet that at least 90 of them would say it was to be 100 percent occupied. Of course, we all want to be fully occupied, but even a property that is nearly full can be an underperforming property. How do your rates compare with your competitors’? I have managers tell me all the time, “Our prices are too high. ABC Storage down the street is charging $5 per month less than we are.” Yes, but the facility down the street doesn’t have drive-up units, individually alarmed spaces, camera surveillance, on-site management, etc. Managers have to be aware of their markets. They need to know not only the pricing structure of their competitors, but also the product itself.

In fact, I nearly always find that there’s money sitting on the table. If you have a property that is operating at a high occupancy level, it is time to bump your rates a dollar or two. But even with a lower occupancy level, you can usually pass along a small increase to your existing tenants. Very few of them will vacate because of a $2 increase, which, for a facility with 600 tenants, equates to an annual increase of $14,000. In today’s market, that’s more than a $200,000 increase in property value. If my managers are increasing my property value by almost a quarter of a million dollars, you can bet I’m willing to share a piece of that profit with them. This is one of the easiest but most frequently overlooked avenues for increased profitability.

Managers must understand the “bottom line.” That’s what we are all in business for. What actually delivers the bottom line? The greatest possible income and the least possible expense. There are a number of focus areas that generate income: rentals, customer service, marketing, and collections are just a few.

It’s extremely important to ask all the right questions and cover all aspects of a complete sales presentation when speaking to a prospective tenant. Managers need to understand the critical importance of each prospective inquiry, whether it comes by telephone, Internet, e-mail, or walk-in. Although the Yellow Pages was once the primary advertising expense, in today’s marketing realm, we have become dependent on spending our advertising dollars also on direct mail, e-mail, Internet, and door-to-door marketing. All of these things cost money, and it’s important to know how to distribute our advertising dollars among these methods. Track every inquiry and rental to discover exactly where your business is coming from.

No one likes to ask for money! This carries over into our business in the form of receivables. Almost every underperforming property is guilty of having higher than necessary receivables. That’s more money sitting on the table! It’s not going to get up and jump in to your pocket; you have to go get it. It’s amazing how often after I coach a manager on making collection calls that they say to me with surprise, “Wow … I’ve had four people in lien come in today and pay.” All the manager did was call and ask for the money. It sounds simple ... and it is! You simply have to make collection calls a daily priority.

Of course, managers should consult with their supervisors before developing a collection program or strategy, but I’ve seen some managers call a tenant eight, nine, or 10 times. It’s funny how effective this is, as the tenant finally gets tired of hearing from the manager. I instruct my people to call and ask once in a polite, reminding manner, and then each subsequent call becomes a little more demanding. You can ask the tenant when you can expect him to come in and pay. Tell him you will make a note of this in your computer, and call back again if he does not keep his commitment. Whatever your collection strategy is, I guarantee that if you ask for the money, it will usually make its way from that big number on your receivables report into your bank account.

Marketing Makeover
It’s imperative that the self storage industry step outside the box and start implementing marketing strategies that other types of businesses have been utilizing for years. Probably the biggest and most powerful marketing change we have seen in the last decade is the presence of the Web. Operating without a Web site in today’s market is like neglecting to put your phone number in the Yellow Pages.

My opinion is that the Internet will eventually take a good-sized bite out of the Yellow Pages piece of the pie. I’m still a strong proponent of a full-page ad in as many Yellow Pages publications as cater to your market; however, we all need to get on board with the Internet wave. I also believe in direct mail and a strong door-to-door campaign, and I think we will also be seeing more radio and television self storage campaigns in the near future.

Rental trucks are also a marketing tool, and more and more operators are realizing the importance of such marketing. I have to admit that I’ve questioned the profitability of leasing or purchasing a rental truck for any of my facilities. I finally ordered my first truck for a property that is struggling to compete. I have 156 vacancies at this particular property, and if that truck can generate as few as three rentals per month, I’ve filled every one of those vacancies over the term of the lease.

If you are not implementing any one of these marketing strategies, you are probably losing business. Facility managers should be taking advantage of all of these marketing platforms. Understanding product marketing will unquestionably deliver to the bottom line.

Curb Appeal
We’ve all heard that first impressions mean a lot. This has always held true in the self storage business as well as any other business. However, with all the new facilities being built today, this issue is much more relevant than in the past.

Usually the fix for a “landscape challenged” property is quite simple and affordable. We’ve all driven down a street where there may be two, three, or four self storage facilities, and in most cases, one of those will stand out amidst the others. Often, it’s the one with a green and well-manicured lawn, neatly trimmed shrubs, colorful potted or planted flowers, freshly painted office frontage, and clean and well-maintained driveways and parking lots. These things are relatively inexpensive to maintain or implement.

I recently relocated to Northern Washington. Knowing I was going to need storage, I paid close attention to self storage facilities while driving from the airport. Within the 40-mile trip, I probably encountered 15 facilities. While there were a handful I probably would have rented from, one in particular really stood out. When I arrived at my hotel, I called the phone number that was clearly displayed on the signage. They had the size I needed and I rented the space sight unseen over the phone. I didn’t shop other facilities, nor did the seemingly high rental rate deter me. I could tell this was a well-managed property just by the pride they took in the exterior appearance.

The same principle should apply once a prospective tenant steps into the self storage office. There should be no personal artifacts or pictures cluttering the business office. All signage should be professionally printed and displayed. The walls should be clean or freshly painted, the flooring should be clean, and the windows clean and well-dressed. The customer should not feel as if he has walked into someone’s home, but rather into an inviting place of business.

Best Use Of Space
If all the above areas of concern have been met and the property still displays a higher than expected vacancy, I tend to look at the unit mix and the physical outlay of the property itself. It was common in years past to build a storage property with an unbalanced unit mix—typically, with an overabundance of smaller units. With an underperforming property, I often find the unit mix to be the culprit in high vacancy. Sometimes converting smaller spaces to large, or vice versa, can be challenging or cost prohibitive altogether. But when it is possible, unit conversions can be a profitable venture.

For example, if you have a number of vacant 5-by-10s and you can remove a wall between two of them to create a 10-by-10, perhaps this is a unit size in demand. In fact, I’ve taken walls out of six 5-by-10 units to create a 10-by-30. Sometimes it’s worth changing the doors, but sometimes not. There may still be six doors to the 10-by-30 unit, but that unit will rent, and having multiple doors may even be a benefit to the tenant.

In my market, containerized storage has become a factor in the past 10 or so years. I’ve taken vacant areas on my properties and brought in 8-by-20 and 8-by-40 cargo containers. These containers make great, secure storage units. An empty space in my parking lot or alongside the fence line may now be home to three 8-by-40 containers generating $190 each per month. Looking at the big picture, that equates to an increase in property value of about $100,000.

RV parking is also in huge demand these days. At one of my properties, I recently created seven open RV spaces simply by painting some lines on the concrete and creating new space numbers in the computer. Fortunately, we had an abundance of parking space we were able to utilize. This can go either way. If a facility that has both RV and conventional storage space is fully occupied in conventional units, it can be worthwhile to take some or all of the RV spaces and create more storage units. The dollar per square foot for storage units is much more attractive than the dollar per square foot for open parking space. One of my clients purchased a facility a few years ago in which the perimeter of the property was devoted to containerized storage and the infill was open parking. The containerized storage was at near full occupancy, as was the open parking. The monthly gross potential income for that property was $15,000. The previous owner was thrilled that he was 100 percent occupied and he was collecting his $15,000 every month without fail.

After my client purchased the property, we looked closely at the hidden or overlooked potential of the facility. We decided that while the RV spaces were full, we could not accept the argument that they were the best possible use for this space. We decided to vacate all the open parking spaces and brought in more cargo containers instead. We installed roll-up doors on the containers and had them painted to match our existing units. We filled those containers in a short period, and our monthly gross potential income jumped from $15,000 to $29,000. Today we enjoy double the income stream as when we purchased the property only a few years back. Best use of space is very often an overlooked area, but is one that can be a real profit maker.

Of course, every self storage property can have specific needs and inherited problems, but following some of the guidelines mentioned here can undoubtedly bring more money to the table. Be creative, be motivated, follow through, and your underperforming property can become a real jewel.