Article by Live Oak Bank
Are you considering the purchase or acquisition of a self-storage facility? We recently interviewed Self-Storage Expert, Jim Chiswell, and got his thoughts on feasibility studies, squashing competition, self-storage ownership and more. Read our interview below.
Q: What do you need to take into consideration before you conduct a feasibility study?
A: The comment that I have repeated many times over the years to potential clients is “Do Your Homework.” I am always surprised when I start talking to someone, and they have no idea how much competition they have in the target market area or how the land they are considering is zoned. The increasingly competitive marketplace makes “Homework – Homework – Homework” the mantra for everyone thinking about getting into the business now.
Q: Is there a healthy amount of competition when it comes to opening a new facility in a popular area?
A: I have always felt the best competition is zero. I can still remember the days working on locations where the closest competition was 15 or 20 miles away. Not so today.
When it comes to self-storage ownership, you must look at competition both on a quantitative as well as qualitative level.
I can tell you from my office in Virginia how much gross square footage there is with a given market area. What I can’t tell you is the quality of those facilities. What amenities are the individual facilities providing? Temperature controlled units? On-site management? State-of-the-art security? Deferred Maintenance? Curb Appeal? Ease of ingress and egress? All of these factors and many more could point to a market opportunity for a new first-class facility despite what the mathematical Supply / Demand Gap shows.
Q: How do you determine your target market area?
A: People subconsciously define their “Convenience Market” with the following data points: Where They Live – Where They Work – Where They Shop /Dine – Where Their Children Go to School and Where They Go to Church. You may have a site that is actually closer to where they live, for example, but if they never drive in that direction for any of the items above, they just don’t consider it “in their market”.
So that site, in the back of an industrial park backing up to the Interstate, with 80,000 vehicles per day going by at 65-70 MPH and no exit within 10 to 15 miles in either direction is basically totally useless for the marketing of the business. I would much rather have frontage on a local street with 7,500 to 15,000 vehicles per day going by my facility because the majority are local folks and therefore potential customers.
Q: Financials: Where do you begin?
A: Self-Storage financials are built around the ultimate Unit Mix. Yes, you will generate additional income from administrative fees, late fees, product sales, truck rentals and customers’ goods insurance, but it is renting units that is the bulk of our income.
I have always felt that designing a Unit Mix is much more an art form than a science. However, I must comment that the power of an Excel spreadsheet to allow you to do “What If – What If” projections can get you into trouble. The financial projections of a 45,000 net rentable square foot facility with an average unit size of 85 square feet will look totally different than the same square footage if the average unit size is 115 square feet. The traditional “Banker’s Unit Mix” is one that looks great on paper, but if the hundreds of small units you have projected don’t rent, the Net Operating Income disappears really quickly.
Q: What’s are your thoughts on marketing a facility? Any tips from an expert?
A: I have been telling clients for years that consideration of the Management and Marketing of a new facility needs to start the same day you get your building permit. I still drive by new facilities across the country that are under construction without a single Coming Soon sign on the highway and no website established.
It is only when you start renting units that you start making any revenue. Don’t wait until 30 days before you get your Certificate of Occupancy to start to think about your marketing and management strategies for the business.
The internet has become increasingly important in the marketing of our facilities.
Yet, the 2017 Self Storage Demand Study once again pointed out that the number one reason storage customers give to answer the question “Why did you pick the location you are using?” was “Seeing It Driving By.” An investment in the curb appeal of the facility could be the best marketing money spent.
I always encourage my clients to create a strong Customer Referral Bonus Program from the beginning. Unlike some people, I don’t like using the bonus to reduce people’s next month’s rent. I have always felt that seeing the reward in their hand helps to reinforce the benefit that they are receiving, so I would much rather give a $25 Visa gift card than $25 off next month’s rent. You can also give people the option of several incentives: money gift card / restaurant voucher / Starbucks gift card etc.
Just remember your thinking about Marketing and Managing the facility must start the day you get your building permit.
Jim Chiswell has held a career in the self-storage industry extending for over 35 years. He launched his self-storage consulting firm in July 1990 after working at Sovran Self Storage (now Life Storage). Jim's firm provides Feasibility and Acquisition Due Diligence services from coast-to-coast. In addition, he works with a group of clients annually as a coach for both owners and their managers. A frequent speaker at both national and state industry conferences, Jim also contributes articles to both the Inside Self-Storage and Mini Storage Messenger magazines.