Whether you are thinking of selling, refinancing, or just want to optimize the income your property generates, here are a few tips I’ve learned from the 18 years helping owners sell their self-
storage facilities. There are many, many ways a self-storage owner (or operator) can improve their bottom line, and I’m sure I’ve left out a few ideas that others have uncovered.
OPTIMIZE RENTAL INCOME – The most obvious way to increase the net operating income of your self-storage facility is by increasing the monthly rental collections. But how?
- The most sophisticated operators utilize dynamic pricing models and revenue management software. Although relatively new to self-storage, there are many options available, and your facility management software platform likely has this functionality. Increasing prices by only a few dollars per unit can have an outsized impact on your facility’s value. A facility with 500 occupied units and a $2/unit monthly increase would increase the overall value by $200,000-250,000
- Improve your customer retention rates. There is an adage in business that it costs you 7x more to get a new customer than to keep an existing one. Whatever the number, keeping more customers for longer periods will make an enormous impact on your bottom line
- Revenue add-ons – adding tenant protection (aka tenant insurance) income, retail sales (think locks, boxes, packing materials), admin and late fees, etc. can have a similar or even greater impact than rate increases
- Right-size your unit mix by analyzing your least productive unit sizes and adjusting those as you are able. Most storage units can be adjusted with minimal investment. If your 5×5 units are always close to 100% occupancy but your 10x20’s are only at 70%, converting a few of the larger units will have a very quick return and add significant long-term value. Do an occupancy history audit by unit size, and you may find some obvious adjustments that make economic sense.
- Eliminate “unrentable units”. It’s surprising to see facilities that have as many as 5% of their units marked as unrentable. This is like having inventory sitting in a warehouse collecting dust!
- Add “owner units” or other spaces that are not being rented to your inventory. Some facilities have oversized offices that the ownership has used to run this and other businesses that a buyer will not pay you for. Convert excess space into additional storage units or secure other income. If an office can’t be converted to storage, perhaps one of your tenants would pay to use the space as an executive office. Optimize your space to optimize income and asset value!
- If you have excess land, you may be able to add parking or portable storage units to your facility to generate additional income
- To get the highest possible rents in your sub-market, you may need to add some cosmetic touches or additional security features. Tenants prefer a clean, well-lit and secure self-storage facility, so do a site walk and make any necessary upgrades
- Mom and Pop operators can’t compete online with the REITS or institutional operators. You may consider bringing in professional management (the typical cost is 5-6% of your gross income), or you may out-market them on a local basis. Grassroots marketing can be very cost-effective. Ask for referrals, visit small local businesses, have your manager join the chamber of commerce or a leads group, send out a postcard with a promotional rental rate, and work your local trade area.
The flip side of managing your income is monitoring your expenses. The objective of many small business owners is to minimize taxes paid, and that is a smart strategy. When it comes time to sell, an experienced self-storage broker will adjust your financial statements to reflect typical operating expenses and remove “owner discretionary” expenses such as personal cell phones, car payments, insurance, and more. Besides these items, there are a few ways to reduce your expenses that will add incremental value. Remember, a dollar saved is a dollar earned, and a dollar earned is worth up to $20 when it comes time to sell!
- Run an expense audit and compare vendors. I’ve seen insurance coverage reductions of 15-25% by shopping carriers at renewal. Internet providers, phones, janitorial, utilities, and so many more expenses can be reduced with a little work. Saving this money today flows right to your bottom line and into your pocket now, and will pay a handsome reward when it comes time to sell
- Automate where you are able. Technology has improved immensely, opening options that didn’t exist only a few years ago. Online or mobile rentals, kiosks, access control systems, and security systems are a few investments that can help reduce payroll costs and net overall savings.
Having sold hundreds of self-storage facilities in my career, I always recommend spending a little time preparing for a sale. A dollar here and a dollar there all add up to a nice payday in the end.
Tom de Jong is Executive Vice President with Colliers, a founding member of the self-storage practice group within Colliers and a Principal on the De Jong Self Storage Team I Colliers, with 18 years’ experience and over $2 billion in self-storage assets sold. Tom may be reached at (408) 724-0337 or tom.dejong@colliers.com
