The Future of Self Storage: Is The Run Over?

It has been amazing. Ownership of self-storage has been a dream. If you have owned a store for more than five years, you have seen the value skyrocket. Some of you resisted temptation to refinance at the highest level of leverage, others of you chose to cash out" by refinance, and some of you fully cashed out with a sale. Cap rates have been very good to you. Buyers have been like capital, plentiful. Demand for self-storage continued to grow.

So what about now? As this is written, the Street downgraded the R.E.I.T.'s just this week, citing the weakness in the housing market, increased restrictions on capital, and overbuilding as possible reasons for the downgrade. If you are an owner, you have likely felt the pressure. Vacancies are creeping upward, and many of you did not get the full increase in rents as you have in years past.

You built it and they came. Now, you are wondering why the bottom line isn't a little lighter. Those of you who have stores in inferior locations are likely the hardest hit. All of a sudden, the 150 foot distance from the main street is like a mile. The money you saved by choosing a less expensive sign seems to be a much more important deal than you thought. Some of you are hidden behind another use like strip retail or office. You didn't listen to the consultants who tried to explain the risk of locating "behind" something.

Others of you are now questioning your hiring decisions. When time were easy, you spent less money on front desk staff, and are paying for it now. Saving a few dollars per hour seemed like the right thing to do on "Easy Street" but now you are wishing you had a high powered sales person at the front counter. The store is in a "maintenance" mode and you need an aggressive approach to the business as you fight for the few renters in the market. When collections are down, you are questioning efforts and abilities.

It took years to get to where you are now, and turning the store around is like trying to turn the Titanic on a dime. Not going to happen. It is more than likely going to take a change in the way business is conducted. Not only are you going to consider system changes, but also staff changes.

Affecting a change first starts with a plan, based on research and structure. If we are to turn the Titanic around, let's not run into another iceberg in the process. Some of you will wait for change to happen. You CAN believe that eventually global warming will clear the way for your journey, but if you do not have access to the fountain of youth, you may want to expedite the process.

Change is naturally resisted by human nature. To implement change, it is advisable to create consensus going in. By having participants or stakeholders "buy in" to the process, you can mitigate some of the resistance. Creating a sense of security for stakeholders will put them more at ease. One of the most effective methods of creating a secure feeling is to let the team know what is going to change. By keeping everyone informed of the plan, the process comes with less resistance. The outcome of change is not always certain but if you are honest about what you do not know, it is often easier to gain confidence in what you do know.

Next, an incentive to participate in change is always a "bonus" to use a pun. Sometimes the benefit may just be the prospect of keeping a job. This happens when companies going through lay-offs, create a change plan. You may want to resist the temptation to create guarantees about the outcome, which can build credibility. When reducing expenses, staff can get nervous when they see or perceive scrutiny of spending, and it may be wise on their part to be concerned. If you are communicating cuts in every area and do not address salaries, smart staff members will create their own scenarios. You can fend these off with information. Maybe the honest approach is discussing a reduction in benefits, such as, for example, staff paying for a portion of increased expenses such as the rising health care costs.

While the doomers and gloomers are focusing on cutting expenses, positive thinkers will work to increase revenues. Expanding into new sources of revenues is an effective and positive way of increasing the bottom line.

If you have shared with staff from the beginning when and how profitable your operation is, when profits drop, they will know how you and they are affected. It may require more effort on their part in taking on the sale of new products or services. If you can share in the results, even in the most modest manner, you can buy a tremendous amount of goodwill with employees. That is very difficult to get with a "hammer".

Another measure to counter negative revenue trends is to reinvest into the asset. If you have defined maintenance on site, showing that you are willing to invest in the store may be a compelling reason for an employee to work harder at the current pay rate.

A great example may be adding truck rentals. For years, you may not have wanted the aggravation or extra work associated with a truck rental dealership. A downturn in the economy coupled with increased competition resulting in lower occupancy may have caused you to rethink the value proposition from adding truck rentals. You have considered not only the additional revenue, but the door swings associated with increased foot traffic. The manager has not had to deal with learning the truck rental software and system and answering a separate phone line. When you mention truck rentals, you are faced with a barrage of excuses and reasons why it is a bad idea. If the manager cannot see the benefits of increased income and potential new rentals, you are facing with full brute force, resistance to change. Once having weighed the pros and cons, if you decide to move forward, let's look at the options.

Lets vote on the "A" option. Prepare for a meeting off-site, free of distractions. I suggest breakfast or lunch at a medium priced but nice restaurant. Present the manager with an agenda and a time limit. Make sure there is time built in for "FEEDBACK" and "BRAINSTORMING". Take notes. Listen and learn. What are the complications that this plan presents. If you do not work on-site, you may be removed from day-to-day issues. Be sensitive that you may have a solution to declining revenues, but not all the facts.

Begin your case with a short history. Use facts and figures. Prepare for the reactions by graphing revenue and occupancy. A decline will tell a lot in one graph. Now, show the same graph with increased expenses overlaid on declining occupancy and revenues. This is the first time to listen for cooperative consensus from the manager. Look for points of agreement, that change is necessary.

As you begin to discuss implementation, open and close with what you, the owner, will be doing. Talk about lead times, contract negotiations (the Dealer agreement). Communicate your efforts to add the new services. Here are a few efforts that you should be expected to execute:

Now move to the commitment expected from the team. Determine where the time will come from and what is expected. Consider

Begin to get the picture? Implementing something as reasons by simple as truck rentals can be much more complex than sign the dealer application and "let the games begin". It is easy to see why there can be resistance as the project plan blossoms. Keep in mind we have only penetrated the surface here, and the list is incomplete, at best. Consult other operators and ask them what changes occurred. Attend dealer council/conferences and meetings to learn and communicate. Create strong trusting relationships with the truck rental company, district managers, and the traffic manager.

Set goals for performance and determine what rewards will be available for meeting or exceeding the goals. Communicate these incentives in a way which demonstrates their achievability. Indicate the financial position of the property if the goals are met or exceed to indicate why the incentive is appropriate

You may not be able to create a totally comfortable atmosphere in dealing with change, but you can reduce the frustration and counterproductive worry that wastes energy and robs your staff of performance efforts. The taxing strain of fear cannot only create emotional problems that will create more red ink, just the very symptom you were trying to cure.