Steve Garland Media

One of the industries that used to be considered "Recession proof" is the Self Storage industry. Here's a great article from Derek Naylor, a Self Storage industry expert- on the state of the industry in this recession, and how you should be spending your marketing dollars to improve occupancy. -Steve

 

 
The self-storage industry is comprised of many knowledgeable, sometimes brilliant developers and investors who can recite entire books of financial terms and strategies with their eyes closed. They have an eye for excellent properties and can find the best financing, negotiate a sweet deal, and carefully manage the construction process. But once they receive their certificate of occupancy, their momentum comes to a screeching halt.

Because self-storage is such a fantastic real estate investment, many operators treat the business as if all the work happens up front, assuming the rest will fall into place. But we’re in a completely new market today, facing stiff competition, consumers with savvy, and an economy that has everybody holding onto their wallets. After you spend all that energy financing and building a facility, customers are not going to just beat down your door, no matter how nice it is.

To improve your occupancy, customer value and efficiency, you need a smart, strategic marketing plan from the very start. That means adding marketing into the initial financing and budget. 

As an investment, marketing is every bit as important as the land on which you build. When you sell your facility, potential buyers are going to look at net operating income (NOI) to determine what they’re willing to pay. A second-rate facility on a sub-par piece of land but with good NOI will fetch a higher price than a state-of-the-art facility on the best corner in town with low NOI.

My friend, your income isn’t coming from fancy roll-up doors or meticulous landscaping. Customers are your sole source of revenue. They pay for rent, supplies, insurance and whatever else you decide to sell. So, acquiring customers is something that deserves a good chunk of your focus and cash.

The biggest mistake I see people make when they finance their self-storage investment is failing to allot enough money for marketing. This one function will generate your income and determine the value of your asset. To illustrate my point, I’ll share two real case studies. To protect their identity, we’ll refer to them as Operator A (OA) and Operator B (OB).

OA is a fantastic person and somebody I’d trust to develop my own facility. He builds great properties on excellent sites―maybe not “Facility of the Year” properties, but nice for their respective markets. He started in the storage business 15 years ago when marketing meant a nice marquee sign and a decent Yellow Pages ad, so he has little to nothing to spend on marketing after a facility is complete.

On each of his two most recent projects, he’s bleeding $25,000 to $30,000 per month. Both have loans coming due, and he lies awake at night in a cold sweat wondering how the bank is going to react to his extremely low occupancy and income.

OA could have easily solved his problem with by allotting $10,000 per month for marketing in the first 12 months to 18 months of operation, and then $3,500 per month thereafter to maintain income and occupancy. That may sound like a lot, but compared to what he’s losing and what his NOI could be with a cap rate applied, it would have been the best $10,000 per month he could spend. But he didn’t budget it, and that’s the way he operates. Sad story.

OB is new to the industry and came from a retail background where acquiring and keeping customers was the most important function of his business. When he financed his facility, he made certain to over budget for marketing just in case things were tougher than anticipated. He allotted $2 per rentable square foot, per year for the first two years, which allowed him to crush his competitors and stabilize in just 14 months in a competitive market.

OB has money to spare and is far ahead of his projections. He now spends a small amount to maintain his occupancy and enjoys a great income from his investment. Getting new financing when the time arrives will not be an issue, and he sleeps like a baby at night.
Marketing is no longer something eccentric or crazy operators do.

It’s every bit as important as your land and building materials. Make sure you budget for it when planning your financing and execute an aggressive plan after you open. Learn from the stories of OA and OB, and your life will be much more easy, fun and lucrative.