GUEST BLOG: Considerations When Selecting a Third-Party Management Company
Submitted to Investment Real Estate by Charlie Fritts at Storage Investment Management, Inc. (SIMI)
When talking about self storage property management, a question we are often asked is, “How much does it cost?” I realize this is a valid concern for owners, but the real question should be, “What will you do better for me than I can do myself?” The answer I give is to provide focus, eliminate headaches, and improve income. Hiring a professional management company is an investment in your property that will pay great returns!
“Well I can do that all myself!”
True. But owners typically have other business or personal interests that prevent them from spending 100% of their time focused on their self storage business. Management companies live and breathe storage all day every day. We stay cutting edge by attending conferences, reading trade publications and networking with other storage professionals.
Additionally, management companies have broad and deep experience in all types of markets and properties. This is very important as it eliminates the learning curve because no two storage markets are identical. Their wealth of experience is a resource that is included when a management company works for you.
Back to the original question. Maybe a better response would be, “How much is doing it yourself costing you?” Please don’t take that statement as arrogant, because it’s not intended to be. A good self storage property management company will seek out hidden income opportunities while also working to reduce operating expenses. Many clients are surprised by the new financial results that are being achieved to their benefit after signing with a third-party property management company.
Each time we assume property management of an existing, stabilized self storage property, we have achieved excellent increased income. In most cases, within the first eight months new income exceeds our monthly fee. By the end of our first year we typically see Net Operating Income (NOI) increase in a range of 15-35% or more over the previous year. Very few owner/operators can make that claim. NOI is income minus operating expenses including property taxes, but before paying the mortgage.
“I want the improved results but don’t want to give up control.”
This is a normal feeling, after all this is your investment. And you want it to be as successful as possible to provide solid cash flow to you, or perhaps to grow value so it can be sold for a larger profit. The answer is: you do not give up control because you remain the owner and make all fundamental decisions. The management company takes the day-to-day operations responsibility off your plate. A good property management company will keep you informed of any important developments and provide easy to understand financial reporting. They should strive for transparency and welcome owner/client questions, comments and suggestions.
You should also be the owner of the property bank account so you have complete access and control. The third-party property management company will want a few key personnel listed as signers so they can write checks to pay your bills such as utilities and vendors. Your funds should never be co-mingled with the management company funds.
Management companies often provide consulting services for all stages of ownership. For pre-development of a storage property, we include such things as evaluating proposed locations, assisting with site layout and unit mix, financial proformas, etc. For existing properties, we are often called on to evaluate their current performance and identify areas for improvement. We take that a step further by creating a step-by-step plan to achieve those improvements and can provide guidance as they are implemented.
There are many reasons to choose professional third-party self storage property management. In some cases, it’s to take the property to the next level, while for others it may provide the owner with the opportunity to focus on other business interests or even retire from the day-to-day requirements of storage operations.
What is the best method to find a great management company that is a comfortable fit to me? Here are some suggestions to consider:
Does the third-party property management company operate other properties in my area?
While you may not be comfortable with them managing a competitor property, there is something to be said about controlling a greater share of a market. Alternatively, having other staff within a reasonable distance is beneficial should the property manager become sick or quit without notice.
What is the culture of this management company?
Like everything else, not all are created equally. Some may be too large, and while they tout their muscle will they really focus sufficient resources on your property? Too small and they may not have the resources or experience to deliver the results you want or deserve.
Who will be my client liaison at the third-party management company?
If interviewing a large company, the business development person is not likely going to be your liaison. A concern may be whether your liaison has real authority or is simply a lieutenant that reports to multiple levels of management. I think most owners want their liaison to be well experienced, be able to explain any situation and have sufficient authority to make a difference. Another consideration may be how many properties the liaison is responsible for. Surely you want the attention you deserve and a company that is easy to work with.
What is their track record?
Have they successfully managed self storage properties with the same issues your property may be experiencing? An example may be an overbuilt market. If they have dealt with this, what was their plan and what results did they achieve?
Ask for and call references from existing and former self storage clients. Most will provide a candid overview of their experience with this management company. Be sure to ask what they like most and least about them.
How deep is their self storage experience?
How long have they managed self storage? How many self storage properties? Do they manage other types of commercial real estate? Good storage management is definitely not passive and typically requires more time and attention than other types of commercial real estate because of its hybrid nature; part real estate but largely an operating business. My belief is the management companies that exclusively focus on self storage will deliver the best results.
If you have questions about self storage third-party property management and would like more information, you can visit Storage Investment Management, Inc.’s (SIMI) website or contact them directly at 716-791-5235 or via email at [email protected].
About the author:
Charlie Fritts is President of Storage Investment Management, Inc. (SIMI) located in Amherst, New York. Prior to SIMI, he worked at Uncle Bob’s Self Storage (now Life Storage) as VP of Property Management, then Sr. Vice President – Property Management, and then Sr. Vice President – Development/Construction. Fritts joined SIMI in 2000 as COO, became a full partner/principal in 2001, and most recently became President in 2018. He has served on the MASSA board for 14 years and the CTSSA board for 10 years, most recently as President. He continues to serve as a Director and Treasurer of the new NeSSA, which has combined the MASSA and CTSSA.