In the self-storage world, there is a lot of momentum towards fully automated facilities, no matter what the size of the project.
I am not here to say that is the wrong direction.
I even am involved in one myself as a partner.
But today let me talk about a reason to consider the more traditional approach to self-storage management using trained mangers.
Now keep in mind I am assuming you are around 50,000 square feet or more in your facility and you are not getting $50 for a 10 x 10. Normal storage economics are present.
I could take the position of well-trained people providing better customer service.
We measure that by the length of stay of customers and referrals given by our customers. In our self-managed projects with managers present, referrals are usually number two or three in sources of new tenants signing leases.
If the average customer value (you know that number, don’t you) is, say, $3,200, it is not hard to measure the “value” of good customer service.
But I am not going to make the “customer service” argument.
I am going to make the “economic” argument.
Specifically, the “ancillary income” argument.
I will say that in the managerless facility, our retail sales are zero.
Our U-Haul truck rental is zero.
Tenant insurance is self-selected by tenants at best, and without someone to sell it, what do you think the sales ratio is?
Close to zero.
Let Me Tell You A Story
In 2020, we sold a facility.
I was recently looking at our 2019 P&L, and here is what I saw (and what inspired me to write this episode).
Our total income for 2019 was $1,300,203.
It was a big facility built in 2000—around 100,000 sq. ft. of storage and lots of surface parking.
Now, I am not going to include late fees, administration fees, etc., as additional income. Every facility has those.
Because we have trained personnel on site, we sell retail and measure it. “Sales per move-in.”
We sell tenant insurance. We measure that.
We also lease U-Haul, and yes, we measure that.
Our U-Haul commissions went down in 2019 over recent years at this facility.
Now we can only have these income sources because we have somone on site selling them and renting them in the case of U-Haul.
In 2019, the main full calendar year the buyer of our facility looked at and put the most weight on, here were the income numbers:
| Total Revenue: | $1,300,203 |
| Of this… | |
| Tenant Insurance: | $20,470 |
| U-Haul Commissions: | $34,796 |
| Retail Sales: | $12,237 |
| Total: | $67,503 |
Now, in every facility we have ever sold, whatever CAP rate is present in the market, or we are using as a negotiating rate, the Buyers have paid the full amount for these ancillary income streams. Not once has anyone discounted U-Haul or retail sales and applied a higher CAP rate.
Also, nothing was outstanding about these numbers in 2019. They represented5.2% of our total revenue. A normal benchmark.
So, let’s use a 6.5% CAP rate.
That means the $67,503 income generated by having trained managers on-site added $1,038,508 of value to the asset.
Did we make or lose money by having staff on site?
Now, you may say, well, that was a huge project.
Yes, you are right.
But it is not hard to figure out.
Take your projected income and add 5% or 5.5% additional revenue. Then, CAP it at whatever CAP rate you deem appropriate on the day you analyze it and see if it is worth it for your facility.
I am not saying automated projects are wrong and bad, but having managers is good and right.
I am just saying, run the numbers and see what is right for you and your projects.
For me, unless it is a very small project, I am probably going to like the added value and customer service edge trained people can offer.
If you are fully automated, I hope you are in my market.
