The ongoing recession and the subsequent lack of development capital has created a shift in strategy by both Self-Storage developers and investors alike. There has been a great deal of activity in the market for those willing to buy older, smaller facilities and create value through renovation and repositioning. Many investors have made a small fortune focusing solely on Class C facilities and improving them to the point of being a solid, Class B contender in the marketplace. And, it’s not as tough as one may think. Though the leap from a Class B property to a Class A property is difficult, you’ll find that the jump from a Class C property to a Class B property is not nearly as daunting or as capital intensive.
Which leads us to the question of how to go about finding these diamonds in the rough. Uncovering these gems is no more difficult than finding a good piece of undeveloped land, and in many cases it’s quite a bit easier. First, there are a number of these facilities listed with commercial real estate brokers, Self-Storage brokers, business brokers and on commercial and Self-Storage websites. You can also obtain a comprehensive listing of all facilities in a given market by purchasing directly from the numerous list brokers to include the names and addresses of all the facilities and their owners in a geographic area. You may also begin the process with a mailing campaign, or just by cold calling the facilities in person or by phone after a web search of all the facilities in your targeted market(s) for acquisition.
And, contrary to popular belief, banks are ready and willing to make loans on Self-Storage facilities as our industry has generally enjoyed the lowest loan default rate of all commercial real estate asset classes dating back to the 1970s. Most notably, the Community Banks, Credit Unions and Savings & Loans that are located in the communities in which the facilities are located. And, due to the strong performance in the Self-Storage sector, many investors are being welcomed with open arms when presenting a loan request for their Self Storage projects and are receiving very favorable rates and terms, along with the additional rehab capital and deferred payments to boot! Since the lending institutions have increasingly moved away from making “speculative” loans on development projects in favor of making loans on income producing assets with a historical track record of measurable performance, it has paved the way for investors with a solid business plan and thorough due diligence to acquire funding for older facilities from the local lenders where these facilities are found.
When thinking of ways to upgrade Class C facilities to Class B status, remember that the changes that you put in don’t necessarily have to be major. The obvious place to start is with curb-appeal. What are the colors compared to the newer facilities in the area? Are all of the buildings weathered to the point where the roof, walls and doors have all faded to one shade of “gray” or “tan?” A color change by one of the many industry vendors specializing in this area can do wonders for the appearance of your new acquisition. Similarly, the addition of a new sign with color coded flags, banners and other attention grabbing marketing media will draw their eyeballs to your new paint job and raise awareness of the changes you have made.
The next point to consider, which has the most impact on forcing the appreciation and value of the facility, resides with any vacant land on the site. The smart investor will immediately assess the highest and best use of any vacant land at the site or any adjacent land that may be available for purchase. Depending upon the market, once you’ve improved the look of the facility and made some management improvements, you should be rewarded with higher occupancy and the possibility of constructing additional buildings/units at the site. Adding temperature controlled buildings and specialized boat and RV buildings should also be considered in your renovations. And, if you’ve run out of room, contact the neighbors to assess whether there may be an opportunity to purchase additional land/buildings for future expansion. This is probably the greatest way to increase the value of your facility while simultaneously “scratching your development itch.”
Now it’s time to turn our attention to the multiple amenities that can be added during the renovation of your facility. Adding a small retail center to your site is probably the simplest and least costly way to improve the bottom line and provide value to your customers. Next, you may want to consider whether it’s feasible to offer truck rental services through a 3rd party provider, or by purchasing or leasing your own truck and offering it to your clients for free or at a reduced rate. Can you add a Pack & Ship Center, bill boards, vending machines, a Business Center, perhaps temperature control units, propane cylinder exchange, Records Storage or any combination of the dozens of amenities that are available in our industry to add to your facility? Class C facilities will vary by site and by market, so you need to perform some research into the feasibility of adding each amenity, but the increase in income and the return on investment may be surprisingly rewarding.
And, last, but certainly not least, is to adopt the latest technology to round out your renovations and repositioning. Security remains at the top of our customers list when choosing a facility, and advances in technology have made it affordable to provide state of the art surveillance systems with wireless cameras and large screen monitors for a fraction of the price we paid in the recent past. What to do with that apartment? Renovate it and turn it into a business center outfitted with Wi-Fi and a few workstations for your small business clients that need a place to come out of the elements to plan their day or send a few emails. Also, the addition of a CRM platform that incorporates the newest software, call center application and a kiosk should be considered in each and every location.
However, success in your newly repositioned site cannot occur without developing and executing a detailed marketing plan. This can also be carried out with the aid of the multiple technology partners to develop and automate your marketing efforts to aid in converting the prospects in your target market into paying customers. Fortunately, the large amount of dollars spent on Yellow Page ads in the past is being put to better use on with targeted web and mobile app campaigns to drive traffic to both your website and physical site. This also allows for the savvy investor with a smaller facility to compete with the Big Dogs on a small marketing budget. The most successful operators I have encountered use their marketing plan to guide their daily activities. And, of course, none of this can be attained without the efforts of a well-trained and motivated facility manager.
The laws for success in the Self-Storage industry are always changing, and buying and renovating older facilities has quickly become a very viable addition to a successful investing strategy – especially in this time where development has slowed to a crawl. The merits of this strategy have proven to be very profitable to many operators who have chosen this path rather than focusing solely on development. And, being one of those investors myself, this author couldn’t agree more.
Lastly, there are a number of trusted partners in this publication and at the various industry trade shows that will guide you through the implementation of all the items discussed above. I suggest interviewing 2-3 in each category seeking the advice of other industry professionals to aid you in the decision making process. But, don’t wait too long or the opportunity to participate in the biggest “land grab” in our nation’s history may pass you by!
Scott Meyers is the President and Owner of Indianapolis Based Self-Storage Profits, Inc. He is also a national speaker and trainer in the field of Self-Storage Investing through his education company. SelfStorageInvesting.com