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Applying Past Knowledge
The 12 Lessons Of 2023
By Gary Edmunds
the number 2,023 in gold with a grad cap and a ribbon wrapped diploma roll

was an enlightening year. Coming on the heels of some of the best years in the admittedly short history of self-storage, it taught us a lot. These are 12 of the lessons I learned.

Don’t complain if you go cheap.

My Scottish ancestors would revolt if they thought I was throwing money away, but it’s true. We can look at professional sports for confirmation. The lowest payroll teams in the major leagues include:

  • 2023 Oakland A’s: 50-112
  • 2022 to 2023 Indiana Pacers: 35-47
  • 2022 Chicago Bears: 3-14
  • 2022 to 2023 Anaheim Ducks: 23-47-12

The lesson is that sometimes we have to spend some money to make some money. Taking the cheapest option often results in underperforming assets. Buy the better-quality security system instead of something cheap online. Hire the better management company instead of the cheapest one. Invest in performance, not in cheap.

Advertising is fixed, but marketing is flexible.

Advertising is a specific expense. Every marketing company can help you budget for Google Ads or social media clicks. But marketing is adjustable. Deciding to buy doughnuts for local brokers or cookies for police departments is flexible. Sending a pizza to the manager of a local motorhome park is flexible. Do that with the hope that it leads to a referral.

There are no right answers to marketing.

Marketing storage units is hard. There’s no right answer. What works in one location may not in another. Don’t overthink it. Adjust and move on. Always move on. Because even if it works today, there is no guarantee that it will work tomorrow.

Marketing is more important than anything else!

New owners to our industry almost always ask me about auctions, maintenance, and past dues, when those things shouldn’t matter to them. If you don’t prioritize and spend the time (and money) on marketing, nothing else matters. Nothing. Who cares if you have nobody past due if your occupancy is 40 percent? Not me. Fill the facility first, and then you can worry about secondary priorities. If you’re not full, then work on that and that alone.

2023 was the year the lenders decided not to play.
In 12 months, the terms LTV and LTC disappeared. After 25 years in commercial real estate, I would never have predicted that a bank would require a deposit account relationship with a borrower and for that deposit account to be 20 percent or 30 percent of the requested loan balance. We can adjust to interest rates over time, but the terms being discussed … wow.
Unique revenue streams will be necessary moving forward.
I think we have moved past the unlimited rate increases we all came to appreciate since COVID. Now, to maintain some of the revenue projections, we are going to need to work a little harder. Changing fee schedules and emphasizing tenant protection sales is good, but we may need to implement new revenue-producing tech or charges for special services such as 24-hour access. Let’s be creative!
Property insurance is no longer an afterthought.
I spent 20-plus years in the property insurance business, and it has changed seemingly overnight. We all seem to think insurance companies are sitting around their offices on piles of cash. But the last five to 10 years have been challenging for property insurers. Skyrocketing repair costs, massive disasters, and minimal interest income have challenged the insurance industry. Borrowers have enjoyed the low interest rates of recent years, but imagine you are an insurance company with millions to invest and the going interest rate was 0.5 percent? That doesn’t exactly net a large return for the insurance company. Numerous companies are leaving the storage insurance market. That’s frightening to me.
Arrogance and expense of labor is not going away soon.

The American worker has no fear or accountability. If they don’t show up for work and get fired, how long will it take them to get a new job? Assuming they want one, probably a day or two. Why should they give two weeks’ notice? It’s not like they need a good reference to get their next job. Pay them more. How? Does that make a difference anyway?

I would assume that everyone understands the impact of team turnover. The energy spent recruiting, hiring, and training is enormous. As an employer, it forces us to look at alternative options. Technology such as kiosks can be a big part of replacing labor. Websites allow tenants to complete the rental process on their schedule instead of during our office hours. Call centers can answer the phone at all hours. And none of those options require an owner to schmooze a prospective employee.

<10 or >100.
Late in 2023, I was in a group listening to Scott Lewis, CEO of Spartan Investment Group. He made the statement that an owner should only think about self-managing if they own less than 10 facilities or more than 100. The statement caused me to really think about some of my beliefs. For the most part, I agree. There are some owners who have no interest in managing at all and that’s OK. For those who do, there are certainly some challenges as you grow. Managing multiple locations means developing a team, and we just talked about the challenges of labor right now.
Embracing new is more important than ever.
We can’t rely on Google to provide all the leads we need. Value pricing software and web platforms are the new normal. How is AI going to impact self-storage? Our company has gone away from calling leads and following up. 200 years ago, I would have been burned at the stake for heresy for making such a statement. Now, we have found that texting is a much better process for our tenants, and thus, our company. (And it reduces labor needs!)
Real estate taxes matter.

I recently looked at on-market properties in four states. I found the following data regarding real estate taxes and revenue:

  • California = 17 percent of projected gross revenue
  • Illinois = 15 percent of projected gross revenue
  • North Carolina = 7 percent of projected gross revenue
  • Mississippi = 7 percent of gross projected revenue

This was not a scientifically performed study, but it compared multiple similar properties in those states. Is the data 100 percent accurate? No. Is it indicative of the market in each state? Yes.

Given these numbers, why aren’t more investors looking at this when buying property? Maybe they are. Why would you buy in California or Illinois when an identical property in North Carolina or Mississippi has a significantly better return? I think this is becoming a conversation in some states, but politicians are addicted to spending. I don’t see changes being made to their tax structures. In the meantime, it’s one more significant factor to evaluate when looking to invest in self-storage.

Expense ratios >40 percent.

Not too long ago, it was our goal to keep spending at a mature facility to less than 35 percent. That is becoming much harder to do given today’s challenges. Many of those challenges have been listed here. Real estate taxes, property insurance, labor, and marketing all require more money than they did a few years ago. It’s also because self-storage has left its “simple” phase behind.

In the 1970s, a family was lucky to have one vacuum. Now the typical household has a house vacuum, a shop vac, a Roomba, and a hand-held battery vacuum. It’s no longer simple. Self-storage is similar. In the old days, there was one avenue for a tenant to rent. Now we must maintain an office, a kiosk, and a website so we can meet the tenant on their terms. Gates and security systems have become necessary at most locations. None of that is simple, and all of it increases the operating costs of a facility.

Many of these items are simple in nature and we learned them without trying, but some will challenge our way of thinking for years to come. 2023 wasn’t a great year, but it was certainly an experience. Maybe if we apply these lessons, 2024 will be less challenging.

Gary Edmunds bought his first storage property in 2001. Since then he has added 16 facilities to his portfolio. In 2020, he launched The Storage Manager, a third-party management company specializing in remote operations. With over 20 years of experience, he has extensive knowledge of the successes and challenges of running storage facilities. A retired State Farm agent, he understands the value of training and utilizing team members to provide the best return.