any self-storage operators rent their units for 30 days, and while some may require a minimum stay, most offer month-to-month leases.

However, what happens when someone comes into your store and wants to rent a unit only for a week or even a day?

“We’ve had cases where we have given daily and weekly rentals,” says Carol Mixon, president of SkilCheck Services, Inc., in Tucson, Ariz. “I think it’s a good idea.”

While it isn’t a normal practice for many operators, Mixon says there are times it can be beneficial for the facility.

Many who have been in the self-storage industry for years know that sometimes one size doesn’t necessary fit all when it comes to the predicaments in which potential tenants may find themselves.

Mixon can recall several times she’s allowed a short-term rental, but the most interesting story happened when someone called wanting to store a whale overnight. Mixon thought it might be a prank at first, but this was no fish tale.

“Sea World in San Diego was transporting a whale from a facility on the East Coast to the West Coast,” explains Mixon. “The driver of the rig is mandated to stop every few hours to rest per federal guidelines, so the company called and asked if we would allow them to store the whale overnight in one of our units.”

Mixon says the company was out of options; the drivers couldn’t just park their precious cargo overnight in a hotel parking lot. “I had to call corporate and get the OK, and they finally said to go ahead and allow it,” says Mixon.

The driver backed up the rig into a 10-by-30. A guard was stationed outside of the unit while the driver got his mandatory sleep, and the whale and his transporter left the following morning.

Although that is a very special example of the different reasons someone may request a daily or weekly rental, Mixon has received many requests for a variety of different reasons over the years. “I don’t think there’s anything wrong with doing it; you just have to ensure you amend your contract.”

If you have a facility in a college or military town, you may be able to fill in some vacancies by offering short-term rentals. “Sometimes military personnel and their families may be waiting for the government to move them and may only need the space for a week or two,” she says.

Students may also need to store their items short term while waiting for their dorms or apartments to be ready.

Mixon cites one case of a dentist who needed to store his office equipment in a unit for two weeks while he waited for his office to be remodeled. “The equipment went over the value limit for storage and no one else would rent to him,” says Mixon. “We finally received approval for him to store his equipment and he ended up paying more for two weeks than he would have paid for storing with us for a month.”

Mixon, who has managed properties in Hawaii, says some facilities there have even set up special hourly rates for tourists who need to check out of their hotel but have nowhere to store their luggage until their flight departs. “Those can be quite expensive and a good way for a facility near an airport to make additional income,” she says. “Some of those facilities charge up to $45 an hour to hold luggage.”

When a customer requests either a daily or weekly rental, they simply amend the contracts they already use to read as such. She says the most important thing is to make sure tenants do not think they can go over the specified time and just continue paying the daily rate.

“In this contract, you must also add the agreement that if they go over the specified time they will have to pay the monthly amount,” says Mixon. “People often need storage for longer than they think, and it’s common for them to need it more than the day or week they thought they would.”

Mixon calculates a daily rate based on the monthly rate for the unit. “That may not be much, and we will then make a minimum rate for something as short as a day,” she adds.

Of course, if you charge administrative fees, those will still apply to set up the rental.

The cons of offering shorter term rentals to tenants include:

• Removing a unit from the market for a limited time when you could have secured a tenant on a month-to-month lease who would likely stay much longer.
• There is a lot of paperwork for less revenue. However, you could charge an extra administrative fee to help cover these costs.
• Managers must be trained on setting up these types of rentals in the management system.

Mixon says the advantage of allowing short-term rentals, especially if your competitors are not and will not do it, even in special circumstances, is the goodwill you establish with customers and the community. “That dentist who we rented to for a couple of weeks ended up coming back when he needed long-term storage and became a good, loyal customer,” says Mixon. “That really can’t be measured.”

y initial job in self-storage was a trainer for National Self Storage beginning in 1984. We created an amazing 10-day training course for managers in Tucson, Ariz. Once they successfully completed the course, the newly trained employees would return to their respective storage facilities located across six states. We observed that the employees were not retaining the training procedures, particularly selling over the phone and on site. So, we hired Donald Michalak, who wrote Making the Training Process Work, to evaluate our training program and speakers. He provided us with insight into our effectiveness as speakers and assessed our training materials.

I personally discovered his training book provided a practical, step-by-step guide to handle training challenges and the training process. Since I have a degree in both secondary education and vocal performance, his approach of training and maintaining behavior was a perfect fit. As a singer, or when trying to succeed at anything, you must constantly learn, train, and use your voice, racquet, club, etc. My parents started me in voice lessons at age 10, when my bible school teacher said that she thought I might have perfect pitch and an operatic voice. I could start every song in the correct key and stay in that same key. Young children and many adults can’t continually sing in the correct key. That is when I realized the importance of training and practice. I utilized both practice, performance, and feedback to improve my skills. Some people should not sing out loud; however, even if you don’t have a good voice, you will significantly improve if you have instruction and feedback. The same is true for selling goods. If you train an employee to sell in a particular manner, they tend to return to what is comfortable for them and not what is most effective. This is true for athletes, too. Your golf swing and follow-though can significantly enhance your game and results.

Michalak provided us with a great understanding of what was working well in our program and areas that needed improvement. We were able to train the employees effectively. However, we were not maintaining and following up on their training abilities, particularly on the employees’ phone and on-site sales. Michalak suggested that we evaluate the employees monthly to maintain the desired sales behavior.

Based on that principle, the idea of a one-time training course for sales skills is not sufficient. Michalak suggested that we evaluate each trained employee once a month and give them constructive, unbiased feedback. The employee does not know when the mystery call will be made, nor which recorded sales call will be evaluated. This keeps them on their toes for every sales call throughout the month. On occasion, my storage managers have told me that they got a low sales score because the office was busy, or they knew it was the shopper. Logically, my brain has trouble with both of those excuses for not doing a good job. They are implying that they offer poor sales or customer service when multitasking or when they know it’s a shopper. These are simply excuses for poor performance.

When the employee has a customer hanging out in the office just “shooting the bull,” they must prioritize what is happening in the office. If you have a current customer chatting with the manager in the office, the priority is the potential client on the phone.

Admittedly, this is only one sales call. However, each evaluation gives specific feedback in the following five objective areas (SkilCheck also utilizes 10 overall subjective sales skills):

• GREETING
• INQUIRY
• COUNSEL
• INVITATION
• CLOSING

The sales conversation should be a pleasant and professional interaction with the customer. It is not simply giving the price and ending the call. Open the call with a good greeting and ask effective open-ended qualifying questions to determine the customer’s storage needs (e.g., size space, location, a/c, etc.). The information from the customer leads to discussing the characteristics of the facility.

The subjective portion of our sale evaluation gives our experienced sales evaluators an opportunity to show specific areas that the employee can improve:

• Effective sales presentation
• Controlling the sales call
• Built value in the store by selling the features and benefits
• Created a sense of urgency to visit/rent
• Handling qualifying questions
• Enthusiasm/friendliness/positive attitude
• Involved customer in the sales call
• Voice (rate of speech, clarity)
• Professionalism (rings, length of call, hold, attitude)

Over the years I have trained and supervised hundreds of storage managers. My managers’ bonuses are based on their mystery shopping score. For example, my employees would need to score above 80 percent to get their sales bonus. The higher the score, the higher the bonus. On one occasion, I was at my storage property in Las Vegas and the manager came out to my car as I arrived. She was obviously nervous, and she told me that she wanted to discuss getting a raise. I informed her that I needed to make a quick call and then I would speak to her in the office. I verified with the home office that for three months she had scored below 70 percent on her mystery shops and that her bonus would have been $1,100 extra if she had scored at least 80 percent. My office manager also noted that we had several complaints about the manager’s service from current customers who called our 800 number. When I went into the office, I asked her how she would like $1,100. She said, “Oh my gosh, that would be awesome!” and she hugged me. Unfortunately, my response was, “Don’t get too excited, because that is what you would have received if you had scored over an 80 percent on your mystery shops.” As you may have guessed, she did not like that answer. As I did my physical inventory, I noticed a variety of things that were not being done on the property. Ultimately, I proceeded to find a new manager who loved selling, scored in the 90s in her first month, improved the occupancy in the low 90s, and increased the income of the storage property by over $10,000 per month. I prefer the mystery shopping process and training to be a positive reward, however, it is an indication of training and attitude issues of the employees.

Our work force may be composed of the over 60 million members of Gen Z. They may appear much different than what we are used to seeing. Generally, they will be easily frustrated with outdated or dysfunctional software or any training that involves old technology. If we think about training younger employees, we need to create shorter instructional videos and put them on YouTube.

As I was writing this article, I zoomed with a client; we were discussing their mystery shops and he commented that one of his managers got a really low score. While talking with her about her low score, she shared the fact that she was just diagnosed with cancer. Job performance can be impacted by many factors. It is important to discuss low scores or even a change in the team member’s attitude, mood, habits, etc. You may discover something that is problematic for the employee that you would want to know about and help resolve.

When implementing the mystery shopping program with your staff, be sure to reward and congratulate your managers for excellence. It is much easier to utilize a training tool that has a reward for the desired behavior. And, if you have multiple storage properties, every store may not have the same bonus structure. I prefer to tie in the phone performance scores and store income to determine the monthly bonus. If you are interested in seeing my Excel Manager Bonus spreadsheet, please send me an email.

Happy renting!

By Jim Ross

elcome to the inaugural edition of “AI Pulse: AI In Modern Storage,” a recurring column that delves deep into the transformative power of artificial intelligence (AI) in self-storage. In subsequent columns, we’ll dissect each topic further, focusing on cost-effectiveness, the elevation of customer service, and the tangible benefits AI brings in terms of profitability and efficiency for your self-storage business.

Self-storage businesses are no longer just about bricks, mortar, and space. They’re about smart spaces, digitally connected environments, and above all, enhanced customer experiences. The linchpin in this transformation is artificial intelligence (AI).

While discussions surrounding AI often have a futuristic undertone, emphasizing its potential down the line, the reality is starkly different. AI is not a distant dream; it’s our present reality. The technological advancements we see today are not mere prototypes for the future—they are active, evolving tools that businesses worldwide are harnessing to gain a competitive edge.

While envisioning the future possibilities of AI is exciting, recognizing and acting upon its present capabilities is crucial. It’s an invitation to innovate, a challenge to adapt, and most importantly, an opportunity to lead. The future of AI isn’t just on the horizon; it’s already here. The time to act, learn, and evolve is now.

Now, let’s delve into how I see AI will be revolutionizing customer service in the self-storage industry.

With the rising preference for digital communication, chatbots serve as the frontline of customer interaction. They’re more than just response mechanisms; they’re evolving to understand context, sentiment, and even anticipate customer needs. By studying customer behavior over time, these chatbots refine their responses, ensuring repeat customers feel recognized, valued, and understood.

Traditionally, call centers have been the backbone of customer service for many industries, including self-storage. With AI, call centers are transformed from mere helplines to strategic assets. Advanced AI-driven systems can assist human operators by providing real-time information retrieval, suggesting solutions based on historical data, and even predicting the caller’s intent based on the initial few seconds of conversation.

Furthermore, AI-powered voice bots can handle routine inquiries, freeing up human agents to tackle more complex issues. These bots are trained to understand nuances, accents, and even emotions in the caller’s voice, ensuring that the customer feels heard and understood. The results are reduced wait times, more efficient problem resolution, and a significantly enhanced customer experience.

Dynamic pricing isn’t new. However, AI takes it to a new level by analyzing not just the self-storage market but also local events, housing market shifts, and even weather patterns. Imagine knowing in advance when a local event might cause a surge in demand or when a downturn in the housing market might increase the need for storage units. AI doesn’t just react; it predicts and prepares, ensuring businesses are always a step ahead.

Gone are the days when surveillance was merely about recording. Modern AI-powered surveillance systems actively monitor and analyze. They can differentiate between a customer accessing their unit and an intruder. They can detect signs of potential break-ins or hazards like fires, sending instant alerts to facility managers. The peace of mind this offers to customers is immeasurable.

AI’s ability to analyze customer behavior is unmatched. By monitoring which units are viewed most often online, how long a customer spends on certain pages, and even the kind of queries they input, AI can tailor marketing campaigns that resonate. It’s not about bombarding customers with offers but about sending the right offer to the right customer at the right time.

AI’s role isn’t limited to customer-facing functions. Operationally, AI can optimize routes for facility maintenance staff, predict when supplies like packaging materials will run out, or even monitor the health of infrastructure, predicting when repairs might be needed. This ensures optimal resource utilization, reducing wastage and operational costs.

Beyond daily operations, AI plays a crucial role in the strategic design and management of facilities. By analyzing customer usage patterns, AI can suggest optimal layouts for new facilities or redesigns for existing ones. This ensures that the most commonly accessed units are easily accessible, enhancing the customer experience.

In the age of online reviews, every feedback, positive or negative, shapes a business’ reputation. AI tools don’t just aggregate these reviews, they interpret them, identifying underlying issues or emerging trends. This real-time feedback loop allows businesses to swiftly address concerns, always staying aligned with customer expectations.

As we embark on this series, the transformative power of AI in the self-storage industry becomes increasingly evident. AI’s influence isn’t just surface level; it reaches into the very core of business operations, reshaping strategies and redefining objectives.

• Customer Experience Revolution – AI isn’t merely a tool; it’s a catalyst for change. By enhancing customer interactions, AI ensures that every touchpoint, be it online or offline, is personalized and efficient. In a world where customer loyalty is gold, AI-driven personalization can be the differentiator that sets one business apart from its competitors.
• Operational Efficiency And Cost Savings – Beyond customer interaction, the ripple effect of AI’s optimization is felt in every corner of the business. From energy management in climate-controlled units to predictive maintenance, AI-driven decisions can lead to significant cost savings. These savings can be channeled back into the business, fueling further innovations and improvements.
• Future-Proofing The Business – In an ever-evolving technological landscape, early adoption of AI not only provides a competitive advantage but also prepares the business for future challenges. As AI technologies mature and become more accessible, businesses that have already integrated AI into their operations will be better positioned to harness its full potential.
• A Journey Of Discovery – The world of AI is vast and diverse. Each application, each algorithm, and each solution present an opportunity to learn and grow. By delving deep into AI’s intricacies, businesses can discover new avenues for growth, identify latent challenges, and craft strategies that are both innovative and effective.

With this series, our aim is to guide you through this journey of transformation and discovery. We’ll dive deep into each facet of AI’s influence on the self-storage industry, providing insights, analyses, and actionable takeaways. Join us in our upcoming editions as we explore the myriad ways in which AI can become the cornerstone of success for visionary, forward-thinking self-storage businesses.

magine going into your doctor’s office and hearing medical jargon when they are giving you test results. Instead of asking questions, you simply get up and walk out of the office, not fully comprehending what you were just told.

“When you’re reading your reports and management summary, it’s just like getting a checkup and reading or hearing the results,” says Carol Mixon, president of SkilCheck Services Inc. in Tucson, Ariz. “You have to know all the terms and understand them to make an informed decision.”

Mixon, who audits facilities, continues, “I wish more owners would learn what they are reading; it can make so much difference in their cash flow.”

In one example, a facility owner thought they were doing great because the occupancy rate on the management summary showed 95.4 percent occupied. However, when studying the summary further, it also showed the Effective Rate After Concessions was $70,826 and 57.9 percent. As well, there were over $300,000 in concessions and 14 tenants needed to be auctioned.

“This may be an extreme example, but these are the clogger of the arteries when it comes to income potential,” says Mixon. “The owner thought the property was doing well because of occupancy, when in fact the store was doing poorly.”

M. Anne Ballard, president of marketing, training, and developmental services for Universal Storage Group in Atlanta, Ga., says there are 10 management metrics you must understand for your self-storage facility to succeed:

1. Same-Store Sales Increase (SSSI) – Measure this at least annually, but it can be measured anytime. Look at last year’s management summary, as well as the year before. Divide the total income last year by the income for the year before. This will give you the SSSI.
2. NOI Increase – Measure this at least annually, but it can be measured anytime. Obtain last year’s cash flow statement, as well as the year before, and divide the total net operating income last year by the net operating income for the year before to calculate the NOI increase.
3. Gross Potential and Street Rates – If you’re doing rate increases on a regular basis, your gross potential should be going up. Every tenant should be given a rate increase at least annually.
4. Insurance Sales – What percent of move-ins are being sold insurance? Ballard says at least 85 to 90 percent of renters should be purchasing insurance, which adds income in your pocket.
5. Box Sales Per Lease – What’s the total of retail sales per lease?
6. Discount Percent – How much are you giving away in discounts? Those who are getting more than a 50 percent discount should equal the total company or complimentary spaces.
7. Fees Waived Percent – Are your managers collecting late fees and other fees or are they waiving them unnecessarily?
8. Delinquent Percent – Ballard says it’s very important not to have any delinquency showing in the 61- to 90-day categories. “If managers are processing delinquencies for lien sales at 30 days, you shouldn’t have any delinquencies in this category,” she says, adding that delinquencies shouldn’t exceed 3 to 5 percent of the gross potential. “Anything over that and your store has a delinquency problem.”
9. Expense Percent – What is your expense percentage?
10. Economic Occupancy and Customer Rates – There are three types of occupancy that must be understood: unit, area, and economic.

Once you’ve identified the 10 key areas on which to focus to make your business successful, it comes down to understanding the management summary. “There are so many numbers on the summary form,” says Mixon. “It can really be daunting.”

Key points of your management summary include:

• Rent vs. Actual Occupied Unit Rates – Do your rents collected equal your contract totals? If not, you need to figure out why.
• Payment Receipts – Add late fees and other fees collected. Under Concessions, add the late fees waived with other fees. Divide waived fees by collected and this number should be less than 10 percent.
• Occupancy – Compare the percent of units, percent of area, and actual occupied unit rates. Are your three types of occupancy in balance? Which is higher?
• Rent Last Change – Add 0 to 6 and 6 to 12, does that number equal your total occupancy? If not, why are there renters who haven’t received an increase?
• Owner’s Alert – This area will tell you if there are things you should be aware of, such as tenants who are not receiving rent increases, as well as deleted units and deleted charges (which may indicate an employee is hiding something off the books).

“The most important part is understanding all of the numbers on the summary,” says Mixon. “Owners, as well as managers, should be learning the software and doing webinars.”

Mixon recommends taking webinars through Sitelink. “They don’t explain how to read the reports, but there are tutorials you can find on YouTube.”

When setting up the software, it’s important for managers to have access, but there are different levels of access; only owners should have “owner” access, which allows them to change unit numbers, etc. “In one example, I had a store I audited that was missing five units,” says Mixon. “The units disappeared from the software and the tenants were paying cash. The units weren’t showing up and the cash didn’t show up as income. The manager was stealing.”

Diane Gibson, president of Cox’s Armored Mini Storage Management, Inc., in Phoenix, Ariz., says once managers are trained in reading the management summary, they should understand the budget and your expectations. “We have a check sheet that breaks down the report; we teach them how to review the report and see the changes in real time,” says Gibson.

Another step Gibson’s managers do is review the rents at least once a month to make sure all specials are up to date. “We also review these at corporate to ensure no one is giving sweetheart deals,” she says.

With regard to delinquencies, her managers also review the past-due reports at least once a week. “These are the three things we look at regularly to make a determination on how a property can make more money,” says Gibson. “The exception report makes sure managers aren’t writing off late fees and are also increasing rents as they should.”

Additionally, they send emails to each manager monthly. “We tell them where they stand in regard to goals and expectations,” says Gibson. “These emails also outline our support in helping them improve, if necessary.”

Each site receives graphs showing performance; if the manager needs to improve, they will receive a phone call to determine why they aren’t making budget. “It may be that if occupancy is high, delinquencies may be high or prepays (specials) are high,” says Gibson. “I make sure numbers are in line with what the site should be collecting.”

Ballard says a property’s success ends with knowing how to interpret the management summary, but it begins with these basic management expectations:

• Expect a daily close and balance, bank deposit.
• Expect cleanliness everywhere, no matter how old the facility.
• Expect concise written or digital instruction for all processes.
• Expect standards and goals to be provided for all areas.
• Expect to measure performance daily, weekly, monthly, and annually, and provide at least an annual performance review.
• Expect to succeed with consistent inspections of all areas you deem important.
• Expect marketing or rate management every week or month.
• Expect to see at least a 10 percent improvement.

By Rod Bolls

ears ago, I wrote about the merging of portable storage and self-storage. At the time, the notion of using portable or relocatable storage units within self-storage facilities was new. However, the line between portable and self-storage has become increasingly blurred over the past decade. The rise of storage in general, coupled with changing customer needs and economic conditions, has led to more interaction between these industries. Despite their functional differences, the portable and self-storage industries share commonalities in terms of convenience, economy, and innovation. And the key element that unifies them is the storage container itself.

By leveraging the capabilities of the storage container, the portable and self-storage industries can provide a solution that caters to a wide range of markets. Various rental methods are already shared among these industries. For example, a self-storage operator might use a moving truck, a moving company may employ portable storage containers, a portable storage company might offer on-site self-storage, and a self-storage facility could use relocatable storage units instead of permanent structures. This article explores the convergence of portable and self-storage industries and highlights the advantages and opportunities of a hybrid storage model. 

Convenience plays a significant role in the storage industry today. Customers are choosing to do things for themselves without relying on professionals. They prioritize ease of use, speed of the solution, and assurance of security. Portable storage solutions exemplify this convenience, as customers can order a storage unit and have it delivered to their desired location when moving. Portable storage units are equipped with features like wall vents, vertical e-track, and tie-downs for safe item transport, making them ready to move. Customers can pack the unit at their own pace and keep it at their location or transport it elsewhere. Similarly, self-storage facilities operate on a self-service basis, enabling customers to load and unload items at their convenience. Plus, for ultimate security, portable and relocatable storage units often come with roll-up doors that are compatible with smart, hands-free entry and locking systems.

There is a growing demand for a storage unit that combines the benefits of portable and self-storage. This shift in customer preferences, along with the increasing overlap of commercial and residential customers, necessitates merging these options to provide a unified storage solution. One example of the hybrid storage model is what we call a relocatable unit. It is durable enough for relocation, flexible to fit in unconventional spaces, and customizable to match a business’ existing aesthetic. To provide customers the best of both worlds, you could offer both portable storage units and self-storage units at your facility. Businesses that have hybrid storage offerings will be able to cater to a broader range of markets and help fill today’s storage demand.

Since my previous article, the economy has further spurred the convergence of portable and self-storage industries. Both sectors are experiencing increased demand, as people use more storage and look for cost-effective solutions. The rise of the hybrid storage model within the industry is fueled by the desire to create profitable self-storage facilities using portable and relocatable units in innovative ways. Think about it: Portable and relocatable units are designed for mobility, constructed from durable materials, and equipped with locking mechanisms to ensure the security of their contents. To thrive in today’s market, they also need to be adaptable for use in both permanent self-storage environments and portable storage/moving environments.

Compared to full-service moving, portable storage options offer a more affordable alternative. While it places more responsibility on the customer, this option is gaining popularity due to its lower cost and reduced involvement. Portable storage is a storage option that allows you to store your belongings in a container that is delivered to your location for loading and unloading. You can choose to keep the unit at your location or have it delivered elsewhere. Portable storage units are weatherproof and secure, and they come in a variety of sizes. The units will typically have swing doors with secure locks. They are designed to be easily moved from one location to another by truck, rail, or ship, and some containers may even have wheels or other mobility features built in.

In the self-storage realm, market demand is driving additional development within storage facilities. People need to store more things! The self- storage option is where you rent a storage unit at a fixed location that you can access during the facility’s business hours, usually by driving directly up to the unit. Self-storage operators can build or expand a facility using permanent buildings, relocatable self-storage units, or a combination of the two. Using relocatable units will provide savings in terms of coordination, lower costs per square foot, and time compared to traditional single-story or vertical storage buildings that require extensive permitting and local zoning knowledge. Construction materials are expensive, permitting approvals are slow, and labor shortages exist. Additionally, classifying relocatable storage units as equipment allows self-storage operators to benefit from tax advantages like the Section 179 tax deduction.

At the heart of this convergence lies the innovative storage unit. When I started my business in the storage industry, I looked for underserved areas in the market. What are the ways we can improve the experience for customers? What updates can be made to storage units? How can we differentiate ourselves from the competition? I discovered that there was a need for less compartmentalization of storage products. So, why not manufacture storage units that have it all? Imagine a storage unit that is adaptable for both self-storage and portable storage and moving environments. Storage that is durable enough to move from location to location, flexible enough to fit in a storage facility where no other storage units would fit, and customizable enough to match a business’ existing look and feel.

Designed to be moved from one location to another, relocatable storage units can be placed and assembled at a facility with little-to-no foundation or major site preparation. They are durable, weatherproof, secure, and beautiful. They are made of steel and come in a variety of sizes to accommodate different storage needs. So, when a brick-and-mortar self-storage facility needs more rentable space, it is easy to add relocatable units. Relocatable storage units can be used side-by-side to create an effective and efficient drive-up or walk-to storage operation. Some relocatable self-storage manufacturers will even help you design the layout for your site to see just how many units you can fit on your property.

The best storage units serve multiple purposes. Portable storage and relocatable self-storage units are used in several ways, and people are taking advantage of their versatility. The hybrid storage model combines convenience, economy, and innovation to meet customers’ evolving needs. Businesses embracing this approach can thrive in the changing storage landscape and provide comprehensive solutions to diverse customers. By staying adaptable and leveraging the advantages of the portable and self-storage industries, storage businesses can position themselves for success in the future.

elf-storage development is an expensive gamble.

A methodical approach greatly reduces risks and increases the odds of success. That starts with finding the right site. But what constitutes the right site?

That question has a multipart answer, several industry experts say.

A third-party feasibility study early in the process is “critical,” says Tarik Williams, president of TLW Construction Inc., based in Gilbert, Ariz. Williams thinks most self-storage developers have a good idea of what constitutes a site that’s right for development. They have a general sense of the market and the area’s rates.

“However, you’re looking at spending $10,000 on a feasibility study for a project that might cost $10 million to $15 million,” he says. “It’s money well spent to manage the risk.” David Dixon, Atlanta-based Universal Storage Group’s COO, calls the cost of a feasibility study “a rounding error” compared to a project’s total cost.

“I personally would not go into any endeavor without having another set of eyes on it to check the market conditions, occupancies, the rates, saturation points, and the viability of zoning,” Dixon says. “Developers understand the necessity of the studies. Lenders won’t move forward without it.”

Universal doesn’t do “desktop” feasibility studies, says Sarah Beth Johnson, Universal’s director of sales. Those studies are limited to online research. Instead, the company first gets the address of the site in question or a place near it and “looks from 30,000 feet [to decide] whether the feasibility study is worth it,” Dixon says. With this first step, “I always say we can’t necessarily give you a really good ‘yes,’ but we can give you a good ‘no,’” Johnson says.

Universal does a two-phase feasibility study. The first phase is to assess supply and demand. They send someone to “shop the market,” look at the conditions, and judge the site. If everything looks right, then they’ll engage an architect to do some preliminary floor plans to get a unit mix. They don’t engage a civil engineer at this stage because “they’re very expensive for the feasibility,” Dixon says.

Universal also designs self-storage facilities. After they assess supply and demand, M. Anne Ballard, Universal’s president of marketing, training, and developmental services, draws plans to scale by hand with the entire unit mix judged most desirable. Then Dixon will do a five-year proforma based on that.

Cecelia Parra agrees that a feasibility study early in the process is very important. Parra is vice president of Noah’s Ark Development, a business unit of The Parham Group, based in Bulverde, Texas.

The feasibility study determines whether self-storage demand exists in the market in question, says Rachel Parham, president of Noah’s Ark Development and NDS Construction, another Parham Group business unit. If demand exists, then the details enable them to decide what unit mix they’ll design and build.

Charles Plunkett, founder and CEO of Capco Steel Inc. and Capco General Contracting, based in San Antonio, Texas, says for the typical developer—excepting “an extremely seasoned developer or a big REIT”—a feasibility study is “probably the most important thing.”

Plunkett has been in the business for 38 years. He has seen developers who get partway into a project, get excited about it, spend $50,000, “and get blinders on,” even when it’s not a viable project.

“They want to press on,” Plunkett says. “My thing is developers are eternal optimists. The glass is always half full. A third party gives a detached opinion, an unbiased opinion. They’ll be cautious. A third-party feasibility study is the cheapest insurance policy you can buy.”

A typical self-storage project will require the developer to spend $25,000 to $50,000 before they know whether the project will work. “That’s the price of development,” Plunkett says. “If you can’t afford that, you have no business being a developer.”

A thorough feasibility study gives the developer a detailed picture of the market and whether demand calls for a new facility at a given site.

Even with the feasibility study in hand, developers should “continue to pepper the feasibility company with questions and continue to study the market, reach out to city officials, and compare timing with other projects coming up in that area,” Williams says. “It takes constant study.”

Parra suggests learning about other facilities in the market and their lease-up rates. Track planned facilities in the development pipeline and cross-reference it with municipal data, such as permits granted, planning, and zoning committee meeting minutes.

“Where’s the traffic coming from and going?” Plunkett asks. “Typically, people rent storage close to home. It’s not an impulse buy. In the old days … 75 to 80 percent of traffic came from drive-bys. Now it’s by looking it up online. Figure out the demographics, income. People with big houses generally don’t rent storage.”

Twenty years ago, developing a site near a big box store or another business with heavy traffic “was incredibly critical,” Williams says. The majority of tenants rented self-storage after having seen the property while out and about. Now, people often use their phones to search “self-storage near me.”

But building a facility near a major road or highway is still better than having a “really strong three-mile radius where all the tenants are coming from,” he says. “You’re reaching out five or even 10 miles.”

Plunkett says the ideal location for self-storage is on the edge of the main business district near residential housing, on a corner with two access points and slightly elevated, in an area with daily traffic of 100,000 vehicles, and near a school because “everybody in the area is bringing kids to school and will drive by.”

“That’s the perfect site,” he says. “How many of those factors can I get?”

Assembling a project team early on is indispensable, according to industry experts. That team usually includes an architect, a civil and a structural engineer, a construction general contractor, a geotechnical analysis expert, and a self-storage real estate professional.

Most deals Williams has seen recently are structured with a two-stage contingency process through the land’s purchase agreement. The first phase is generally more legal in nature. It includes an American Land Title Association survey, easements, liens, and hazardous materials. The second phase involves entitlements, working through site plans, elevations, city approval, landscaping, a geotechnical survey, an architect, a zoning lawyer, a civil engineer, and contractors for conceptual budgeting.

“The most successful projects have all these early in the process,” Williams says. “The feasibility starts when an owner finishes general real estate due diligence, which is usually 30 to 60 days from a contract escrow.”

Whether the developer has experience with self-storage, or they hire Plunkett’s company to make “a roadmap for them,” the team is fundamental. First, get a contract on the site with a specified due diligence period. Assess entitlements and hire an architect and a civil engineer.

“Those unseasoned developers don’t understand the whole process,” Plunkett says. “If you think the site is good and the price for land is good, then have the feasibility study done. A smart developer would bring in a contractor and maybe architect at that point. It takes time for feasibility study. Proceed with what you can do during that time. Maybe spend a little bit of money for an architect to draw up a preliminary site plan.”

A developer needs a reasonable estimate of the cost to build the project, adds Plunkett. Utilities or soil problems can bring unexpected costs.

Site work causes most construction budget overages. Stone in the soil, bad soil, or drainage problems can be the culprit. Capco “missed by a million bucks” on its budget for a project five years ago in Franklin, Tenn. “We had to haul 700 truckloads of dirt out,” says Plunkett. “It’s possible to miss something even with diligence. Tell your geotech guys to over-bore. We called for 13 borings on that site. If we had done 20, we would’ve found it. Our $7 million budget turned out to be $8 million.”

Even if you have the right site in hand, today’s rising interest rates make development harder because banks are more conservative and less willing to lend, Williams says. Construction costs are still high, though they’re starting to fall. And self-storage rental rates are softening.

“But people are still getting deals done,” says Williams. “It goes to reputation.”

Dixon hasn’t seen as many new developments planned or being built as there are now since 2007.

“Occupancy and rates are falling,” says Dixon. “Move-ins are good. Move-outs have increased 20 percent. Saturation is coming. I thought interest rates would slow development down, but they haven’t.”

By Erica Shatzer

fter approximately two years under development, Arizona Self Storage, a state-of-the-art, Class-A facility prominently located on the corner of the Olive Business Park in Peoria, Ariz., received a temporary Certificate of Occupancy in October 2023. Designed by RKAA Architects, Inc., and constructed by Campbell Development, the brand-new, sturdy square structure has a Lego-like façade with vertical and horizontal elements that create a sophisticated layered design as well as two two-story corners of windows that add to its overall curb appeal.

With three above-ground stories and a basement level, Arizona Self Storage houses 875 air-conditioned units and a fully enclosed, drive-thru loading bay within 115,202 square feet. “Customers can shut the doors behind them and be completely out of the elements,” says RKAA’s Neil Feaser. “This is a special, unique feature that most facilities rarely have.”

Other customer conveniences include Janus International’s Nokē Smart Entry system, multiple freight elevators, daily access hours, online rentals and payments, an on-site resident manager, and ample parking surrounded by a block wall that replicates the striping of the facility’s exterior. Arizona Self Storage is owned and managed by Mangat Investments and Aberdeen Management & Development.

ome industry experts say that self-storage investors are lowering their expectations for returns amid the continuing tough economic environment.

But self-storage is still positioned as the strongest class of real estate compared to the traditionally main types (multifamily, office, industrial, retail, and hospitality).

Steve Mellon, senior managing director of Houston-based JLL Capital Markets, says requirements for investor returns have risen because of rising interest rates, which cause the cost of capital to increase.

“We have seen the cost increase not only for the private capital buyers [mom-and-pop operations], but even the national REITs’ cost of capital increased substantially over the last 12 months,” Mellon says.

Amid several interest rate increases in the past year and a half, the Federal Reserve System’s Federal Open Market Committee (FOMC) said on Sept. 20 that it would hold the federal funds interest rate steady at 5.25 percent to 5.5 percent. The federal funds rate is the overnight interest rate commercial banks charge one another to borrow or lend extra reserves. The federal funds rate also can affect short-term credit card and consumer loan rates.

The FOMC also says it still aims to reach maximum employment and a 2 percent inflation rate in the longer run.

“Recent indicators suggest that economic activity has been expanding at a solid pace,” the FOMC statement said. “Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”

Along with higher interest rates and capital costs, self-storage rent increases are decreasing both for street rates and for existing customer rent increases (ECRIs), Mellon says. Many investors were expecting double-digit growth for 2020 through 2022. But rent increase rates have leveled off to 3 percent to 4 percent. Everyone now expects flat rates for the next year or two. And facility owners are tempering their rent increases for new and existing customers.

Investors are also lowering their return expectations, but even lessened returns exceed other real estate classes, he says.

“It’s a pretty bleak story for all of commercial real estate because of rising interest rates,” Mellon says. “But bad news for storage is a lot better than for retail and hotels. We’re cooling to 3 percent [rent increase rates] from 10 to 15 percent. But retail and office guys say, ‘You mean you’re still growing? We’re going backwards 40 percent.’ This will just be another time that storage will prove to be recession resistant. Storage will show why it’s a great asset class during a recession.”

Self-storage as a class of real estate is relatively new, Mellon says. It “really took off” in the 1990s and became a relevant real estate sector. The financial carnage in 2008 and the onset of the COVID-19 pandemic both tested the self-storage sector among all others. But self-storage had the second-lowest foreclosure rate in 2008 behind mobile home manufacturing, and it performed well during the onset and worst of the pandemic.

Because of uncertainty about future interest rates, JLL expects investors to focus more on assumptions about future rental rates that they can come closer to proving today rather than in the future, he says. But he adds he’s optimistic that the construction slowdown will help self-storage in the long term. Most owners will say the one thing that affects their stores the most “is a competitor opening down the street.” This generally should help existing properties’ future cash flows.

In Chilton Capital Management’s REIT Outlook, released in August and titled “Self-Storage REITs: A Cautious Outlook for a COVID Winner,” the company’s REIT team writes that since its October 2020 outlook, “the sector has grasped the attention of investors due to the unprecedented levels of demand and considerable outperformance through the pandemic.”

The recent acquisitions by Extra Space of Life Storage and by Public Storage of Simply Self Storage—transactions valued at roughly $15 billion combined—“have propelled the self- storage sector to the lead in 2023 deal-making as of July 31,” Chilton says. 

“After record-level fundamentals in both 2021 and 2022, a return to normalcy seems evident thus far into 2023. … Record low mortgage rates early in the pandemic brought elevated home sale activity and moves away from coastal urban cities,” Chilton says. “Furthermore, work-from-home resulted in scores of households suddenly looking to cram office space into their homes.”

Though decreasing demand is lowering move-in rates, some factors can counteract that, Chilton says:

• Supply “looks to be manageable” over the next few years.
• ECRIs seem “to become key drivers to revenue growth, supplanting declining move-in rates.”
• Higher mortgage rates decrease the ability to move into bigger spaces, and remote or hybrid work has caused “stickier customers leading to record-high customer length of stay.”

Chris Sonne says rising interest rates drove a 21-basis point increase to 5.56 percent in the second quarter of 2023, based on Newmark Valuation’s investor survey. Sonne is Newmark’s executive vice president and specialty practice co-leader for self-storage in the company’s Irvine, Calif., office. The second-quarter increase represents a 34-basis point increase since the fourth quarter of 2022.

Self-storage capitalization rates (typically calculated as net operating income divided by current market value) and returns have increased with the 11 interest rate increases since March 2022, Sonne says. But self-storage cap rates “are not rising commensurately at all” partly because of the strength of the asset class.

The asset class remains strong, but self-storage transaction volume has decreased by 70 percent, he says. And almost 70 percent of the transactions were for less than $5 million. He calls that “kind of interesting for single assets.”

But self-storage also has had the biggest portfolio transaction volume this year in the sector’s history, over $18 billion, Sonne says. He cites the Extra Space and Public Storage transactions as the main drivers of that dollar figure, “and then there’s a bunch that are under $1 billion.”

“What’s interesting to me is it tells me the institutional money is bullish about self-storage over the long run, and that’s always been storage,” says Sonne.

“It’s a long-run game. This year has not been the best year in terms of operations, with lower rent increases and occupancy down a little bit. But I just say it’s a reversion to the mean. Things are just sort of returning to normal for self-storage. It’s just that we had a couple of phenomenal years there during the pandemic. That mean is very strong.”

Looking back 25 years at the commercial real estate return numbers, self-storage is king. Sonne compiled National Association of Real Estate Investment Trusts (NAREIT) data on investment returns from 1994 through 2018. Self-storage had average returns of 16.7 percent for that 25-year period, the NAREIT data shows. This compares to 12.9 percent for apartments, 12 percent for retail, 12.7 percent for industrial, and 12.1 percent for office.

“It makes sense that when you see people looking for safety in certain markets they go to self-storage,” Sonne says.

Self-storage investors continue to expect strong returns, Sonne adds. Their expectations keep rising because interest rates are rising. When interest rates rise, cap rates and returns follow suit, “even if you’re buying all cash.” That applies to all commercial real estate segments.

Sonne thinks that self-storage returns will stay “relatively flat” in 2024 and that the Fed “is just about done in raising interest rates.” He recently spoke to two investor groups. He always asks audiences what their expectations are for rate increases. About two-thirds of those he spoke to think there is probably one more 25-basis point increase by the Fed coming by the end of 2023.

“Inflation is so stubborn—the term is “pernicious”—and I think the Fed is pretty determined to battle it with interest rates as kind of the only lever they have left,” says Sonne. “What I hear from a lot of people is, ‘Stay alive until ’25’ in other sectors. Storage isn’t so bad. But office sectors and things, when they have money coming due, they’re just in a world of pain.”

By Joe Doherty

ecent industry articles have detailed the increasing effect of heat and natural disasters on self-storage operators and their facilities, including the November issue of SSA Magazine. If you have not done so recently, check with an insurance agent who specializes in self-storage to ensure that you have the coverage you need to protect your investment from these threats.

But what about coverage for tenants’ stored property at your facility? If your tenant suffers loss of or damage to their stored property, chances are they will look to your facility to make them whole. However, most insurance policies covering storage facilities do not cover loss of or damage to tenants’ stored property.

Moreover, many rental agreements expressly state that the operator disclaims all liability for loss or damage to tenants’ stored property, does not carry insurance for such loss or damage, and requires the tenant to have appropriate insurance coverage or other protection in place during the rental period. These provisions in the rental agreement significantly limit legal exposure for storage operators but do not solve the practical problem of an angry tenant who just found out that their property was destroyed following a flood or fire.

Of course, you could choose to pay the tenant out of your own pocket as a gesture of goodwill. Another option that operators are increasingly using is to offer self-storage tenant insurance or protection plans to their tenants. These products provide low-cost coverage for tenants’ property. Instead of looking to the storage operator to pay for loss or damage, the tenant can file a claim with the insurance company or protection plan provider (depending on how the program is structured).

How can a storage facility make these coverage options available to their tenants? The sale of insurance requires an insurance license. Typically, an individual can obtain an insurance license only after numerous hours of studying and passing a licensing examination. Fortunately for storage operators, due to the lobbying efforts of the SSA and affiliated state associations, 39 states currently allow self-storage operators to obtain a limited insurance license for the sale of tenant insurance. The tenant insurance provider will assist you with this licensing process. Three other states (Michigan, Minnesota, and Rhode Island) provide an express exemption from licensing for self-storage operators under certain circumstances.

Generally speaking, protection plans are add-ons to an operator’s existing rental agreement and do not require licensing. Operators should consult with their legal counsel and protection plan provider to ensure that the protection plan meets the legal requirements in their state.

Finally, operators should review the different products and benefits before deciding whether to offer tenant insurance or a protection plan. Either way, operators should make one of the products available to shield against financial loss from a disaster.

Please email me at jdoherty@selfstorage.org if you have any questions about your options.