Other articles by Stan

by Stan Colona

My most enjoyable lessons in business school involved discussion and analysis of case studies, which are stories written about actual companies and the business challenges they faced. The narratives usually included background information about the companies/players, descriptions of the challenging issues and the impact of potential solutions. The reader was not given the actual outcomes or actions taken by the subject companies until he had formed an opinion and made a recommendation for the solution. The purpose of the exercise was to think about alternatives and outcomes. Often, there were multiple answers or strategies that would be successful.

There are more than 30,000 self-storage facilities in the United States. Therefore, case studies involving specific properties, operators and characters are abundant. The intention of sharing this story is to stimulate thinking about challenges, solutions and results in our industry.

The Facts

Market. The Hidden Drive property was built in a Southern market, the population of which is approximately 900,000. The market has approximately 130 storage sites. There were six competitors within a 5-mile radius (trade area) of this site during the period of analysis. That is slightly less than the national average; therefore, saturation in the market does not appear to be an issue. The demographics are good. The area includes many businesses and residences, as well as two colleges.

Location. Access to the property is average. You can turn into the facility from the main road while traveling east, but the main road lacks the curb cut necessary for westbound traffic to turn. The main road is well-known in the market and has an above-average traffic count. Two retail-type businesses were developed on the many "pad" sites on this road. Others were planned or are being constructed.

Visibility. The office and front of the property face Hidden Drive--a dead-end road with little traffic--and are not visible from the main road. The back of the facility, which has little signage due to local restrictions, is visible from the eastbound or westbound approach on the main road. The operator has received two warnings for hanging temporary banners facing the main road, from where it is not easy to identify the facility as a self-storage site. The property looks more like an office building.

Layout. The facility consists of a four-story, climate-controlled main building with 615 units and a detached, 1,100-square-foot retail office.

Staff. There is no apartment or resident manager. An inexperienced, young, retail-store manager and two assistant managers are the property staff. A district manager who has 11 other sites in the market and a regional manager who is many miles from the market are supervising the site.

Operation. Office hours are typical and the site is open seven days per week. Tenants enter the climate-controlled building by coded doors, and 24-hour access is available. The number of storage inquiries is low.

Marketing. Marketing consists of a first-month, $1 move-in special that has been in existence since the property opened. The corporate office conducts national promotions in this market. Coupons are distributed in a U.S. Postal Service moving packet and through real estate offices. The property is represented in a large Yellow Pages ad depicting all 12 of the company's locations and listed as the Hidden Drive facility.

Rates. The rates are slightly lower than those of other competitors in the trade area. Most of the competitors are offering an inferior, nonclimate-controlled product at the same or higher rates as Hidden Drive's climate-controlled units.

Ancillaries. The retail showroom has a truck-rental center staffed by a truck vendor. Truck rentals are above average for the trade area. Other ancillary product sales from the well-stocked retail showroom are lower than expectations.

The Opportunity

The property is 11 months old. The occupancy and income are falling far below what was predicted, with occupancy at 29 percent. Income has been impacted because of the $1 move-in special and rates that are not consistent with the pro forma. The prime rental season will begin in the next month. This site is highly visible within the company because it is part of the investment by a major pension fund.

The Results

The company reassigned the district to a different regional manager. In four months, the occupancy grew to 68 percent and some unit rates were increased. Ancillary products sales increased and delinquent tenants did not significantly increase. What changes were made? What would you do? Next month, find out the actions taken by the new regional manager and his staff. In the interim, remember: "Smiling faces rent more spaces."