16 May 2019
A trend that we have seen over the last several years is a migration of independent owners/operators hiring professional management companies to run their facilities. The majority of the REITs, as well as the larger operators throughout the country have focused on third-party management as part of their platform. These companies have provided the industry with legitimacy, which has manifested itself through higher rental rates, disciplined pricing, product awareness, increased financing availability, and higher property valuations. This movement has elevated the entire industry, leaving smaller operators to feel left behind. This can be a problem for them as the size of their facility doesn’t generate enough revenue to hire full-time management, and owners are not up to speed with constant changes in the industry.
Over the years, I have seen that a facility has the most success when the roles of management are clearly defined. The facilities that struggle the most are the ones where the owner tries to do everything themself. They think they are saving money but in reality, they become satisfied with generating a certain level of revenue and don’t find a need to increase rents, market effectively, or even upgrade their facility. They become such good friends with their tenants that they feel guilty raising rents, even if they are 20 percent below market. There have been so many times when we have appraised facilities where there hasn’t been rent increases in years.
The survey that was completed where thousands of women asked the question, “What was the most important characteristic for you when deciding which facility to rent from?” The number one answer was security, but the second was professionalism.
One of the main reasons why owner/operators are falling behind is technology.
Over the last couple years in Northern California, we have experienced earthquakes, fires and floods that were devastating for some facilities. Is it part of your disaster preparation plan?
