Before he passed away, Mike Parham made one last contribution to his favorite industry magazine the Mini Storage Messenger. Erica Shatzer had the opportunity to interview Mike for the “Look Who’s Talking” section of the Mini Storage Messenger November 2014 issue, where they discuss being a top operator and the future of the self storage industry.
– CEO Of The Parham Group and President of Noah’s Ark
There is more to being a top operator than simply owning or managing multiple properties. Although the numbers speak for themselves, there are certain aspects about the self storage industry that owners and operators should thoroughly understand if they want to climb the ranks of the Mini-Storage Messenger’s annual “Top Operators” list. According to Mike Parham, CEO of The Parham Group and president of Noah’s Ark Development, both of which are headquartered in Bulverde, Texas, the best way to grow your storage business is to know the industry and figure out how to adjust your business to meet the needs of changing markets.
Understand Your Customers
While Parham says that self storage customers haven’t changed much throughout the years, the ways they choose to conduct business has definitely evolved over time. Of course, the days of receiving leads from advertisements in the yellow pages directories are merely faded memories. The Internet and mobile devices have created conveniences that present day customers have come to expect from all businesses including self-storage. Mobile websites and online reservation and payment options are now seen as necessities in order to stay competitive in markets with various storage options.
“The self storage industry is comparable to the hotel and motel industry,” Parham says. “As a kid, we didn’t need to make hotel reservations before leaving for a vacation. Nowadays you wouldn’t even think about packing for a vacation without a reservation. The self storage industry is headed in that direction.” This means that your facility should offer its customers a hassle-free way to make a unit reservation any time of the day or night from any location.
The customers’ reasons for needing storage and the items they choose to store haven’t changed either. And they probably won’t change. People will continue to need storage for life-changing events such as divorces, deaths, and moves. But be sure to create good relationships with your tenants so they will keep back to your facility any time the need for storage arises. “It all revolves around the customers,” says Parham. “If you know your customers you will succeed.”
Know the Area
Although the customers have stayed the same, the markets in which they live do change from time to time. “You have to be able to adapt to market conditions as they change,” Parham says. “Provide what is needed for that market.” He emphasizes to do your homework to avoid offering products or services that aren’t going to be a hit in that particular area. For example, it probably wouldn’t make much sense to offer a propane tank filling station in an area made up of apartment complexes that do not allow their tenants to use barbeque grills. On the flip side, it is likely that the before-mentioned area would require many smaller units to provide the extra storage space that most apartments lack.
While Parham says that self storage customers
haven’t changed much throughout the years,
the ways they choose to conduct business
has definitely evolved over time.
Parham’s self storage properties use customer surveys to keep tabs on the changing demographics in the various market areas in which they operate. All new tenants are asked to complete the survey before moving into their units. The surveys help Parham’s facilities identify shifts in household income and family size. The data is useful when establishing or adjusting rental rates and unit mixes.
His companies also use the demographic information to determine other potential markets to enter. Due diligence is key when it comes to making good real estate choices. “There is an old saying: ‘90 percent of the fish are in 10 percent of lake,’” says Parham. “We spend all our time looking for that 10 percent.” He adds that it is usually wise to have several facilities within one market area in order to share customers and marketing costs. “Mass creates savings,” he says. In addition, having multiple facilities in a smaller radius enables the self-storage managers to recommend non-competing facilities when vacancy issues arise.
The Long Haul
Even if you understand the business, your customers, and your market area, success as a self storage operator isn’t guaranteed. Parham, whose company, Noah’s Ark Development, has made it on the “Top Operators” list for the past 21 years, says the most successful players in the industry are the ones who make a long-term commitment to their investments. “Ninety percent of successful companies are long-term players,” he says. “Half of the top operators now were not on the list 20 years ago. Back then most of the top operators were all independent owners/operators and the major players made up only 10 percent of that list. But they stay on the list by sticking to it. You will make more profit in the long run if you keep your properties instead of selling them.”
Although self storage owners are being bombarded with messages that claim there is no better time than now to sell their facilities, Parham doesn’t suggest believing the hype. “Always look from ear to ear,” he says. “If your property is seeing a 2 to 5 percent growth every year, you will make twice as much money keeping the property versus selling it.”
Indeed, it is best to take an in-depth look at all the financial figures before making a decision about whether to keep or sell your self storage investment. And it is never wise to sell simply to make a quick buck, especially if you intend to reinvest that money. “Don’t sell if you are going to get right back into the rat race,” says Parham. “Remember that there are taxes that must be paid after a sale. You can actually lose money if you take that route.”
A Forward Glance
When it comes to the future top operators, Parham expects to see many changes to the list over the next few years. “I think the next two years will be interesting to say the least,” he says. “This is the first time self-storage has seen so much attention. It is getting bigger and the public is more aware. It is now recognized as a viable investment which means that even when things slow down there will still be action.”
As a matter of fact, Parham foresees a great deal of action among the self storage REITs. “There will be a lot of shake up with the REITs over the next few years,” he says. “I wouldn’t be surprised if the REITs started buying each other up. There is a lot of investment money flowing in the industry right now and if cap rates keep dropping more operators will be inclined to sell.”
“I’d say the next two years will be unbelievable,” says Parham.
Erica Shatzer is a freelance editor and writer based in Hollidaysburg, Pennsylvania.