Investor Report: Self-Storage Facilities

It's not a high-glamour, high profile niche in real estate investing, but it could be one of the safer, cash-flow producers in tough economic times: We're talking about self-storage facilities for small-scale investors.

Yes, there are lots of them out there -- more than 52,000 nationwide. But the industry racks up $20 billion a year in sales, according to Self Storage Association, the major trade group in the field, and people always need a place to keep their extra "stuff."

Better yet, many centers generate positive cash flows even with unit vacancy rates above 30 percent, so small-scale local investors who have a knack for management and marketing can often do well - even in a down economy.

Leigh (Lee) Robinson, a California investor and author is one of those entrepreneurs with a knack. He got into the storage facilities field several years ago, and now owns four centers, ranging from 400 to 500-plus units each. He also operates mobile home parks.

Robinson's strategy with self-storage is to buy existing facilities in the $2 million and up range that have significant potential for growth in value by boosting rental revenues and occupancy rates through intensive management oversight and modest fix-ups.

In a discussion last week with Realty Times, Robinson laid out some of the key elements to his approach:

First, you've got to thoroughly research and understand the demand and current performance of self-storage facilities in your area. Generally the storage business "is very competitive," he says, and draws customers from a relatively small geographical radius - about four miles. Locations with large numbers of multifamily dwellings -- apartment buildings, condos and small houses -- tend to do best.

Second, since competition comes with the territory -- including against giant companies like Public Storage -- you've got to be prepared to out-market them with creative sales strategies and even out-manage them with personalized services.

For example, in one of Robinson's centers, all tenants get free use of a box truck to move their goods in or out. Robinson says he loves to compete head-to-head with big corporate-owned facilities "because we can pay closer attention to management" details -- and quality of local management is crucial to higher returns. He knows all his facility managers well -- and he hires only individuals with outstanding "people skills."

Third, Robinson believes that well-chosen, modest-cost improvements go a long way: lighting, cleanliness, security, and even asphalt paving. One of his projects has 16 security cameras, causing some customers to joke that the office "looks like a NASA command center."

But they've devoted tenants, and aren't going away.

Kenneth R. Harney