Kevin Bledsoe - How Self Storage Owners Can Build Value

Hi, everyone. Jim ross in the self storage show. Got an episode coming with you with any of you haven't done the interviews for a little while.

Kind of out of practice. So good. We're bringing it back. Kevin bledsoe with me today. How's it going, kevin? Good. How are you, jim? Good. Thanks for taking the time.

I know you're a pretty crazy busy, so thanks for coming on. Yeah, absolutely. I appreciate you having me. Yeah. Things going on, it's always fun.

Go ahead to start off with, kind of give us a little little synopsis of who you are. You got the storage and we'll go from there. Yeah.

My name's kevin bledsoe. And, uh, i've been in the actually the self storage industry for 16 years. I spent the first decade on the operation side of the business, and I worked for ah, small reed had about 30 properties where I kind of got my feet wet and learned on day one how to run self storage properties and rent trucks and install keypads and controllers and and all that good stuff and, you know, and then eventually if they got through a little training period, uh, came a district manager trainee. So I made it in life at that point.

Um, uh spent a couple years of that company and then worked for a larger company called simply self storage of orlando, florida, uh, and ran about 30 property portfolio for them. And then, uh, I moved on to some third party management stuff. And then how it actually helped start, um, storage asset management, which is actually the largest privately held third party management company.

Yeah, I don't know. Uh, yeah, they're good guys. Good company. So we started with 18 contracts. And I think by the time I left, they were at 65. And e guess they got a lot more successful after I left there at about 300 down. So correlation here.

Yeah, that's right. Eso in 2015, I came and enjoyed joint investment real estate, uh, in brokerage and eso. Since 15 to now have been building ah brokerage team in the northeast atlantic and we specialize soul in the cell phone industry, and that's it.

We value about 100 properties a year and fell between 20 to 30 self storage facilities each years. Well, you've been there, done that.

You kind of ran the whole gamut when it comes to being a part of story. That's awesome. Yeah, a few things from time to time. Wait. Reason I want to bring you on. I saw that post where you're talking about, you know, when you talk about how owners can bring value, end of the facility and of course, they wanna sell it and make some more money, but they have to kind of build that value in the first place.

And I was like, it's one thing I have me talk about it operations. I want to hear it from kind of the broker perspective. And then you have a case study real numbers.

You know, people putting this kind of stops go into effect. So, yeah, the floor is yours. I love to kind of see what you got.

Yeah, it sounds good. Um, you know, it's always it's helpful because I spent so many years in operations so working on the brokerage side, and I built hundreds of budgets over that time period.

So the nice part is is that, um, you know, kind of walk the walk and talk the talk, so to speak. Um, we have the opportunity to, you know, when we list the property for sale, we can look at the owner, look across the table and say, hey, we've rented those storage units and we know what it costs.

Thio put my ability insurance in place. You know, we know what it costs thio higher property manager and to pay them, um, you know, for us, it's it's really helpful because we've we've rented so many storages and built properties, and, um and then we put that in tow play when we put together our marketing packages and are offering member adams as well. So, you know, I think some of the things that are that we see when we're doing valuations for owners and where owners, typically and new investors to the industry are really missing. The boat is you know, we get in there and we look at the financials and we can pretty quickly just pick it apart. You know, we're typically what we see is we see the revenue management is either non existent or not consistent enough.

So, um, we would typically recommend to an owner that when a tenant moves into the property that they're getting between a 6% to 10% rent increase on the high end, typically 10% within the first six months that they move in.

Um, and then after that, every 9 to 10 months after that, they should get another rent increase after that as well. Um, the national average link to stay is about 12 months for a renter across the country.

And, um, we know if you get that first bump in month six, uh, that you're going to get that, you know, $100 unit you're gonna get, you know, say 6% bump. That's another $6 you're gonna get for an additional six months.

And ultimately that rolls through to the bottom line for n. Y. Um, so consistent rent increases? Uh, a lot of times, what we see is that they put rent increases in place and let's say 2018, they got a little scared in 2019, and I thought everybody was gonna move out. I've done tons of testing on it. And we know from the testing that we've done with self storage for flows that less than 3% of tenants move out with. It's a pain in the rear end of your stuff out.

So I think that's number one. I think that's where you're gonna get the most bang for your buck as a new operator or an investor in the industry is the revenue management piece of the puzzle is number number one. That's what you have tow what you have to dio uh huh.

I think after that I think it comes down to, you know, there's some other pieces. Well, collecting late fees. We see a number of property owners who, um, they simply don't collect.

You know, you you go and look at their management software and you're looking at, you know, tenants that are are they'll have 30 40 tenants over 60 days past two, but the property is 95% occupied, 100% occupied, and they're very proud of their 100% or 95% occupancy go well. In reality, you're really only like 75 or 80% occupied, and you have a bunch of people here that are paying, and this is a for profit business, and we would like you to make a profit, you know? So I have the exact conversation with somebody a week ago, the exact same scenario. So it happens all the time, all the time. Jim. Its's almost unbelievable.

Scary. It's really scary. We have some really easy lean balls, right? I mean, they're not they're pretty easy compared thio apartment evictions or, you know, kicking attendant avenue apartment. That's a 69 month process to get him out of a, you know, out of your rental.

Your multi family unit, right? Getting myself story just typically on the low end, maybe 60 days that maybe 90 days in most states is typically process.

So, um, almost unbelievable because you have, uh, they're like, oh, we're turning away tenants. I'm like, well, how about you sell the 30 people that haven't paid you for the list four months, you know, so staying on top of collections, um, not waving late fees.

We used to talk a lot in the operation side of the business about, uh, you know, really limiting the managers, you know, don't allow them to waive late fees. Or, you know, we had a rule that it was one late fee per year for a customer.

Give one get out of jail free card. Um, lieutenant appreciates it. And you tell me. Hey, look, you know, we're gonna do this once a year for you. You know, the next time we are charging you for it. So you have to train your tenants.

You know, you have to train. You know, if you're gonna be late, we're not gonna with late fees, you start waving late fees.

They want it done every time. And we typically see late fee income out of property account for anywhere for between, like, 3%. Maybe eight or 9% on the high side, but 3% to 8%.

Um, they're not gonna add some additional revenue to the property when you're talking about a property generate for $500,000 revenue year. Um, that's a very important piece of operations.

Additionally, tenant insurance. Um, there are so many owners who say we don't offer 10 insurance. We don't believe in it.

Um, we're just not gonna do it, and I i will say them all times. You guys, you know, look, you need to put tenant insurance in place, you know, just like if you went to rent apartment, typically most landlords gonna expect you have renter's insurance department, right? It's the same thing with self storage and, you know, they said, well, nothing. You know, hardly anything ever happens. And my guys I had I had a building burned down in new jersey and it affected 50 storage. And I think, guess what?

We weren't very good at implementing tenant insurance at that. That point in time e think only like four units at tenant insurance. I have a couple of videos and I backpacked, but I show owners that puts the fear of god. And i'm going to see that because it's just a smoldering buildings like it does happen.

  1. It was a full supply. It was like a pool. Chemicals in a storage unit next caught on combusted, set the storage building on fire on li like tenant insurance policy. So we ended up with, um, 46 customer. Well, all 50. We're not happy, but I could tell you the fourth had 10 insurance. Who got money back they were much happier than the other 46 the owner ended up in lawsuits, uh, with a number of the tenants for a number of years that they had to settle out of court on them.

So, um, 10 insurance is very important, and it also falls through to the bottom line. You know, typically, you have a nine or $10 premium for the renner, and then the owner of the property is receiving, usually somewhere between three to maybe five or $6 on the high end on that type of policy, just depending what company you work with, you know, but tenant insurance could be a big piece. You can really help grow.

You know, the value of your facility. Um, there's some other ancillary businesses, you know, if you could get us lucky enough to get a cell tower and get 45 renters on that cell tower or co lows as we would call them, um uh, maybe a billboard.

Uh, trucks can be profitable, but you got to kind of have toe. You kind of have toe staff it and that sort of offset some of the commission's many times. Um but i've seen some truck, some properties of trucks, you know, be very profitable as well. They've done very well.

But I think those were probably some of the primary things. There's some things today that owners are doing your pricing in this gym as well where they're doing.

Um, premium pricing on storage units. Yeah. So, you know, we used to be where, you know, kind of started. I think the multistory sites where you know, everything on the first floor ah, by the doors was, you know, a 10 by 10 would be $100 and then the ones further down the hallway was maybe 85 or $90 and then second story by the elevator entrances might be $95 and then you get to the middle of the building. It would go to the 85 or $75.

Um, and now we're seeing dr up properties take on the same, um, thing as well, right. You know, there, there. Ah, um, perfect. Um, or if you're by the gate at the front of the property and the lights right across the aisle from your unit, you know, they're charging less if you're backed by the retention pond in the corner.

You know, maybe a safety safety self. Um, so that's that's a big piece of well, yeah, a lot of these things you can hit on it very beginning is about being consistent, inconsistent just doing it.

I think that there's all these little things you can plug in here, but what we just talked about what you hit on that covers 95% of this stuff really does. Of getting the most bang for your buck when you implemented correctly. So, yeah, let's talk about a case study. I want to see some numbers of what you guys have done.

Kind of just shows you the bottom line. The effect of putting some of these practices into place that money. It's not just strategy hyperbole we're talking about here is this israel tactics here, so yeah, check it out.

Yeah. Can you see this? Okay, jim? Yep. We're good. Okay, great. We'll start with a quick overview of the site.

This is a property that we were selling here in pennsylvania and, um uh, not a huge property in terms of the self storage industry, but I thought it was a great case study because it was something that really showed how much upside you can get out of some of these properties and how our buyers looked at him. So this site was about 28,000 square feet and it had just shy of 30 parking spaces on the property.

They were getting about $9. 50 a square foot. And, uh and and this is a little bit of a breakdown of the revenue. So today, where the property was at, the property was at $155,000 of revenue.

Now, this night was very poorly operated. Uh, owners were not engaged. Um, had a very poor looking office, which, as part of the sale, they got approvals to build a brand new office in front of property. That was part of my agreement with them is you got to put the new office in, um, the job trailer left a lot to be desired. Eso you know this this was their revenue.

This was their expenses, their expenses. When I came to $76,000 and the funny part was, you go to the job trailer and it had office hours between. I think it was, like, 10 o'clock and two o'clock and they weren't open saturday or sunday.

And they had no online rental for wow. Yeah. Probably had a gone fishing sign half the time on the door to yeah, you get the picture? Yeah. So in reality, this property, that net operating income on this property was just shy of $70,000 you know, so in. And like the typical brokerage world, you know, we're gonna put it may be a seven cap on this property that some deferred maintenance on it. So maybe 7. 5 or even a cap on this property on that would put, you know, evaluation on the site just shy of a million dollars, jim. So, um you know. So how do you handle this? There's so much upside and self storage industry is so hot, and everyone's hearing that, you know, people are paying crazy prices.

So what we did is we came in and said okay, look, the seller, the seller said those, like, kevin, we can't sell at this price. We're gonna try and turn this thing around ourselves. And I said, well, you haven't done it for the last 20 years. What makes me think that you're gonna do it now, right? You're gonna you're gonna get the magic pill, and all of a sudden you're gonna be the greatest self storage operators in the world.

I just, you know, just didn't see it happening. So I said, what if we get a little bit of premium for the property? I think buyers, they're gonna understand. There's a lot of upside in this property and we have plenty of buyers at kinkos. And they said, kevin, you know, this property is just significantly overpriced because we took the revenue perform that a pro form on it, and we took it up to 206,000, which was basically a 30% vacancy factor on it. But then we did go in and normalize the expenses, and we added support expenses to it.

And, um, added some things in here, applied it to office expenses, the website into your advertising market so you could have better management software so that you could implement credit card processing so you could do online reynolds.

All the things that you could use the help run the property either remotely or with some staff on site and have an online presence where you could do online rental programs.

Um, so there in no, I was $70,000 rno I was 1 20 so we could put a premium on the property. And this is how we value that we valued at 1. 7% capri e 7% cooperate, which puts it about $1. 7 million.

Property 1. 7 can create. Wow. Okay, that's crazy. Okay, we ended up. Uh, this probably ended up selling for $1. 5 million right?

So pretty expensive for property that with with that sort of n o I on it, um, you know, that really put the property trading, you know, uh, quite a quite a premium from where it was actually at today.

Probably. Actually, I think the reality probably have traded right around, like, maybe a 4. 5 or five cap.

A live buyer said to us. They said, kevin, that's really bloke average. That's not crazy. But, you know, you just don't I think that that works.

We said well, okay, the property needs, you know, $1. 5 million. We think it needs about $200,000 capital improvements that put you at 1717 on how much you're all in on the property.

What what happens is we know that this is a this is in lancaster, pennsylvania. Lancaster county, pennsylvania, which is a very hot market right now.

And there's lots of construction going on. Um, the the there's a lot of brain new houses and townhouses going in the market, and what we said is okay, so we agree the property may not be worth this value today, however, if you come in and do the $200,000 in capital improvements and make all these get rid of all of the linguine units, uh, take the un rentable units back to rentable status and implement basic management practices.

We think that the property, if you could do a 4% increase in your street rates and tenant rates every year, and you could close the gap by running the property more efficiently and actually having real office hours and real technologies from the property, we took a look at all the properties around it. All the properties in the market were 90% or higher, with the exception of one's property down the street that was two years old.

That's like 40,000 square feet and was already up to 85% occupancy. So the demand of the markets very positive and it's a growing market. It needed some tlc and needed some operational expertise. But if you take this property, just do simple revenue management. Nothing. It wasn't anything really aggressive.

And you can take the occupancy from today, which was really at about 40 about 40% or 60% financially occupied. Then you could take it all the way upto 92% which is essentially where the rest of the market sitting at and the rates in this market where really it's really 11 to $12 market. And if you remember from my analysis, they were at $9. 50 but only really 60% filled, so they had room to move rate.

They had room to grow occupancy and over time, as you increase rates, you increase the revenue you actually charge for the late fees and actually collect it.

Novel concept, novel concept, right? Uh, you actually sell retail supplies, cell locks and a few boxes, every tenant and implement the tenant insurance and get the 10 insurance up to a 75 to 80% penetration rate of actual the renters. And then we just came in here and normalized the expenses and carry those out over over five year period of time. So for us, we know someone is into this project for 1. 7 million in year one.

But we also know that this property is probably going to sell somewhere between 3. 2 to $3. 4 million in here five. And that's simply by running it correctly, um, implementing basic operational practices, revenue management, tenant insurance, collecting late fees, uh, and improving the overall appearance and condition of the property so you can turn really on this anek witty position of, you know, maybe 1. 8 toe, $1. 7 million over a five year period of time. So, yeah, we talked to owners in that we're gonna talk about raising rates and running more efficiently like we're just talking about. But when you slap on and cooperate on it and kind of showing just the value applied, it's a little bit of change here, just the big value going to get at the end of it.

It's so much more impactful. It's something light bulbs start going off like oh, okay. I e start getting it. And so I want to see just kind of that progression. Seeing like riel numbers, you know, it all adds up every single little factor we're talking about here when you implement it and put it into practice, it adds up.

And when you put a valuation on it, yeah, it's crazy how much you can change the valuation from these practices like we're talking about here. Yeah, it really does. And, you know, that's why we do 100 valuations of your your gym. It's because, um, you know, owners talk to us and we give them kind of the secret recipe and they go, oh, my gosh, you know, I didn't realize that that much.

I was losing that much value. So, you know, we do the valuation. We give him our thoughts. We don't do it for them.

So we say, hey, this is what you should do and here's what you call if you need help with it. And they implement it. And two or 3234 years later, they call us and evaluations, you know, $1,200,000 million million dollars higher than the day that we talked to them.

So we try and help them if we can. And sometimes it's just time for people to sell, and they just want to sell the property. So a lot of these properties, we look at those between 700,000 to a million dollars plus of equity that's being lost when we could be the properties huge, and we got a few more minutes here. But I gotta ask this question and i'm sure it might be open interpretation. It might be different in case by case basis, but, like like someone comes in and they know there's a lot of room on the money leaving on the table right now.

They put these practices in the place boom. They start 60 days, I start seeing the effect of the additional revenue coming in, and then they want to sell okay, they don't have their minds that they want to sell. Eventually, when people are looking at it, do they want to see years of track record of the new rentals coming in or 12 month kind of rolling time period.

Good enough to have that evaluation. I'm just kind of curious on how long they have to have those new practices and his new revenue streams in place. Yeah, so actually, it's actually a great question.

So let's put it this way. The juicy or the deal. Jim, uh, if someone can come in and they can show three months, three months is typically pretty light.

But if the if the deal is really juicy and they're just all kinds of upside above and beyond that, someone just trying to do a quick flip and they come in and then maybe they own it for six months to get three months of rent increases in place and the occupancy remains the same or continues to climb, um, sometimes you can sell it on three months. Really, I think buyers want to see at least six months of data.

Um, they don't want to typically see your best six months. You know, they want to see if you're in the northeastern mid atlantic, you know they want, you know, and you're in a snow belt region they want to see.

Not only does it, what does it look like in may, june, july and august. But they also want to see what it looks like in january, february, march, you know. So, uh, but I think the rule of thumb is typically six months. We can analyze it.

Anything less than six months, it's gonna be met with little bit of skepticism. Eso you can buy properties and do a flip within a year. I know. There's, um ah, portfolio that we're actively selling right now that, you know, uh, got its, you know, 10 plus properties. And and I think six um, i've only been known for less than 14 months and he's gonna get quite a premium on the portfolio when we trade it for him in the near future.

That's great. That's always accept heard stories like that. That's what I wanted to bring that up because I have heard some those guys. Yeah, they can I come in, fix it up, flip it. It's very quick time, period. So yeah, always, always interesting.

Yeah. Again. Well, thanks for coming on. And this has been enlightening and eye opening for those people. Want to get more information to reach out to you is how you can help them.

But what's give us your contact info? Yeah, they can. They can reach me at 7178081192 or they can also, you know, reach me by email. K. Bledsoe b l e d s o e at I r e l l c dot com cool.

I'll put that on the show. And let's know that they make life easier for everybody, so okay, well, thanks so much for taking the time of being on man.

Sounds good. Thanks a lot, jim. All right, take care. Let's talk you later.

Thanks and done.

Kevin Bledsoe from Marcus & Millichap joins Jim Ross to discuss how self storage owners can build value in their business.

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