Self Storage 101 owner, Bob Copper, discusses self storage feasibility studies and due diligence audits on the Self Storage Insight podcast with Ben Shirey. Bob is the founder of Self Storage 101, the largest consulting firm in the industry that provides self-storage feasibility studies, market studies, and acquisitions services across all 50 states.
What’s involved in self-storage due diligence?
The due diligence process for a self-storage facility acquisition can be broken down into three parts:
- On-site auditing to ensure the buyer is getting what they think they are getting
- Financial analysis to confirm the accuracy of the broker’s package
- Market analysis to understand the potential for improvement
It’s essential to have an independent third party perform due diligence to ensure the buyer knows what they are getting into.
Copper, who has been in the industry since the mid-1990s, highlights the importance of due diligence in acquisitions, which he says is becoming more important as development gets harder.
The typical due diligence process includes:
- A site visit and audit to ensure buyers get what they think they are getting
- An analysis of financial statements to ensure accuracy
- Market research to see what is happening around the facility.
A word of advice from the self storage expert
Copper advises against buying a property that is too good to be true, as it probably is, and suggests having an independent third party conduct due diligence, not banks, buyers, or sellers themselves.
The podcast episode provides valuable insights into the self-storage industry and is a useful tool for industry professionals and investors seeking to learn more about the sector or buy their own facilities.
Podcast Highlights:
- Bob Copper discusses feasibility studies and due diligence in self-storage acquisitions
- Due diligence is becoming more important as development gets harder
- Due diligence includes a site audit, financial analysis, and research into market conditions
- Independent third-party due diligence is advised
Podcast Transcript
Ben Shirey: Welcome to another episode of the Self Storage Insight podcast I’m Ben Shirey and today I’m joined by Bob Copper and we’re going to discuss feasibility studies as well as Self Storage due diligence and the things that you need to know before purchasing the facility.
Bob, if you don’t mind, share a little bit of your background on how you got into self-storage and kind of what made you start Self Storage 101.
Bob Copper: Sure I started in the industry back in the mid-1990s as a district man for Public Storage in Birmingham, Alabama and I ran several districts for them around the the southeast for several years. Then, in early 2002 or so, I started up Self Storage 101 and went on went in business for myself. My wife wanted to get back to Birmingham where our grandkids lived, and so I decided I’ll just go in business for myself and started up Self Storage 101, and I have been doing that ever since. It has grown into probably what by far what is the largest consulting firm in the industry as far as feasibility studies, market studies, and acquisitions. We do stuff all over the country in all 50 states. I have a pretty big organization, and it just grew out of trying a lot of different things in my career. Once I got into storage, I realized I was just smart enough to do that, so it has worked out pretty well for us.
Ben: I wanted to shift gears here a little bit and talk about due diligence. So, somebody’s coming into an acquisition: what does the due diligence process look like if you come in and work with a company on that. What are you specifically looking for or what should they be looking for?
Bob: We do a lot of due diligence acquisition work, so I’m glad you ask about that. That’s probably becoming even more important as people are are trying to find deals to buy, as development’s certainly gotten more difficult to do right, so people are trying to find ways to buy existing facilities. So, when we get involved in somebody wanting to due diligence, we have three pieces of that. They can pick all three pieces or one of the three, it doesn’t matter to us..
First and foremost, in almost all cases we do any kind of acquisition work, we go on site to audit the facility to make sure that people are getting what they think they’re getting.
[For example] to make sure that there really are 150 units; that there really is that much square footage; that you don’t have a hundred doors that need to be repaired; or they’ve never done an auction before or the last time they did an auction, they just threw everybody’s stuff in the dumpster and you might get sued someday over that. So, there’s a lot of things we need to be looking at at the site because that’s what you’re buying. You’re buying an existing facility with all of its good and bad pieces. So, we’ve got to make sure we understand that — what you’re getting into.
Then, the second piece of that is the the financial analysis: to tell who the buyer is or what they’re buying. It might be important to look at their financials: look at bank statements and income statements and make sure all of that lines up because — while I will say I think most brokers in our industry are really good and do a good job — I’ve looked enough broker packages to know they’re not always accurate. I don’t want to say they’re not always true, but they’re sometimes exaggerated or there’s things that don’t look right, so it’s important to have someone who’s not trying to sell you the property to make sure the financial piece looks right.
Then the third piece that that I think is important for people to look at, especially if they’re looking at an asset that’s underperforming — if we want to buy ones that need some work to make it more valuable — is to make sure you know what’s going on in the market around you. People call all the time and say “I’ve got this great deal. This is what the property’s doing, and I think I can really do better with it.” Well, then you find out the whole market’s terrible. You can’t fix that. If you’re buying a a property that’s 70% occupied, and you think you can get it to 90% when everybody else in the market it’s only 70%, you’re probably fooling yourself. So there’s a reason why it matters to not get such a vacuum and try to buy stuff just because it’s too good to be true, because it probably is too good to be true. You gotta make sure that you know what you’re getting into.
I think that that of all the things that people have to invest in when they buy a property, having an independent third party look at it makes sense. Now, if they want to do it themselves, that’s fine if they’re qualified and kind of know what they’re doing, but they got to make sure that the units are there, the occupany is there, the finances are there, and do some due diligence about the market itself. We’ve had deals where people are trying to unload properties and come to find out it’s because there’s eight other brand new ones are in the pipeline and going to get built around them, so they’re trying to get out of there before all that happens. Well, if you’re buying the place, you need to know that too because everything that’s positive about this market is going to not be positive if eight more new ones get built.
I think people have to recognize where things are and what they’re doing and look at trends. Anybody whose primary exposure to self storage has been the last couple of years, the COVID years, they were probably really disappointed the next couple years because we’re kind of going back to normal. We’re getting back to where the rates go up and down seasonally — they go up in the summer and back down the winter. For the couple years of COVID, it was always up. Well that’s not real. The previous 40 years of storage had a cycle to it; we’re kind of back to that. We’re back to where there’s a more of a cycle. I have people all the time want to try to underwrite deals with what a property was doing two years ago or a year ago. It’s not going to do that the next couple years — it’s just not — because the world we live in is different than it was two years ago. It’s back, again, to what I’d call “normal”, so people need to have a little bit of a conversation with someone about what they’re looking to buy and is it going to perform like they think it’s going to perform.
We subscribe to some of the very expensive databases. By and large, you go to a lot of markets and, in general, in the last 12-24 months rates have trended down, occupancy has trended down, and depending on everything being what they said it was two years ago, you’re probably going to be in trouble. You got to make sure you understand what you’re looking at when it comes to due diligence. Let’s face it, when people buy a self storage property, there are a lot more zeros involved than if they were used to flipping small houses and so they got to make sure they understand what they’re getting into before they invest that kind of money.
Ben: If I can ask you just a couple follow-up questions. One would be: how long of a period would you say somebody should try to negotiate for the due diligence to take place? Like what is the standard for working that out within a negotiation?
Bob: Most of our deals are usually 60 to 90 days of a due diligence and another 30 days to close. We don’t necessarily need that long to do what we do. The main reason we try to bake in some time is because often third party reports take longer than we want. For example, if the bank’s getting an appraisal, that may take longer or you’re waiting to get a phase one environmental report or you want to get a survey. Sometimes, we bought properties and the longest thing it took was getting it surveyed because everybody was so backed up getting surveys. If you get 60 days due diligence and another 30 days to close, that’s probably going to be long enough in most cases. We’ve seen recently where a lot of deals have been stretched out because people are struggling to get the money together. I mean banks are a little harder to borrow money from right now, so a lot of people trying to get private money and do investments. I’ve seen deals even fall out because they couldn’t perform in the loan because they couldn’t get all their ducks in a row. I think a standard 60 to 90 days is pretty common.
Ben: You had mentioned as far as looking at the market around you and seeing their rates. Is it getting harder to do that with the way that some of the REATs and things are changing their rates, as their street rates being so much lower than their in place rates? Has that affected it the due diligence phase at all to where you can value a property off of that?
Bob: When you look at online rates versus in store rates, the online rate is the rate. Let’s face it: that’s why they’re online; it’s because most people rent online. In fact, I’ve shopped enough facilities to walk in a in some of the REATs and the first thing the manager says is “Hey, it’s cheaper online.” So, nobody’s paying those in store rates, so you kind of have to proform it based on what those Internet rates are. Now, you gotta use some common sense too. Sometimes, those internet rates it says right on there half off for three months. Well then that’s all it’s going to be. But if the in-store rate is $90 and the online rate $75, most people are probably going to be paing $75. I mean how often do people just walk in a self storage property now just cold turkey and say I want to rent a unit, what’s the rate? They start on the internet.
Most of our business — 85% of it — is on the internet, so the internet rates are the rates, and there’s a reason. It’s a marketing reason why they show an in-store rate and an online rate. Why do they do that is to get you to do it online.
The other thing that’s important is to look at trends. Like I said, we invest in some databases that will show what the rates have done the last 12 to 24 months, so you kind of have to look and pay attention. If the rates have been as steadily declining, then you need to make know that and know why. In some cases, you see the seasonality; you see in the summer they’re higher than the winter, that’s that’s normal. But if you’ve seen a steady decline, then you need to know and pay attention to that. I think if you look at most of the trade stuff going on, in general, occupancy levels are down a little bit, rates are down a little bit. Income isn’t necessarily down as much because we’ve all learned how to do better at revenue management raising rates on existing tenants and we’re still all doing that, so the income itself hasn’t dropped as much, but new people coming in are paying less probably than the people that moved in a year ago just because we’ve all had to be had to do that to get business. It does make it trickier, but it also means you need to pay a little more attention and not just accept where things are because if you just look at things in a vacuum, it’s always too good to be true. We always think that’s just too good of a deal, well there’s usually a reason.
Ben: It also kind of goes to the point that if you don’t really know what you’re looking for, hire somebody that does. Somebody who is just coming into this industry that hasn’t already purchased facilities or done any due diligence, they’re going to overlook a lot of these little things. Where a company like yours — where you’re doing this all of the time for people — you’re going to catch all those little things others are going to miss and probably save a ton of money in the long run by spending some money up front by bringing in somebody that that knows the industry better.
Bob: I give this example that’s a great point that if if any of anybody listening came to my house in Birmingham for the first time, they would see cracks and spider webs and things that I don’t notice anymore because I’m there all the time. So I don’t see it. But when somebody comes in with a fresh set of eyes, they’re going to notice things you would have never seen. That’s why when you buy house, what do you? You get it inspected before you buy it to make sure that a professional has made sure. I don’t how to check a roof. I mean I’m not going to do that. I mean I had lasik surgery years ago, I didn’t do that myself. I had a professional do my lasik surgery. I don’t fix my own car because I don’t know how to fix cars.
It is surprising to me how many people are doing two things: one they’re always asking questions how to do it themselves. I get that, but if you’re going to spend a couple million on a piece of property, are you really going to do that? And the second thing is: who’s the cheapest people to do this? When I bought my lasik surgery, I didn’t want the cheapest guy that did it. I want the best guy that did it. If your sole purpose is I want to find the cheapest person to do X — whether that’s feasibility study, whether that is a due diligence on it, whether it’s everything we do in this business, all you can be about is I want the cheapest one — you probably should find something else to do.
Ben: At this point we could shift a little bit and talk about the feasibility study part of that. What is the main importance as far as what when you’re looking at a feasibility study what are the some of the main things that you’re looking for?
Bob: When we do a feasibility study, there’s a lot of different pieces, but there’s really two critical pieces of determining feasibility: are the rental rates high enough and are the occupancies high enough for you to build more self storage in that market? Both of those need to be high enough.
I’ll give you an example: it’s not unusual to do a feasibility study in a market where everybody’s 100% full and they’re all charging $35 for a 10 by 10. Well, it doesn’t matter that they’re all full, you can’t build a $35 10 by 10, and you’re not gonna get $90 bucks in that market either because they’re getting $35. You might get $50, but people will come to us and say hey I’ve checked all my competitors are full. Well, how much are the rates? “I’m not sure.” Well that that does matter, and vice versa. You got to make sure that the occupancy levels in the market give you an indication that there’s room for more storage space. I think sometimes people get too caught up in the demand calculations and how much square feet per person is in the market and all that I can tell you is that I don’t think anybody knows what those numbers are supposed to be anymore. It really is more about occupancies and rates because both of those are the primary drivers of it.
Then you look at other things like does the site make sense? Should you build climate or non-climate? How much should you build? But at the at the very core of it is what are they getting for the rates and what are the occupancy levels. I’ve had people tell me they had a feasibility study done and whoever did it could not determine what the occupancy rates were the competitors. Then whatever money you spent on that feasibility study was a waste of money. You have to know that. Whether it’s you do phone calls or whatever you do — you’ve got to determine that. If I tell you to build and it turns out everybody was only 60% full, you’re gonna be in trouble. From a feasibility standpoint, those are the two main ones. People they’ll say “Well, I can’t build because there’s already nine square feet per person in the market”. So? If everybody’s full and the rates are crazy high, then build. Sometimes people get caught up in some things that really aren’t critical that nobody that’s been doing this long time pays attention to.
Ben: For a feasibility study would you go on site for that as well? For due diligence, you mentioned that you normally go on-site.
Bob: Yeah, that’s a good question. For due diligence, we always do if the people are doing the on-site piece of it, but not everybody does. Not everybody does the other pieces, but usually somebody at least wants somebody to go to the site and see what they’re doing. For feasibility studies now, we very rarely go on-site. It’s because we do 50 to 60 every month. We’ve done thousands of them. We subscribe to expensive databases that have probably more data on stuff going on in the country, so we found it just isn’t necessary.
Ben: That makes a lot of sense. So then with all these feasibility studies that you’re doing and all the due diligence stuff, what are some of the trends that you see with storage and where it’s heading? You know, building versus acquiring or adding in things like boat storage and RV storage – that sort of thing — on to properties?
Bob: Sure, good question. Well, I would say the number one trend I’ve seen is that it’s getting more difficult to develop for a lot of reasons. The rates have come down a little bit, but building materials are still expensive, and it’s very expensive for our money right now. That’s becoming more of an issue. I see more and more people looking at buying properties now, because in that case, at least when you’re building a new property, you have to borrow money against you, whereas if you buy an existing one, you’re borrowing money against that property, so it’s a different dynamic. So, it’s a little easier to get money maybe for an existing facility than to buy new.
I’m definitely seeing more of a trend of people warming up to the idea of having these with no on-site managers. I think that trend was always here. Since storage started, there have been facilities with no manager on site. But it really took off during COVID because it got to where during COVID, a lot of people couldn’t have anybody there and you couldn’t let me in the office. So, for those of us who were already doing off-site managers, it didn’t affect us at all. I mean, we didn’t see any difference because we’ve not had managers for a long time, but for folks who had managers on-site, they had to stumble through how to address that because, all of a sudden, people couldn’t come in the office. So I think that’s a big trend, and I think more people are recognizing that is a viable positive trend because the consumers are accepting the fact that nobody’s there. Let’s face it, most of us don’t like interacting with people in person anyway, right?
The technology—the phones, the QR codes, all the stuff we’re doing now—allows that to happen, and so I think that is a big trend. You see the biggest operators getting heavily invested in that version of business, the unmanned remotely managed business. They’re smarter than us, right? If they see a viability in that business, then it’s silly for us to think otherwise. We’re not going to outsmart them.
I’ve definitely seen a lot more interest in boat and RV. There were more boats and RVs sold in the two years of COVID than ever in the history of boats and RVs, so now they’ve got to have somewhere to put them. So I’ve seen a lot more of that.
The problem with boat and RV is that you need more land typically than you would otherwise for storage, so you have to find more and a lot less expensive land because, as you know, boats and RVs just doesn’t have the same per-square-foot rates. But it certainly is a viable business, and there are a lot of people who just do that. There are some big companies out there buying up a lot of boat and RV places and making a big national play, which is good for them, and so I’ve seen more of that. We’ve got a place on a lake in Alabama, and I’ve seen more boat storage places go up in the last year than were there already. They’ve more than doubled because of that trend, so that’s a big trend, and I think it’s a good trend. But it’s a little different from storage. I’ve seen people ask how many boats and RVs can I put on half an acre? I wouldn’t even bother; you don’t get enough on there to make it, so you’ve got to have more land and it needs to be a lot less expensive than you would normally pay for storage.
Ben: What do you see trending as far as mobile units or pods? Is that something that you see a lot of or not a whole lot?
Bob: Don’t see a lot of it; in fact, it’s funny. You know, I remember there were several years there where we would go on a trip, like to Vegas, ISS, or SSA, and there’d be a lot of businesses there selling those boxes, okay? I hardly see those ever anymore. Now we see portable storage buildings, you know, like mass units or box wells. We see those, but as far as the boxes that people, they’re made to sit on a tractor trailer and drop off and do all that. We don’t even see that much anymore because I think it became quickly evident that it really wasn’t much of a competitor to traditional storage and that it is such a different business.
Ben: So, when you speak of the remote management options, what is a good fit for a business? Like, what’s an ideal business look like for using remote management?
Bob: Well, you know, honestly, it’s evolved where we believe that any size and any configuration works with it. You know, I do believe that sometimes a boat and RV only is more of a challenge to stores, if they don’t have the units number and well delineated. For example, if you go to a lot of boat and RV facilities and the manager just knows where everybody’s parked in their head, that’s no way to run a business, but a lot of them run that way, but if it’s a boat in RV place, even that every space is numbered and you know exactly where to park, the remote management kind of works in all those scenarios.
I had somebody question me one time at one of the shows we were at and said I don’t understand how you could do remote management with nobody on-site in a multistory building. How do people find their units, and what do they do? And I asked this person well how did you find your hotel room in this hotel? Nobody walked you to your room; there’s signs everywhere saying units 100 through one are that way, no different. So, the idea of having somebody there all the time, when so much stuff is automated now, collections are automated, payments are automated, that someone sits there all day in the office, somebody might pull in the parking lot and want to rent a unit. It just doesn’t make sense when most people don’t do that anymore either. And so I don’t know that there is, I mean, forever, unmanned facilities that worked best in rural small facilities just because they weren’t big enough for managers, and so it’s evolved to where almost any size we manage facilities from 20,000 to 120,000 unmanned because it trying to figure out why they need to be there doesn’t make sense. There’s no rhyme or reason because, you know, managers don’t go out anymore and pass out flowers at apartment complexes, right? And why would they have no reason to?
I said most of the collections now are automated through texting and calls. I mean, everybody does that; you do auctions online. So, to have somebody there all the time. I mean, when we say remote management, obviously some physical presence is there. Somebody goes by once a week, twice a week, picks up the trash, and does things, but have somebody sitting there in an office all day? Well, I don’t know what they do. I’ve never had anybody explain to me. I’ve visited literally thousands of sales of such properties over the years, and most of the time I don’t understand what they’re doing there all day. So I don’t know that there’s an application where it won’t work honestly.
Ben: Right! And to your point too, I mean most people, if they’re looking for a unit anymore, they’re looking online. You know, I’m not going to drive around to five different facilities and see if they have availability. I already know because I looked online, so if you don’t see that the industry is trending that way, then you’re going to miss out anyway, I feel like so.
Bob: I think so too. I think the legacy of a feel like you have to have a couple of people there. Again, if you think you need somebody there, maybe it’s a really big facility in a challenging neighborhood. Maybe you got somebody there just to keep it clean and check on the place, but I don’t think having somebody sit there by the counter all day again I don’t know what they’re doing; there’s not enough activity going on. The busiest store property in the world doesn’t have enough activity going on to have somebody sitting there to manage that activity; it can all be done remotely.
And again, we all had to learn during COVID. Let’s face it, if you didn’t learn how to use QR codes from COVID, you would have starved right? Because at every restaurant you had to use a QR code because they didn’t pass out any paper. We’ve got to use, you know, websites and stuff. I used to think this is partly generational. I used to think if you weren’t doing all those things, you couldn’t do business with my kids. Then I realized you couldn’t do business with my parents either because my parents do everything on their phones; they buy and sell stuff on eBay; they get their hotels on Travelocity; they don’t do stuff the old-fashioned way either because you really can’t do it anyway anymore. I do think that when you do it that way the remotely managed facility, I think you do have to have some people ask us all the time, well, how expensive is it to do that? It’s not at all; you just have to buy a few more signs to help people understand what to do when they’re there, but other than that, if we build the same facility, I mean, I’m building a brand new one in Birmingham right now; it’s going to open hopefully in mid-December. The only difference between that facility and an old facility is that I didn’t put an office in it; otherwise, it’s identical, same cameras, the same keypad system, same everything except I have a few extra signs about what to do when you get there; otherwise, it’s really no different.
Ben: Yeah, that’s very interesting, so yeah, I think the whole landscape is going to continue to change more technology-based. I mean, if you go to these shows, almost everybody there’s a tech vendor right there’s technology flooding into the industry, and it’s going to continue to get easier and easier to do things remotely and online, and that’s where the shift is going to continue to move towards.
Bob: Well, there’s no doubt, even companies like U-Haul. You mean, people ask me a lot about, Well, can you rent trucks at an unmanned facility? It turns out you can. Even U-Haul has a 24/7 program where people can rent trucks using their phones; they don’t need anybody sitting there all day to rent trucks either. So you’re naive to think we aren’t moving in that direction; it’s just a matter of when do you move in that direction.
Ben: If I could ask you maybe one more question? If somebody was looking to get into storage, what would be some advice you would give them on things to look for maybe?
Bob: I would encourage them to, you know, go to trade shows. I would encourage them to look at trade magazines, go to like the ISS online, and look at articles. There are different groups out there like Michael Wagner and Scott Myers who do like coaching and mentoring programs, and it probably would hurt to invest in some of those things and learn before you actually go out and start trying to find a self-storage property and figure out what to do with it if you were to find one.
Make sure you’ve already got some financial, you know, Acumen lined up, because if you do find a good deal, you don’t want to spend the next six months trying to finance it. You’ve got to kind of know what you’re already familiar with, what you can afford, and learn how to underwrite deals. Because any of us who buy a lot of properties like us, we look at a lot of properties we don’t buy, because we know the underwriting, we know what makes sense and what doesn’t so but someone first getting into it, I will say that they’re always probably going to be better off trying to find an existing facility to buy than build a new one because the brain damage of building a new one the time it takes, the money it takes, and working through all that it can be discouraging, right? It can wear you down if you buy an existing facility that already has existing cash flow even if it’s a little bitty property you manage yourself you’ll learn more and it won’t be such an expensive education.
Ben: Awesome, well, hey Bob, I thank you for your time and for all your insight. It was a lot of fun talking to you. I’d love to pick your brain again at some point. You have years of experience over me, obviously, and so I enjoyed having you on the podcast today.
Bob: Anytime.
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