35 years is a long time working in any industry, but it is surely impressive. RK Kliebenstein has dedicated 35 years to the self-storage industry and has worked with thousands of individuals on feasibility studies and many other projects. This is absolutely a milestone achievement, and we were lucky that RK joined for our most recent episode of Engaging with the Experts, as part of the Self-Storage Unlocked Series. RK gives great insight into the work he does in self-storage, how to differentiate yourself from your competition, as well as some unique ideas for repurposing your self-storage units to appeal to potential tenants.
What helped you get engaged with the self-storage industry and how did you learn the necessary information?
I was managing a portfolio of multifamily garden-style offices in this big industrial park. We were having trouble deciding what to do with the industrial park in a second phase. And the owner of the business went to Arizona and saw self-storage for the first time came back and said “that is what we are going to do – go figure it out.”
So, I got a quick education in self-storage. But, from that point, I never looked back. I did a couple of odd things on the side, but I have always just had a huge passion for self-storage and the people in self-storage.
You have a company called Coast to Coast Realty Advisors. Tell us what you do and how do you help self-storage owners and operators?
I have a lot of entry points where I help folks. I have a client up in the New Jersey / New York market that I assist in finding sites. I am their contract acquisition guy. I also have clients that I do underwriting for on a contract basis. I also do some asset management where I make sure that the portfolios are performing properly and do the monthly interfaces with the third-party management company, just to make sure that things are going the way they are supposed to be going. I am involved with helping folks raise capital to either get into the business or grow their self-storage business. And, interestingly, I have a wide background. The only thing I do not do is third-party management. I just have never geared myself up to do that. Although I have operational experience and expertise, I feel like there is a lot of folks in the space that can do it at a better scale than I can.
Take us back to the beginning of your career. What were some of the biggest challenges you came across as you were learning this space? This can include things that surprised you or that you would not have expected.
Back in the early days of self-storage, it was a different industry. We used to run self-storage properties on what we called “Trash-80,” which was the old Tandy TRS-80 precursor to Nintendo. That is how we ran our gate systems. All we could do is run this simple program that told that gate to open or close and you could tell if your tenant was or was not paid. But that was the rudiment of self-storage. To me, it was pretty crude back then – our locational drivers were so much different than they are today. We were in the back of industrial parks; we were in these odd-duck locations that nobody would ever think about for storage. And our business was considered a land-banking business. In other words, you built self-storage there because someday you were probably going to build something else. But with the robustness of the industry and the acceptance of the product – all the stars came into alignment and self-storage has continued to grow and evolve into what it is today.
We are in a technology-embraced industry that was very slow to find technology, but now we are very quick to embrace it. We are also a very fluid industry. I love seeing all the new faces in self-storage that bring so many different things to the table and help us grow our business in ways that I do not even know we have imagined, and that is refreshing.
It has been a big privilege to serve the industry and to have grown with it as well as alongside it – particularly the technology side as I am a bit of a data nerd. I spend about 20% of my time trying to replace myself with technology, and I think we are going to get artificial intelligence at some point. When that happens, my job will not be very necessary anymore because guys like me, we will not need to be around, we will be able to use sophisticated tools to do site selection and qualification of sites.
What are the top three tips you would give a new owner, operator, or investor that is coming into this space to help propel their advancement in this space?
The first thing I would say is that these are unique times, a lot of it having been driven by the pandemic. But from an economic standpoint, it has been a tremendous boost to sell storage. We are kind of like a cat because we have had at least nine lives at this point – we have been through at least nine major events in our industry. And each time we go through one, I begin to wonder if that is the new norm. And if it is the new norm, how do we adjust to it? The number one thing I would say is do not think that super high occupancies and aggressive rental rates, like we are seeing right now, as well as fast absorption of product and a huge embracement by the general public are normal times. I think these are a bit abnormal. So, adjust for today, but underwrite and think of your projects in different kinds of times – it is not difficult to do.
The second thing I would say is to be cautious about getting into the business. Do your homework, which is the conducting of due diligence, understanding your market, understanding your site, and then understanding the dynamics of self-storage in your specific location. Self-storage is still location, location, location, and it is still heavily dependent on what we call our primary market, which in most of the United States (unless you are in Manhattan) there is a one-mile radius that reaches out to a three-mile radius. Be very focused on that one-mile radius – understand who your customers or potential customers are, understand who the competitors are, and how you outpace them. Then focus on that as use that as your driver to really figure out your market and then meet the needs of that marketplace.
The third tip is, have a vision for what you want to do, know where you want to go, and then find a pathway to execute that vision. I think too often we kind of get into something and we figure it out as we go along without having an end goal planned. When I talk to folks who are thinking about getting into the self-storage business, I usually start with the end in mind and say: how does this all end up for you? Is this a legacy that you are going to pass down to your estate? Or is this something you are just trying to capitalize on during this very robust time and in one to three years want to be out? So have a vision, have a plan on how to get there, and then execute that plan and devote resources to doing it. I am a big Shark Tank fan and one of the things they always ask is are you fully committed to this and are going to quit your day job? I say the same thing about self-storage. I do not think it is a part-time job. I think it is something that if you are going to do it, give it your all – go in and dedicate yourself to it. That is going to help your execution a lot. It is going to put you in a much better position to sustain what you have and to be able to endure challenges as they come up.
What are some key attributes that you look for when entering a new market?
As I said earlier, I am kind of a data nerd. Data tells me so many things. It has been only over the last six or seven years in self-storage that we have had great access to phenomenal tools. I would say that we need to take advantage of the information that is available to us because they are spending a lot of money and a lot of time gathering the data that helps us. The number one risk in my mind is projecting rents into the future. So, the more data you can use to support that, the better off you are going to be. And you cannot just go to the Internet and see what that is. For example, there has just been a hurricane in the southeast and those rates are not at all what they used to be because there is an event that caused it. If I did a profile based on that today, my data would be greatly skewed and inaccurate. You must dig deep into that data, you need to have a historical background to get there.
The second part of it is your demographics. There is data out there for all kinds of different attributes for the demography of your particular location in your market. Understand it, know it, and use it as a guideline when you look at your location versus other locations. One of the things that I do, that I do not know anybody else who does, is I look at my primary competitors and I run demographic reports on those primary competitors. I look for the trends in the data that tell me why they might be successful or why they might be struggling. I am very focused on understanding how demographics work, how incomes impact my ability to raise rents and generate new rentals.
The last part of it is the physical part of self-storage – the building, the location, and understanding the site using data that helps you get through the zoning and entitlement process. Out biggest variable is typically the site itself. Whether we must retain water, whether we have to bring utilities onto the site, whether we have traffic issues – all of those things are important parts about the success of your project and containing costs going in. Use the data, build a foundation from that data, and then also use that same data to execute your strategy.
What “tools” do you typically use to help operate the facility efficiently?
One of the most important things that we need to focus on is revenue management. Revenue management impacts your ability to get to a stabilized occupancy, it impacts your ability to raise rents to hold on to your existing guest base or tenant base. All those things are very dependent on understanding that. I think understanding the physical plant is important, but how you manage those rents is incredibly important, and making sure you have the right tools to do so. I just went through several reports that were generated by a third-party management company, relative to a site. They have business rules – they say we do not raise rents before X number of months, and we only raise Y percent.
But when I went to the individual tenants, and I looked at their rent roll and then their individual ledger cards to see how long they have been there, how many rent increases they have had in the past, and what their payment history looked like. It was very clear and evident to me that no one was really watching these details – and the devil is truly in the details. They have programs, they have business rules, but they did not do a deep enough dive to get into it. And I found a lot of opportunities that were missed because someone was not looking at the individual tenant and the individual unit that is there. So being able to spend the time to do a deep dig is important because there are not very many people like the rich who can spend millions of dollars on technology to develop a revenue management program.
With competition being steep in this industry, what would be your suggestion to an owner/operator to help make their location differentiate itself from the competitors around them?
One thing I would suggest you do is that you understand your competitors. I love the internet – it is a huge benefit to everybody. But there is just something for going and kicking the dirt that makes a huge difference in life. Maybe it is because I am old school – and I mean really old school. When I go into a market, and I have done my internet research, I want to look at that market, I want to look at that site, and I want to visit each competitor. As an operator, you still need to understand what is happening with your competitors. I think you should be driving to those competitors, at least monthly, to see what is happening in that market. Whether the streets are torn up, or whether there is a new retailer that is being constructed next door, you need to see it and physically put your eyes on it, and understand the attributes of it.
Another suggestion would be to look at the sign. I love to go by stores at night because it amazes me how many people do not watch that their lights go out. This is the simplest thing in the world. But if you do not show up at 9:00 at night, you might not know that the lights are not even on. That is part of my due diligence routine. What shocks everybody is the scope of work says that the firm that is doing the property condition report has to go back at dark and check to make sure that all of the lights work in the driveways and that the sign is well illuminated because that is a miss. But those are things you cannot learn from the internet – you cannot tell that from a Google Earth visit. But you can tell it when you put your boots on the ground and you physically understand.
The traffic might be really bad in front of Brand X and I is hard to enter if you have a U-Haul. Use that as an advantage. I am not saying you should say something bad about your competitor – I am saying that you should say something great about your store. This might be mentioning that you have a left-turn lane directly in front of your store. It is all about understanding the good and the bad of theirs and then using and focusing on the strong points of your store and driving rents and driving business as a result of the pop-ups on your website. What I mean is if you are next to a new McDonald’s or other new business, maybe put it as a pop-up on your website for 90 days to help people identify who you are and what you are. Those are the kinds of things we can do as operators to differentiate ourselves from our competitors. Quite frankly, and I hate to say this, a lot of our competitors are just lazy. It is important to understand your competitors, visit them to know their weaknesses, capitalize on your strengths, and play to your strengths.
We know that the biggest driver of having a facility is the units’ rent. But there is also ancillary income that can be made if people decide to sell retail boxes, packing supplies, or possibly tenant insurance. How much emphasis do you typically put around the ancillary income line?
It used to be that ancillary income was 5-6% of our business and that is because it was largely the late fees and administrative fees. But today, ancillary income can be as much as 10% of your top line – it is a huge revenue generator. I work with clients to find unique ways to generate ancillary income or to use ancillary products and services to rent space. There is one example I want to give because this was a unique situation. I had a store up in the northeast, and when they did the original unit mix, they built way too many 5x10s. They could not convert them very easily because a lot of them were up against a concrete wall that divides two of them, so they were not able to easily remove the dividing wall to create a 10×10 with it. I said okay, what do we need to do to drive business into those 5x10s. So, I went out on the internet and I found these cedar planks, and we cedar lined these 5x10s and put rails in them for clothing storage. That was a major home run. Now, people were using it as storage for their clothing and they would swap out their winter wardrobe from their summer wardrobe. And because it was cedar lined, it smelled fantastic. But the number one thing that made me in awe of it was the first time I saw a young lady open that door, take a deep breath, look at the cedar plank, and I watched her eyes just light up. Okay, we have now connected with our tenant. And this young lady went out and found 11 of her friends who now rent spaces and they go have these little parties where they can swap their clothes out and it is a really good time.
She eventually said, what do you have for my shoes? So now we built a shoe rack on that back wall of the five-foot-wide spaces, and the 10 foot long ones have double rails on them. It is just the coolest thing. Finding a creative way to move that inventory that was there and make a guest happy is really great.
There has been a little bit of a surge of people trying to convert older, unused spaces into self-storage. I have heard of old grocery stores being converted, old Kmart’s being converted, etc. Tell us your viewpoint on that. How do you feel about big-box retailers now converting into self-storage spaces?
First of all, I am a risk guy. My job is understanding risk, mitigating it, and then understanding the rewards that are commensurate with risk. I love conversions – I think conversions are great, especially if you can-do single-story conversions like a Wally World or a Target or something like that. You can be renting in 90 days or less from the time you have your steel on site. They are super easy conversions that usually take place in retail locations. The risk side of it is understanding what the municipality sees in that box. If they still see that in their minds as being a great employment generator, they may not be willing to give you the zoning to do self-storage because typically self-storage is pulled back in a general commercial/industrial zoning that is not the same as retail. I like to say until it has got some graffiti on the building, some weeds in the parking lot, and a couple of broken windows, the city does not think about self-storage. Once that happens, they think, okay, it is not going to retail, let’s find an alternative use.
The second part of it is, it is very complex to use retail centers that have arrays or reciprocal easement agreements, where you have traffic from and parking from other stores. And it is very hard to get self-storage to pay for common area maintenance, and pass-throughs because we need to control our destiny. Let’s say you are going to take over the space of an old retailer, and you are going to convert that retail space, which is 150,000 square feet – it used to be the anchor for the mall. Well, the other big stores in the mall may have clauses in their lease that dictate who can go into that space, because it requires that they draw traffic, and your self-storage space may not fit in there. It may take you years to get permission from Brand X to allow self-storage in that location. So, you have to understand that there is a legal challenge to this. You have to be careful about the financial aspect of it and understand the zoning of the municipal. If you can get through those things, I am going to bet that the location is probably great because I love Highline retail locations.
It is important to note that in our industry, females make most of the storage decisions. That does not mean they use it, it just means that they make the decision. And in my house, I know who makes the decisions. I wear the pants in my family, and as long as I wear the one she lays out, I am in really good shape. Now, having said that, we go to what I developed eight years ago, called the soccer mom index. And the soccer mom index says my location is going to be where the soccer moms are. So, I figured out where they shop, what they buy, the kinds of stores they frequent, and the proximity of those stores. Figure out who shops there because that drives the rents.
How important do you feel revenue management is in this space?
I do not know that there is anything more important than revenue management. We talked about it briefly before, but it is so key to what we are doing and it is very sophisticated. If you think of the depth of the algorithms that go into an Extra Space or a CubeSmart or any of the big brands that develop these complex formulas to drive rents and decide when they are going to make rent increases, how much they are going to be, and who is going to get those rent increases. You have to measure that against the competition and measure the traffic to your website as well as your closing ratios. It is a big deal to be able to pull all that information together. But at the end of the day, it helps us get our stores full, even if it means we must do some discounting to get there. Understanding what the tipping and inflection points are for that guest to make that decision where they are going to rent with you or Brand X, then knowing how to optimize on that once you got them in your store and they are a happy guest and more importantly, how do I optimize and use the tools I have to drive the best rents possible. That is what revenue management does for us. It finds guests, it puts the guests in the space, it keeps them in the space, and then helps them to pay.
Click on the video below to watch the full interview with RK Kliebenstein talking about his expertise surrounding feasibility studies and the self-storage industry. Stay tuned to the SBOA Facebook, LinkedIn, and website for more Engaging with the Experts interviews as part of the Self-Storage Unlocked series.