Aggressive Rate Hikes 3: Without Data, We’re Just Rolling The Dice

By now, you have the background on REIT rate hikes, and you’ve seen what happened when we instituted similar price hikes at one of the facilities I oversee. 

But just to recap: Some operators have been luring in customers with low rates, only to aggressively raise them a few months later. Not exactly a customer-friendly move. These tactics can also make it near impossible for independents to compete. So, we did the same thing, and while we lost a number of tenants, we did increase our revenue by 56%. So yes, it worked, but we weren’t exactly patting ourselves on the back over it.

It all begs the question: How did REITs ever come to the conclusion that this type of tactic would work for them? Simple. They have the data, much more than any independent operator has. They can play with this data to get an idea of what is going to happen, occupancy-wise, if they let people in the door with low rates and then raise them. They can predict how many tenants they’ll lose, how many will stick around, and what the occupancy loss vs. revenue gained will be.

This is insight that independents don’t have, which is why I had to play detective – guessing what they were doing and then trying it out too.

But without data, we’re just rolling the dice – trying out different tactics and hoping one will stick. Not only that, lack of data can also hurt appraisers, lenders, brokers, and buyers. They often look at the advertised rates to gain an idea of what is achievable within their underwriting. Under these latest (and questionable) existing customer rate increase (ECRI) models, their estimations could be way off.

Armand Aghadjanians, Director of Acquisitions with Store Here Self Storage, recently highlighted this troublesome scenario. He writes, “[Under this new ECRI model], the industry no longer has access to the actual achieved rates of any particular sites. The market rates will be $1.00 while sites are able to increase rates 50% for new customers over a short period of time.”

Aghadjanians suggests that it should be standard that property owners have access to achieved rates for sites that operate within a 5-mile radius, and that owners have permission to share this data with prospective buyers. 

Of course, he isn’t the only one to suggest sharing data, as we’ve highlighted in the past in stories like Sharing Is Caring. “Keeping our data in silos means that only the largest operators have enough operational and market data to make informed decisions,” says Don Clauson, CEO of Strat Property Management. It’s in all of our best interest to safely and anonymously provide our data.”

Despite the benefits of data sharing, some operators fear it. I wrote in a previous story, The Data Sharing Dilemma, that they may feel that by doing so, they are providing their direct competitors with their “secret sauce.” This type of thinking, however, is outdated. “If you think self storage data is a secret, the secret is out. Anyone can drive past a store, spend 10 minutes on the site, and have an idea what operating income is,” says Mike Burnam, CEO at StorageMart. 

Another way to reduce that fear? Discounts. “Mom and pops hesitant to share data shouldn’t be, but since some are, perhaps management platforms can offer a discount to their platform for owners that participate (say 5-10%), and a separate charge for those that want that data,” Aghadjanians says.

So, once we have the data, what to we do with it? Ultimately, it puts everyone on equal footing, improving pricing decisions and valuations. But as I’ve said before, just because the data tells you that you can do something, it doesn’t mean you should. Data should just be a starting point for pricing. Aggressive rate hikes, while they may work in the short term, don’t do our industry any favors. We still have to treat our tenants with decency, otherwise we hurt ourselves, putting the whole industry in a bad light and opening ourselves up for government regulation and/or consumer litigation.

That said, everyone should have equal access to data with which to make their own decisions.

To accomplish this, we need to create a “switch” within our software. MSM has had discussions with management software companies in our industry, and they all believe the creation of the “switch” to be a relatively painless endeavor. Only one has created this capability to date, while the others seek to understand the need from their customers. 

MSM wants to help facilitate these conversations. The quick form below will help us do so! Please take 60-seconds to complete it so we can all stop "rolling the dice"!

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Travis Morrow is the President of National Self Storage. This article is part three in a series.