This interview is from July 24, 2024.
Amazon founder Jeff Bezos once said, “The biggest oak starts from an acorn.” He would know; the retail giant started in Bezos’ garage in the mid-90s and has since grown into the worldwide phenomenon we all know today. Around that same time, another acorn was getting its start: Access Storage. The first self-storage facility opened modestly, but its growth trajectory, much like Amazon’s, was rapid. Today, it is the largest provider of self-storage in Ontario, Manitoba, Saskatchewan, and Nova Scotia, with a total of 250 locations across Canada.
One man largely responsible for that growth is Steven R. Scott, who came aboard in 2000 as president and CEO of The Access Group of Companies, focusing on ownership, acquisition, development, and management of self-storage and other residential and commercial real estate in Canada. His list of accomplishments is long—he’s also the chairman and CEO of StorageVault Canada, of which Access owns 40 percent, and the director and treasurer of the Canadian Self Storage Association (CSSA)—but he humbly brushes away my praise. “It’s just what I do, and sometimes it feels like I’ve been doing it for 100 years,” he laughs. “But I wouldn’t have it any other way.”
Scott knows we’re here to talk about self-storage, so he doesn’t waste any time getting to the heart of the interview. “The Access Group is in the real estate space, but I was really attracted to the storage business,” he says. “It’s a high gross margin; there’s low deferred capex, low employee count, so I love the simplicity of the business.”
With such a wealth of experience in the industry, and the ability to help turn an acorn into an oak, Scott and I decide not to focus on any one topic; rather, he’s generous enough with his time to give his thoughts on various issues, many of which weigh heavily on the minds of many in the self-storage business right now.
The Bank of Canada has been playing a balancing act as of late: Slow the economy just enough to get inflation under control but not so much that it causes a recession. However, Scott says that perhaps Canada is already on the cusp of that recession. “The economy is slower than it is in the United States, that’s for sure. And when it comes to self-storage, while it’s similar to the U.S., there are some nuances,” he explains. “For example, Canadians don’t move around as much, so you don’t have quite that same level of activity, or velocity as we call it.”
Scott adds that Canada does have better immigration policies than in the U.S., so although housing sales may be down and hurting the self-storage industry, the level of legal immigration to Canada is helping to backfill some of that loss.
Still, when conducting exit interviews with tenants, Scott says that’s when he really sees the recessionary piece of the pie come into play. “A lot of people say they simply can’t afford it anymore; that’s it’s just too expensive. They’re being a bit more judicious about their spend and their dollars.”
Because of these economic woes, Scott believes both independents and REITs have taken a bit of a beating, and he thinks this cycle could continue for a while. “I don’t know what the catalysts for change are. It could be lower interest rates; Canada lowered their rates by 25 basis points today [July 24, 2024]. So, we wait, and we see.”
Development costs are another topic on Scott’s docket. He says that despite the slowed economy, some developers still will want to build; their rationale is that by the time the project is complete, things will have turned around. Unfortunately, laments Scott, “The cost to build right now is very, very expensive … Finding land available to build upon right now, at the right price, is extremely difficult.”
We segue briefly into politics. “There’s political strife globally. Everywhere you look there’s conflict, and that impacts things too. But just here in North America, we’ve got some big elections coming up, both north and south of the border. Now, we could spend three days on what the hell’s going down in the U.S.,” he laughs, “but we also have an election coming up in Canada in about a year, and maybe that will usher in some change for the better, or not. Again, we wait, and we see.”
They say that when you find a good employee, you should do everything in your power to keep them. Of course, this assumes you’ve actually found one. “We have a very constrained labor market,” Scott reveals. “It’s really tough to find good people and keep them. And our wages here have been growing significantly. So, labor is probably the biggest expense, with inflation and property taxes on its heels.”
Scott says that with rising expenses and wages, it becomes a game of figuring out how much of that can be reasonably passed on to the customer. When residential customers are hard to come by, commercial companies with deeper pockets can often help supplement revenue. “We also have a ton of business customers and business users,” he explains. “A lot of trades use our facilities—electricians, plumbers, roofers, window washers, you name it. Realtors use us for staging equipment; drug companies use us to store materials and products. In fact, a lot of the drug reps will have a stipend for storing their materials and their product with a storage facility. It’s a lot safer for them than keeping them in their branded Pfizer van.”
I ask Scott to elaborate, and he chuckles. “People were breaking into the vans and stealing the Viagra.”
Scott moves us from talk of the economy to one of occupancy. He acknowledges that for some operators, including his own company, these numbers have taken a bit of a hit lately. “I can tell you that our occupancy is down close to 2 percent year over year,” he states. “So, that obviously impacts revenues pretty dramatically. For some operators, they immediately turn to rate reductions.”
Some of these rate drops can be aggressive, says Scott. “One of our competitors is currently offering a $25 special for a four-month contract. Of course, specials are not uncommon, like Public Storage one-month free kind of things. But four months at $25 per month? That tells me they are struggling.”
Scott not opposed to discounting entirely, at least in the short term. “We're having to be more aggressive with our specials too, but that’s just one of many tactics,” he explains. “For example, we are spending more money on advertising than in the past to get the phone ringing. It’s more of a strategic plan than going straight to rates.”
When I bring up the aggressive rate hikes happening in the U.S.—operators luring in customers with deeply discounted rates only to jack them up much higher a month or two down the road with little transparency—Scott nods; he’s very much aware of the situation.
“I think the U.S. is using that strategy more than Canada is right now, but we know all about it. Take that facility that offers $25 for four months, for example. I believe the customer knows it’s not going to last, but on month five, when it jumps to $280, and the place they expected to be ready to move into at that point is not, or delayed another four months, they’re not going to be happy.”
Even if the special is made clear to them, Scott says these types of discounts followed by extreme increases could give the industry a bit of a black eye. “People will think the facility is abusing their customers. You’ve got to look at what the public perception of your business is, and that’s where I think people are being a little myopic about it. What works in the short term may tarnish the reputation of the company and ultimately the industry in the long term.”
Scott knows times are changing, and the millennial customer is one of those reasons. However, for a period of time, many believed this generation would have no use for self-storage, that this group of “kids” were minimalists.
“Maybe they are, but when you’re living in a small space, you have to keep your stuff somewhere,” says Scott. “There’s a lot of 30-somethings that are going to their storage unit to pick up their mountain bike or golf clubs in the summer, and their hockey and ski equipment in the winter. They’re a new kind of user, and they don't tend to be as price sensitive until maybe they lose their job or something.”
Scott says they also like to upgrade their belongings. “So, they bought the 100-inch system three years ago, and it’s still perfectly good, but now they want the 120-inch. But they’re not going to throw away the 100-inch, right? And here’s Access Storage, with open arms.”
Adds Scott, “The oldest ones are getting married and having kids, too. Everyone’s a minimalist until they get married and have kids, right? These are good users of our product.”
That’s not the only change millennials have ushered in. They’re also partly responsible for the rise of remotely managed facilities. “They are completely comfortable with the full virtual experience,” he says. “They will rent with us cradle-to-grave without ever speaking to someone, without ever meeting someone in person.”
Even before realizing remote was a viable option with newer generations, the COVID outbreak had Access Storage testing the waters. “We pre-coded about 20 of our stores to be virtual during the pandemic. No office, no one on site. It worked seamlessly.”
Today, he says about 50 stores follow this model. “I mentioned earlier that there’s a labor shortage, so this has really helped us in that regard. If we had to try to staff those 50 stores in this employment environment, it’d be a big challenge.”
Scott says the model is typically employed in regions where Access Storage has multiple sites. “In one city or town, we may have two or three facilities with offices, and two or three of them without. It works well because someone from a manned facility is only minutes from an unmanned one if they need to be there.”
When I asked if he’s concerned about losing the still viable baby boomer market to the technology, and even aging Gen-Xers, Scott waves his hand. “Let me tell you about my 82-year-old mother,” he laughs. “God love her, but you know, prior to COVID, there was no way that woman wasn’t going to a bank and sitting down with a teller. Now she’s some sort of banking savant; she’s like, ‘Oh Steven, you want me to show you how to transfer money and cash checks on your phone?’ So she and others like her know their way around remote operations.”
He acknowledges that while older generations are now more comfortable with the virtual experience, many still like to have some touch points from a customer service perspective. “We make sure that if someone wants to talk to a person, even at a remotely managed facility, that they can do so. Baby boomers are still our second-biggest customer, so we’re not going fully remote across all our locations. We may never even be 50/50, but it’s an evolution.”
Every industry has a secret sauce, and Scott is well aware of what makes a good self-storage spread.
“Look, the average person thinks they’re going to rent a unit for four months when you first talk to them,” he says, “but the average length of stay is closer to 12 months. People expect their divorce proceedings to move quicker, the new house to be ready sooner, the job to last longer. But the reality is most things don’t go as smoothly as planned.”
Continues Scott, “Naturally, most people’s self-storage payments go on a credit card, and not much attention is paid to it until a tenant does the number crunching. That’s when they’ll go, ‘Oh, we’ll just buy new couches so we can throw these old ones in storage out.’ That’s when we part ways, until next time. But it’s that expectation versus reality—how long they think they’ll stay versus how long they do—that is the secret sauce of self-storage.”
And that, it’s noted, is how Scott and his team will continue to grow that oak.
With 25 years in the industry, I know Scott must have a good story about something weird he’s found in self-storage. And he’s very quick to answer: “A dead eight-foot alligator in a 16-foot aquarium.”
I have lots of questions, but Scott holds up his hand. “So, here’s the deal. The owner caught it and kept it in his home as a pet, I suppose. But he got into a fight with his wife and was sent to prison for six months for spousal abuse.”
Continues Scott, “While in prison, he asked a buddy to move the alligator into his storage unit. The guy was supposed to come by and feed it, but as you can imagine with that type of tenant, they weren’t the most responsible folks.”
No suspicions were aroused because the unit continued to be paid for via credit card. Then came the smell.
“It was god awful,” he recalls. “Not something I’ll soon forget.”
But Scott has yet to deliver the kicker, and he leans in for it: “The guy only received six months for going after his wife, but for that gator, he got two and a half years for harboring an illegal species and cruelty to animals. You gotta love the justice system,” sighs Scott.
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Brad Hadfield is the web manager and a news writer for MSM.