A large part of the value of a commercial real estate investment is the cash flow or net operating income. At a 6 CAP, every $100,000 of extra income adds roughly $1.65 Million to the asset value. That is why it is key to drive revenue at a facility whilst optimizing costs to maximize the bottom line.
1. Elevate Your Marketing Game:
Effective marketing can lead to higher occupancy rates and justify increased rents. By leveraging digital marketing, social media, and local advertising, you can attract more renters and significantly boost your Net Operating Income (NOI). A typical storage tenant leases a unit for 1 to 2 years, so the goal is to bring in a new renter for the cost of 1 month's rent or less. Modern marketing allows you to track the spend vs ROI on marketing efforts, allowing you to focus in on channels that bring new tenants into the facility profitably.
In addition, if you have a steady stream of new renters, this allows you to increase prices at the facility to increase revenues further.
2. Invest in Cosmetic Enhancements:
Simple cosmetic upgrades, such as fresh paint, paving, and general repairs, can enhance the facility's curb appeal. A well-maintained facility is likely to attract more renters, contributing to a positive first impression and increased revenue.
3. Explore Expansion Opportunities:
Strategically expanding your facility can lead to substantial income boosts. For instance, adding 40,000 sqft to an existing facility could potentially generate an additional $480,000 annually, assuming a lease rate of $12 per sqft, thereby significantly increasing the property's value.
4. Optimize the Unit Mix:
Adjusting the mix of unit sizes to align with market demand can maximize revenue. Whether it's larger units for businesses or smaller ones for personal storage, understanding and catering to your market can lead to higher occupancy and profitability. Having effective management software allows you to see the occupancy on a unit level and automatically adjust pricing for unit sizes with higher occupancy.
5. Implement Existing Customer Rental Increases (ECRI):
Strategically increasing rental rates for existing customers can lead to a revenue boost of 5 to 10% or more annually. By regularly evaluating and adjusting rates, you can ensure your pricing remains competitive while maximizing income.
6. Utilize Efficient Operations Software:
Implementing robust operational software can streamline processes, reduce costs, and enhance customer service. Efficient management systems can lead to smoother operations, contributing to increased profitability and value.
7. Embrace Remote Leasing:
Adopting remote leasing practices can lead to significant savings in onsite overhead costs, ranging from $35,000 to $60,000 annually. At a 6% capitalization rate, this translates to an added value of $550k to $1m for the facility.
Conclusion:
By strategically implementing these seven methods, investors can significantly enhance the value of their self-storage facilities. From marketing and cosmetic enhancements to expansions and operational efficiencies, each step contributes to maximizing the return on investment and ensuring the facility's long-term success.
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