Twenty-ish facilities: build the management platform in-house or rent a national brand's?

The geographic concentration point in your fourth option is doing most of the work here. Twenty facilities in three metros supports a regional manager who can be at any site inside ninety minutes. Twenty facilities across nine states supports nothing except a lot of flights.

Dumb question from someone still working out what a first deal costs. What is the fee actually, as a percentage? Everyone says "the fee line is enormous" and I have no sense of the scale.

@tally usually a percentage of gross revenue, commonly in the mid single digits, plus separate charges for the call center, sometimes a share of tenant insurance commission, sometimes a marketing contribution. The insurance piece is where the real money hides. Tenant protection plans on a decent-sized book throw off a lot, and who keeps that is negotiable and often not negotiated.

Harrow, I'd ask the owner what share of the insurance revenue he's currently keeping before he decides anything else. I've seen that single line change the whole comparison.

Thicket is right and it's the first thing I'd model. On the brand traffic question, one test I've seen used: pull the move-in source data for the last twelve months per facility, then look at how the ones in dense retail corridors compare to the ones off a highway with a big sign. If the national web channel is delivering a similar share at both, the brand is doing real work. If the highway ones are mostly drive-by and local search, you're paying a national fee for signage.

Twenty is the awkward number. Below it the fee is cheap relative to what you'd have to build. Above thirty the in-house case gets obvious. At twenty you're paying to build capacity you don't fully use yet, which only makes sense if he's actually going to forty.

@flint that seems like the real question then. Harrow, is the owner still buying? Because building a platform for a portfolio he intends to sell in two years is a different decision than building one for a portfolio he's doubling.

There's an exit angle nobody's raised. A portfolio with a national brand's management contract attached is easier to sell to some buyers and harder to sell to others. An institutional buyer with its own platform usually wants clean, terminable contracts. A smaller buyer might want the manager to stay. Check the termination provisions on both existing contracts before treating this as a free choice. Some of those agreements have notice periods and fees that make the decision for you.

Coming at it from the construction side, one thing that changes the math is what condition the sites are in. If Harrow is writing capex scopes across twenty properties, the portfolio is mid-repositioning. During a repositioning you want operational control, because you're constantly making calls about which units come offline, how to price around a closed building, when to push rates after a facade job. Third-party managers are set up to run stabilized assets on a standard playbook. They're generally not set up to coordinate with your contractor's schedule.

That pushed me to the second option.

I run management on the residential side, so take the parallel loosely, but the part people underestimate isn't the regional manager. It's the back office. Payroll, delinquency and lien processing, insurance claims, vendor onboarding, someone to answer the phone at 6pm on a Sunday. The lien and auction process in particular is governed by state statute and the timelines and notice requirements differ state to state, so a multi-state portfolio needs someone who knows each one or a vendor who does.

When owners quote me a third-party fee as "expensive," they're usually comparing it to the salary of the one person they can picture, not the four they'd need.

@trellis that's the thing I'd want quantified. Harrow, if the fee is say 6 percent of revenue on a portfolio doing whatever it's doing, what's the dollar figure, and what does a real in-house team cost fully loaded? I suspect the answer isn't as lopsided as the pitch decks for going in-house make it look.

Trades side here. One argument for in-house that doesn't show up in the fee comparison: vendor pricing. Twenty facilities buying gate service, door repair, roofing, and pest under one relationship gets a very different number than twenty facilities buying it through a manager's approved vendor list. I've been on the quoting end of both. The approved list markup is real.

Depends what markets these are in too. In small towns the national brand does very little for you, because the demand is local and everyone already knows where the storage place is. I'd assume the brand premium is mostly a metro phenomenon.

Reading along and trying to keep up. Is the "rate algorithm" the same thing people upthread were calling revenue management? And is that something you can just buy, or is it built into the manager's own system?

@ember same thing, and you can license standalone revenue management software, several vendors sell it. The catch is that the algorithm is only as good as the data behind it. A national manager is pricing off move-in and churn data across thousands of facilities. A twenty-facility owner licensing a tool is pricing off his own twenty plus whatever comps the vendor scrapes. Whether that gap matters is genuinely arguable, and I've heard experienced operators land on both sides.

In-house always looks cheaper on the spreadsheet and always costs more in attention, and after five years of running a service business that's the part I keep coming back to. Harrow's owner is currently spending his time buying facilities. If he goes in-house he's spending it on hiring and firing site managers, which is a completely different job and one he may be bad at.

That's not an argument that the fee is good value. It's an argument that the cost includes his calendar.

I'd want to see the hybrid modeled properly before anyone dismisses it. In-house district management and site staff, license the pricing tool, and keep a channel deal for the web reservations if one can be negotiated. Harrow, is that even available in practice, or do the national platforms only sell the whole package?

@anchor some sell pieces, some don't, and the ones that do price the pieces to make the bundle look attractive. That's not unique to storage.

Small multifamily here so my scale is nothing, but the lesson that transferred was that self-managing taught me what the numbers actually were. When someone else runs it, you're reading their report. When you run it, you know why the report says what it says. On a portfolio being repositioned that knowledge has value that doesn't fit in the fee comparison.

Orchard's termination point is the one I'd chase first. If the contracts have a year of notice, this whole debate is about a decision made twelve months from now.

If the national manager's platform is so much better, why does every big storage owner eventually build their own? That's the part I keep getting stuck on.

@rigging because at real size the fee stops being a service charge and starts being a business you're funding for someone else. The threshold where that flips is exactly what this thread is arguing about.

I've been stuck in analysis for months so I recognize the shape of this. Harrow, the decision probably resolves once you write down the two numbers side by side and pick a date. Fee dollars per year against fully loaded in-house cost per year, plus a line for the rate performance difference you'd have to believe in for the brand to be worth it. If the in-house case only works when you assume rates hold identically, that's your answer, and if it works even with a two percent revenue haircut, that's your other answer.

Voted hybrid, mostly because it lets you find out which piece was actually earning its fee.

I'm reading this for the structure rather than the answer, since half a year of research hasn't turned into a deal yet. The thing I'm taking away is that the fee comparison people lead with is the least informative part. Insurance revenue split and termination notice both matter more, and so does whether the owner is going to forty facilities. None of that is on the first page of anyone's proposal.