Pete Panos, President, Third-Party Management and Strategic Partnerships, Public Storage

Posted by Poppy Behrens on Oct 1, 2018 12:00:00 AM

Within the self-storage industry, there are more than 20 companies of various capacities that offer third-party management services. While some of those businesses have local or regional reach, others have customer bases that span the nation. And now another recognizable player has opted to get into the action.

Along with its iconic orange roll-up doors, familiar logo and color scheme, and legendary $1 move-in special, Public Storage may soon be able to add third-party management to its list renown corporate components.

Identifying A Need
According to Pete Panos, president of third-party management and strategic partnerships for Glendale, Calif.-based Public Storage, the REIT started its third-party management platform more than 40 years ago, but the company “never decided to grow it” until this year. “It’s an inexpensive way to grow,” says Panos, adding that Public Storage intends to expand both its portfolio and its scale through the business venture.

Panos explains that Public Storage executives never thought there would be a need to develop it, so the concept was kept on the back burner while the REIT focused on acquisitions and new development. However, a steady stream of new storage supply, specifically a dramatic increase in the amount of development by merchant builders, has strengthened the need for third-party management, thus making it a scalable business for Public Storage.

“There’s a lot of product coming on line,” Panos says, “and they need someone to manage them.”

As a matter of fact, per Panos, Public Storage had been inundated with phone calls from self-storage developers, merchant builders, investors, and operators who want the REIT to manage their new assets. While he mentions that smaller self-storage owners/operators (those who own/operate one to three properties) aren’t the ones calling to seek third-party management, Panos states that joint ventures established between large companies that want to get into the storage industry but have no self-storage experience are actively searching for someone to take the “operational risk” out of the equation.   

Therefore, in response to the abundance of inquiries and the growing need within the industry, Public Storage promoted Panos from executive vice president of operations to president of third-party management and strategic partnerships at the beginning of 2018. He’s been responsible for sorting out all the details of the REIT’s third-party management platform called Public Storage Advantage.

Although Panos and his third-party management team aren’t making any outbound calls to seek new clients yet, Public Storage currently third-party manages approximately 30 self-storage facilities. However, Panos and Public Storage expect that number to steadily increase.

As Panos puts it, as markets toughen from excess supply, which leaves many facilities unable to raise rental rates, self-storage owners are forced to take a closer look at their businesses and find ways to lower expenses and save money to increase their NOI. That’s where, he says, third-party management comes into play.

“It’s a competitive industry,” says Panos. “And consolidation makes it more competitive.

The Advantages
As stated in the first paragraph of this article, there are 20-plus businesses that provide third-party management services. So, what makes Public Storage Advantage different?

“The most significant difference,” says Panos, “is just our sheer size. Public Storage owns and operates more than 2,400 facilities throughout the U.S.” Those 2,400-plus facilities have a combined total of approximately 158 million net rentable square feet of real estate. What’s more, the REIT currently operates those facilities in 38 of the nation’s 50 states. Public Storage’s nationwide presence is one of the reasons it is the most recognizable self-storage brand in the country.

Indeed, as the industry’s largest self-storage operator and the largest self-storage real estate investment trust, Public Storage certainly has the scope and brand awareness to make an impact.

“Public Storage has a dominating market presence in most of the largest MSAs in the United States,” Panos says, noting that the REIT’s economies of scale and name are desirable to developers and operators alike. He also adds that third-party management allows smaller operators to “gain the appearance of scale and the advantages of that scale”.

“In the markets where we operate, we have the largest market share,” says Panos. “It brings more eyeballs to your website and, subsequently, more foot traffic to your store because when anyone types ‘storage’ in a market, the likelihood of Public Storage coming up number one in the search results is phenomenal, because we have that scale and market share. Our brand is the most relevant and visible online.”

Panos cites the Dallas-Fort Worth MSA as an example. “We have 130 locations in that area,” he says, explaining that small operators in that MSA are spending more money for a small number of customers than they would be spending to take advantage of third-party management. “Our scale is so large. The amount of money you can save is staggering. Going alone can leave owners struggling for a piece of the pie.”

Emphasizing that economies of scale allow for better deals and reduced expenses, Panos adds that the fees and costs of Public Storage Advantage do not outweigh the benefits. For starters, he encourages owner/operators to look at their labor costs at a store level. “It’s a no brainer. They are paying circa double what Public Storage pays.” Panos notes that with Public Storage Advantage, owner/operators do not have to juggle all the operational tasks alone or pay various specialists/professionals such as auditors, district managers, call centers, and the like, because Public Storage has its own centralized functions available at no additional cost.  

“Public Storage is taking profit out of third-party management,” Panos says. “It’s not a revenue stream for Public Storage.” In fact, the REIT is trying to make it a profitable venture for its clients by setting a low management fee structure, establishing low setup costs, and providing insurance compensation.

Regarding insurance compensation, as stated on the Public Storage website, “This is one of the many ways Public Storage Advantage has an edge over other third-party management companies. We are committed to providing our owners generous compensation from insurance … insurance compensation is based on occupancy not premiums collected – that is unheard of in the business; and a significant win for you, the owners!”

Of course, another benefit of Public Storage Advantage is the REIT’s experience. Public Storage has been in business since 1972, when it built its first self-storage facility; that’s 46 years of proven experience that can help increase a property’s performance and enable it to better compete in its marketplace.

Plus, operating more than 2,400 facilities has enabled the company to fine-tune its operations and collect data to drive results. “Big operators have data on so many more facilities,” says Panos, comparing larger self-storage operators to independent operators. “It all comes down to scale.”

Although the benefits of third-party management can be plentiful, as clearly stated above, Panos admits that it can be a double-edged sword when it comes to builders. “It’s a positive for builders who don’t want to manage them,” he says, “but there is a downside, and we are seeing it.” Basically, third-party management removes operational risk from development, which enables builders to develop more self-storage facilities. “There’s a risk of oversupply. Some markets are getting overbuilt.”

P.S.
A post scripture from Public Storage’s Panos: Third-party management is also a viable option as an exit strategy. For self-storage owners/operators who no longer wish to run the business but neither have family to take over nor desire to sell the property, third-party management is a practical possibility that provides continued profits.

On the flip side, third-party management may not be the right choice for an owner/operator who likes playing an active role in the day-to-day operations. “If an owner wants to be super involved in all aspects of operations, it probably will not be a good fit,” Panos says. “Why pay someone else if you’re going to do it?”

Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.