The Self Storage Sector, NAMA and “The Hotel for Your Goods”

NAMA owns the Hotels loans but has no ambition to become directly involved in the management of the hotel businesses concerned longer than necessary or indeed to hold these assets longer than necessary.

We are acutely aware of the excess capacity of 15-20,000 rooms nationally. What is of interest to us is whether or not they are fundamentally viable on a medium-term basis; in other words, whether they are capable of generating sufficient sustainable cash flow to service the debt associated with them. With that in mind, we will review in detail the business plans of the debtors and assess rigorously their price and occupancy projections for the hotels. As there has been much misinformed talk of NAMA keeping so-called zombie hotels on life support, let me be clear about this point: if debtors cannot demonstrate that their hotel businesses are viable, NAMA has no intention of pouring taxpayer’s money into black holes. In fact much of the so called predatory pricing is in our view driven by non NAMA Hotels.”

 This is an extract from a recent speech given by Mr. Daly, the Chairman of the Government body NAMA, set up to acquire loans from the banks and secured on property. The intention of NAMA is to hold onto the assets until they can be sold sometime in the future, hopefully at a profit.

 The above article shows many hotels in deep financial difficulties. They are either in the hands of NAMA, foreign banks or are being managed by receivers. Some should be shut down but the philosophy of the government is to “wait for economic value”, based on the questionable belief that in time property will once more grow in value and then they will be able to sell these hotels at a profit. (In time we will all be dead). The implications for the once dynamic tourism business are terrible.

The self storage sector is aware of the problems of the hotel industry and is reacting accordingly. In an earlier article we warned our industry leaders about this. The reaction from some of our colleagues was horror that we should raise such a terrible scenario for the self storage industry. They were afraid that we would damage the sector. However, is it not better to face up to the dangers and take appropriate action now rather than bury our heads in the sand?

It is not an accident that Elephant Self Storage coined the catch phrase “The Hotel for Your Goods”. A modern self storage facility is very like a hotel. Both share much in common. Instead of “storing” people a self storage “hotel” provides rooms for people to store goods. The economics of running a hotel and running a self storage facility share much in common. Therein lies the problem

Both businesses have substantial fixed costs including rent or loan repayments on premises, capital investment in fitting out the premises, staff wages, parking, depreciation, wear and tear, rates, electricity, security, administration costs, housekeeping, insurance, maintenance, and of course marketing costs. Both businesses depend on occupancy levels. Critical to both businesses is the income generated from letting the rooms. If the occupancy level is not sufficient to cover costs or if the rental income from letting the rooms is insufficient then the business fails. That is what is happening to hotels in Ireland.

So far only one self storage facility has followed the route of the hotel industry. A very large facility in Dublin went into receivership last year. It was charging too little for its rooms and the occupancy level was too low to cover its fixed costs. The rest of the industry comprised of about 22 facilities spread around Ireland is aware of the dangers and has learnt some lessons from the causes of the hotel crisis.

Everyone knows costs must be kept under a tight rein. Marketing must be designed to show the advantages and benefits of self storage, not just to the important bread and butter business of home owners, but crucially must be directed towards business and professionals. Here the industry is making sound arguments for using self storage such as the saving in rent costs and flexibility in leases. In a normal business premises about one third of the space known as the “common area” is used for moving about the building and covers corridors, hallways, loading areas, toilets, reception, lifts, and so on. In a self storage centre there is no charge for this wasted space. There is an immediate saving in costs of one third. The space rented in self storage is 100% usable.

The cost of security in most businesses is extremely high. In a self storage facility it is included in the rent.  Elephant has over 80 CCTV cameras monitoring our premises at all times. We also have an outside firm monitoring on 24 hour basis, with the ability to call the Gardai if they suspect something. Other business costs when renting typical premises have to pay rates, electricity, maintenance, premises insurance, cleaning, heating, parking, wifi and so on. However when using a well organised modern self storage facility there is just one charge and it includes all these hidden substantial overheads.

The modern progressive self storage business has taking steps to avoid the fate of the hotel industry by showing the many reasons why intelligent business owners are increasingly using self storage. Here in Elephant we have added a Business Incubation Centre for small business, and a Business Centre for our more established clients. We have a large trade showroom for exhibitions or conferences and a training room for about 75 people. Businesses can locate their entire operation in our facility with the flexibility of changing space from time to time and the option to stay as little as a day at a time.  

When you are considering where to locate your business or just to meet storage requirements, consider the lessons of the hotel industry with cancelled wedding receptions and a receiver appointed out of the blue. If you are offered a price by the self storage facility which seems too good to be true, then that is just what it is. Your storage operator has to manage the business in a sustainable manner or else NAMA will come calling. Be alert!