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Tenant Insurance Premiums Will Enhance Your Sales Price

Written by: Ian Burnstein Posted: 5/12/2017
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The basic premise of business is to enhance your assets to increase profitability. There are several aspects of the self storage business that can allow operators to improve revenue. One revenue item that is often overlooked is tenant insurance. It is important for owners of self storage facilities to understand that the revenue collected for selling policies are considered part of income by buyers in today’s markets and can enhance values by hundreds of thousands of dollars.

Tenant insurance is becoming a standard service at most self storage facilities. The rates and features vary and are offered by several companies. There are many options available to owners depending on their risk tolerance, willingness to charge tenants and protections provided. Marc Boorstein, President of MJ Partners, credits tenant insurance as being the “biggest impact of a new company taking ownership” not only in circumstances where there is no program in place, but additionally when the penetration rate is under 70%. MJ Partners will “specifically highlight tenant insurance as a value-add when marketing properties for sale.” In the $1.4 billion acquisition of SmartStop Self Storage, a major consideration for Extra Space Storage was the low 50% penetration rate for tenant insurance. Estimating they would be able to increase this to the low 70% range within 1 -2 years (see page 27, 2015 MJ Partners Second Quarter Self Storage Market Overview), they projected a greater revenue stream and faster return.

Cap rates for storage facilities are at an all-time low and prices for storage facilities continue to climb. It has become well documented that the revenue received for tenant insurance is included as part of the calculation for the purchase price. According to Brett Hatcher of Marcus and Millichap, “Not only does tenant insurance protect the storage owner and operator and customer, but more importantly having this service adds value to the property. We are seeing a tenant insurance penetration increase and as that happens we are seeing the revenue increase and in turn increase the overall price/value of the owner’s property.”

Despite fears of some operators, selling tenant insurance is becoming the norm as opposed to the exception. According to Stephen Hung of Skyview Advisors, “I think there is a misconception that tenant insurance programs are more trouble than they are worth and that many customers are not interested in paying the additional cost. What owners do not realize is that it can add thousands of dollars in additional income. I recently worked on a property in Macon, GA where the tenant insurance program generates about $10,000 in revenue annually and that market’s financial fundamentals are not particularly strong. From what I have seen, it can work well in any market if implemented correctly,” Hung added.

Self storage operators maximize profits and improve sales prices by offering tenant insurance. Partner with a tenant insurance provider who has a proven track record with providing an excellent value, superior claims service, and is best in class.

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