In this article we will discuss Third Party Management in the Canadian Self Storage space. Who does it, what it is, and should you consider it?
In recent years, there has been a dramatic increase in the number of new storage operators entering the Canadian Self-Storage space. These new entrants range from small Class B facilities in secondary and tertiary markets to large new Class A facilities in primary markets such as Vancouver, Calgary and the Greater Toronto area (GTA). As these facilities are owned by people who do not have experience in the storage industry, there has been an increase in the use of Third-Party management companies especially by these new storage operators.
What is Third-Party management?
Simply put, Third-Party Management is when an outside company handles all of the management responsibilities for a facility so an owner can be hands off. The most recent management contracts I have seen are charging rates between 5-7% of EGI with a different fee structure for new facilities during lease up periods.
Who are third Party Mangers?
In the Canadian Market, there are two categories of companies at present. The first is storage owners who also offer management services and the second are companies that exclusively manage storage facilities without any ownership. Typically, the companies that own storage as well as offer management services have the end goal of acquiring the facility at some point down the road and this should be kept in mind when negotiating any contract.
What should you expect?
When you hire a Third-Party manager, you should expect that your facility will be run in a professional manner. Its common practice for the owner of a facility to be given at a minimum monthly reports on the performance of the facility as well as any information surrounding larger maintenance expenses and any on-going issues in the facility.
What to look out for
In my experience, contracts in the Third-Party space can vary dramatically from company to company and there are some things to be aware of. Make sure you are happy with the terms of the contract such as the ability to terminate the contract, any first right of refusals and any language surrounding participation in profits from a penitential sale. In addition, make sure you have consulted an accountant and probably a lawyer about the contract and how it may be treated in regard to the Active vs Passive income issues with the CRA. Some contracts dictate that all employees are the managers which could potentially leave you vulnerable to be considered a passive business in the CRA’s eyes.
If you have any questions related to how Third-Party management could help you out or if you would like to be introduced to some of the leading Third-Party managers in the country, please feel free to reach out to me and I can point you in the right direction.