By now, many people have seen the wildly popular television shows that follow savvy auction buyers as they travel to self storage properties in search of repossessed storage units, hidden jewels and glory. These chronicles of modern day treasure hunts have been so captivating that even folks who normally would have no reason at all to visit a mini storage facility have been attending local auctions just to see what all the fuss is about. Obviously, this trend has had a profound effect on the self storage industry as well, with managers all over the country noticing a dramatic upswing in auction attendance, the number of inquiries regarding upcoming sales, and the amount of revenue actually paid out by eager bidders for delinquent storage lockers.
While these are certainly positive changes from a management perspective, many people are surprised to learn that the new storage auction craze has also brought a number of complications to self storage company owners and managers that were once content to view these sales as an unpleasant but necessary part of the business – storage auctions are in fact the company’s last resort when every other avenue of mediation between them and their tenants has broken down. Storage auctions are now garnering more public attention than ever before. Many in the industry view them as an unpleasant last resort that should not necessarily be publicized. The new influx of excited auction hunters view them as bargain bonanzas. As a self storage property manager, one of the questions I get most often is, “Hey, are these storage auctions real, or what?”
Storage Auctions From the Company’s Perspective
In order to understand how the perception of local storage auctions has changed, it’s necessary to first understand how and why storage auctions occur in the first place. When a customer rents a storage locker or vehicle parking space from a mini storage company, they are usually set up on a monthly payment schedule. Every month, the rent payment is due. There are exceptions to this rule, such as when a tenant will opt to prepay an entire year because they are certain they will need it, or when someone sets up a monthly autopay account that simply draws their rent off a credit card each month. However, for the most part the storage customer will be reponsible for making their rental payment each month.
Aside from the obvious need to turn a profit, the storage company also relies on the regularity of these monthly payments for covering necessary expenses such as costly repairs to gate or access systems, general maintenance, mortgage payments on the property, marketing materials, utilities and payroll, to name a few. When a handful of tenants fail to make their regular monthly payments, the company can quickly experience financial losses and damages from a lack of cash flow. For this reason, self storage companies find it necessary to put certain practices in place that will encourage timely payment of all outstanding rent.
Why Late Fees Exist
The first tool the company has is the implementation of late fees. If a customer fails to make their rent payment on time, they will incur a late fee which will be added to their total amount due. Oftentimes, this simple mental goad is enough to encourage most tenants to stay on top of their monthly rent payments. Chronically late tenants, for example, could end up paying hundreds of dollars extra per year in late fees alone.
The Consequences of Extended Delinquency
Sometimes a small late fee just isn’t enough to get your delinquent tenants to come in and write a check. The threat of compounding additional late fees works for some late paying customers, but even two or three late fees per month can sometimes fail to keep rent payments coming in on time. In order to further protect itself, the self storage company must therefore put in place more serious consequences for extended delinquency on their rented storage lockers. This is where the state’s lien law comes into play.
A lien is a legal repossession of some property belonging to a customer that has failed to make their due payments to the company doing the repossessing. A common example is a car mechanic who takes on a customer’s vehicle in good faith, and invests a few thousand dollars of man-power and parts into repairing what is wrong with the vehicle. Once the work is finished, the mechanic naturally wants to receive payment for their services. However, should their customer fail to come up with the total amount due, the mechanic may choose to enforce their legal right to place a lien on the vehicle until they are paid in full.
The same principle is at work with self storage companies feeling the financial pinch due to non-paying tenants. In order to further encourage that their delinquent tenants satisfy their financial obligations, the company can place a lien on the unpaid storage unit, including the entirety of its contents! This is usually enforced by way of denying access to the delinquent tenant at the front gate. Many modern self storage systems will automatically restrict access to tenants that have failed to make their monthly rental payment for a certain number of days.
In addition, it is sometimes necessary to place a manager’s overlock on the delinquent storage unit. This prevents the late paying customer from getting onto the property by tailgating someone else through the gate and then visiting their unit. A manager’s overlock is usually a sturdy tamper-proof lock that goes over the tenants storage locker door handle. Even if the late customer were to arrive at their unit and remove their own lock, they would be unable to gain access to their belongings.
The Manager’s Role
Contrary to popular belief, most self storage property managers are not only compassionate toward their delinquent tenants, they are actively trying to help them remedy their situation at every turn. From making courtesy calls to remind them of due dates, to setting up personal payment plans that accommodate their tenants’ payroll schedules, most managers do everything in their power to prevent their customers’ units from going to auction.
Why Self Storage Companies Kept Storage Auctions Somewhat Quiet
Not only is selling off someone else’s belongings not pleasant, but it’s not lucrative for the company either. By law, the self storage company can only recoup the amount of money they were owed for unpaid rent and applicable late fees and auction surcharges. Any money raised by an auction in excess of these charges must be returned to the previous owner of the unit via a check!
As a matter of fact, there is a great deal of extra labor that the company must invest in the auction process, in order to prevent any legal action for a wrongful sale being brought against them. The manager must keep meticulous notes of every interaction with the delinquent tenant, send off all legal pre-lien, lien, 45 day late and notice of auction letters, all of which must be double printed, time stamped and kept on file. In addition, the company must pay to advertise the repossessed storage locker auction in a newspaper of general circulation, in a final attempt to gain the awareness of the tenant whose belongings will be sold off.
Finally there is the matter of paying the professional auctioneer. Many self storage properties with multiple delinquent tenants will opt to lump all of their storage auctions into one auction day. This allows them to hire a professional auctioneer who can come to the property and conduct the sale. There are a few advantages to hiring a professional auctioneer, including the fact that it provides an additional layer of due diligence between the company and the sale of the unit. Unfortunately, this comes at the cost of the auctioneer’s fees! In the past, it was not uncommon for a self storage company to lose a good deal of money on storage lockers that fell into severe delinquency. Not only is the company not receiving its normal rent payments, but it must pay a number of fees out of pocket, plus lose work hours when their managers focus on the sale as opposed to marketing, just to legally process the delinquent lockers for sale.
Storage Auctions and Public Perception
None of this is to mention the simple fact that auctioning off the very belongings that customers once entrusted to the company to keep safe can be bad for business! Self storage companies used to be quite reluctant to introduce their delinquent locker sales with any fanfare because they feared people would get the wrong idea about their services and come to think that self storage was some trap that preyed on tenants who were down on their luck. Keeping this in mind, it’s not difficult to understand why some mini storage owners and managers have viewed the recent storage auction craze with a certain degree of skepticism.
Self Storage Auctions from the Bargain Hunter’s Perspective
Suffice it to say, the recent spate of storage auction reality shows has had a pretty profound impact on the public’s view of delinquent locker sales. As you can see, many self storage managers and owners have good reason to keep these sales from becoming large spectacles. Out of respect to their customers and the hard times that delinquent tenants have fallen upon, most owners and managers are perfectly content to let those in the know stay in the know, and those out of the know to stay that way, too. The small ring of low-key professional auction buyers have known since the beginning of self storage how to keep tabs on upcoming local sales and how to make a profit from bidding on repossessed storage lockers.
The Effect of Storage Wars and Auction Hunters
Now, enter the perspective-changing reality shows like Auction Hunters and Storage Wars. These shows have followed a colorful band of professional auction buyers as they traverse the country in search of big scores, hidden jewelry and abandoned rolex watches. Antique coca-cola vending machines, custom built vehicles, and collections of immense value have all been discovered in these exciting and sensationalized chronicles of modern treasure hunters.
These shows are built on the reality-show model that has been proven effective in grabbing and holding viewer’s attention. There are unnatural edits, tricky juxtapositions and an extreme filtering of extraordinary discoveries. The ultimate impression one gets from watching these shows is that you can expect to find something spectacular in each and every repossessed storage locker you bid on. While these shows and their producers are, in truth, guilty of only rather mild manipulations of reality, they do also deliver a reasonably accurate portrayal of the overall process of buying a storage unit.
This has made viewers more confident in their ability to attend a local storage auction and turn a profit from bidding on the delinquent units there. This is all well and good. The truth is that the public is welcome at these sales and it’s good for the company when more bidders turn out because it’s more likely they will obtain a higher total payment for their auction units.
From my personal experience, these shows have had a profound impact on the way our auctions run. The amount of non-tenants that call up randomly asking for auction information, how to bid, and when our next sale is occurring has increased by a factor of three. When we run an auction now on one of our smaller properties, the turn out which used to include 1-3 veteran storage auction buyers and a few curious passerby now includes about 45 people packing our parking lot.
The Downsides of Increased Interest in Storage Auctions
One complaint I keep hearing from storage managers that are experiencing this huge increase in foot traffic during auctions regards property damage. With more curious people coming in off the street, focused only on making a quick buck and finding some jewelry in a repossessed storage locker, you simply get more people being involved in fender benders and driving into keypads, kiosks, gates and the corners of buildings.
With the introduction of more and more people that have never even heard of self storage before, you also get a different demographic of buyer: people that are only seeing dollar signs when they arrive at a property hosting a storage auction. These are the folks that will win a few units, fail to clean them out entirely and drive away leaving the manager a huge mess of trash and useless items that they must drag out and get rid of.