The Young Guns Behind Stor-Age

The Young Guns Behind Stor-Age

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Look once and you’ll see straight down the line auditing types – CAs with solid credentials behind their names. But look again and you notice they’re really mavericks, trailblazing a new industry as pioneers of the South African self-storage market.

This is the story of Stor-Age – and how the people behind it went from a start-up in a lounge to a property portfolio of R1,5 billion.

“When you say ‘self-storage’, people inevitably have a picture in their mind – and it’s usually not a pretty one. Picture this: A man in rugby shorts on a small holding somewhere far away from anywhere you’d ever want to live. A rottweiler on a chain barking its head off behind a chicken wire fence.A grubby, dingy, outbuilding for your stuff. A handwritten invoice that you take from fingers that have grease under the nails. That about sums it up for most people,” says Gavin Lucas, CEO and co-founder of Stor-Age, now the country’s largest and leading self-storage company.

If what he says is true — and we strongly suspect it is — why on earth would a young, educated chartered accountant with a great position at a leading international auditing firm and a promising career ahead of him, be remotely interested in tossing it all up and joining the ranks of the dodgy underworld of self-storage.

“Some ideas rumble around in the background and won’t go away, I suppose. It all started around a braai,” answers Lucas, who heard a girlfriend’s father complain about the lack of availability, costliness and poor quality of self-storage options.

“He was a teacher and he and his wife were going to teach in Dubai for a while. What they wanted sounded pretty simple – a secure place to store their stuff run by a trustworthy and reputable company. But apparently that was really hard to find,” he says.

Lucas thought nothing more of the conversation until he and his father Les started investigating small property developments two years later.

Lucas Senior hails from the building and construction sector, and in 2004 when the property market was booming, he and his son had an idea to develop some small-scale property investments.

 

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“I mentioned the self-storage thing, but to be honest I wasn’t a believer. It was really my dad who looked into it and came back saying, ‘This is a great idea. We have to do this.’ When I looked into it further and started doing research I realised what a massive market gap there was for professionally run and managed self-storage products,” says Lucas.

“We live in a world of increasing consumerism where people can acquire things at a greater rate than ever before. But we also live on smaller and smaller properties, and there’s literally no place for all this stuff to go. So the market is there.

“But in the past, self-storage was, as people imagine, on a cheap, out of town or industrial property, run by sole operators who often do it as a sideline. What the market needed were self-storage options that were close to where they live, where it would be convenient to pop in and pick up your golf clubs or whatever, and where you could rest assured that professional people were taking care of your things in a safe and secure location,” he explains.

So it turns out those sole props were onto something after all – only they hadn’t professionalised it in a way that Les and Gavin Lucas envisaged doing.

They found a prime location for the launch of their new business idea, but they’d need money and time to get it going. Both were in short supply.

Overcoming (lots of) challenges

An innovative business model makes the world of difference, as Lucas soon discovered. “We’d identified this site at Edgemead near Cape Town that was perfect. Only it wasn’t on the market. And it was owned by Eskom. And we had no money. And the banks weren’t interested in self-storage as an industry in which to invest. With his property background, my dad said we’d never get it.”

These would be challenges enough to put off the most ardent and committed wannabe entrepreneur, let alone one who had his hands full working full-time to finish his articles.

But it was while doing his day job that he came across a case study of a business model that might just help them raise the capital they needed.

“I read about something called the hotel rental pool scheme model in my articles. Essentially, a hotel property is sectionalised and individual rooms are sold to investors who put the sections back into a rental pool, which is then managed by a hotel rental company.

I thought it might just work. I borrowed R200 000 from my brother Stephen in the UK so that we could get the ball rolling, roped in Steven Horton to join the business and then we started selling,” he says.

Show me the money

“We sold out to investors in a matter of weeks,” says Horton. Bear in mind this was for a self-storage site that had not yet been developed, using a business model that had not yet been successfully tested in the self-storage market, by two twenty-something-year-olds who had absolutely no experience in the self-storage industry and were devoting the majority of their time to their respective articles.

They secured R10 million in pre-sales, selling 200 sections valued at R50 000 each.

Horton adds, “We weren’t asking people for a lot of money. At the time people were looking to invest in property and they had access to funding. This was a way for them to do it with a R50 000 investment. It was a manageable amount of money.”  Even taking that into account, it’s a feat most entrepreneurs never manage in their lifetime.

Les Lucas ensured they secured the Edgemead site, using his knowledge of the building and construction industry to convince Eskom to sell them the land, while Gavin and his brother Stephen hit the banks.

“In we walk – young guns with no experience or track record in self-storage, asking the bank to give us a whole whack of cash,” says Lucas.

But that’s not the full story really, because unsurprisingly the auditors had done their homework and lined their ducks up in neat, well audited rows.

“We are very thorough people. We did our research properly. And I believe the business plan we pitched to the bank was solid. There can be no doubt that our training as CAs helped enormously,” says Horton. Lucas adds, “We did an enormous amount of preparation, including role plays.”

That’s not to say they weren’t up against huge odds.

The self-storage industry was an unknown entity to the banks and leases were based on month-to-month agreements, which added a further element of risk for any institution looking to invest in the business.

But based on their preparation and the pre-sales of the sectional title units as security, they secured the money they needed from Standard Bank. Work commenced on the Edgemead site and today there are 17 trading stores around the country and the management team drives an aggressive growth plan.

Looking back on it, Lucas attributes at least some of their success to a single-minded focus.

“Let’s face it – there are sexier property development arenas than self-storage,” he quips. “We might have been tempted to develop apartments or high-tech office developments and it’s fortunate that we weren’t,” he says.

Part of the reason is because the team saw the opportunity to specialise in an untapped market. Because – again unsurprisingly – they’d been thorough, conducting a detailed research project into self-storage in South Africa, the US, the UK and Australia.

They took six months to visit and survey every self-storage business they could find in six main South African cities.

“We wrote up everything from what the lady at the front desk was wearing to the rental rates and whether there were ablutions on site,” says Lucas.

What they learnt enabled them to position the South African market relative to more mature self-storage markets overseas – and predict the course that the local market would take over the next ten to 15 years. “Five years on, everything in that report has happened.

The research was spot on,” says Horton. The key thing is that there was no dominant market player and a massive opportunity existed to take the gap and change the way South Africans thought about self-storage.

Big on strategy

Being able to see into the future is pretty powerful when you’re devising strategy – and the Stor-Age team is big on strategy. The property portfolio currently stands at R1,5 billion. “We believe we will meet our medium term target of 40 properties with a R2 billion portfolio value by 2015.

In the long term we are confident of our ability to once again double the size of the portfolio by 2020. This means bringing online approximately four to six new properties a year, as well as closing some acquisitions of existing self-storage operators,” says Lucas.

They believe it’s a realistic and achievable target partly based on track record – to date all properties have been leased 100% on target with high retention rates.

But they’ve also got a detailed plan in place. This is no single-page strategy that makes vague hand-waving gestures at targets.

This is a strategy with a minute level of detail. “We don’t only know that we want a site in a particular suburb – we’ve detailed the suburb, arterial route and intersection where we want to position our product. We know when we want these sites by and when they need to open their doors,” Lucas explains.

This level of detail has maintained focus. As Horton says, “We don’t get distracted by other sites that may become available but aren’t in our plan – we know what we want and we focus all our energy on getting only those sites.”

They’re halfway through the strategy period and they have 33 properties, 17 trading stores,  eight greenfield sites and eight acquisitions that will come to fruition in the coming months. It’s a good place to be. As Lucas points out, “We’ll most certainly hit our targets by 2015. We’re not even touching full market potential.”