Stor-Age, the country’s largest and leading self-storage company today, boasts a R1.5 billion property portfolio consisting of 33 properties, comprising 25 trading stores and eight development sites across six cities. As recently as 2006, two of the three CAs(SA) running this unglamorous business were still doing their articles and dreaming of anything but self-storage.
CAs(SA) rarely need to be told they can do anything they put their minds to, but the tale of entrepreneurship by Stephen Lucas, Steve Horton and Gavin Lucas are the proof. Dad Les Lucas, a semi-retired building and construction business owner, made a fourth on this team.
These four co-founders of Stor-Age started the business in Les’ lounge, based on that single overheard conversation – a dialogue 32-year-old CEO Gavin had given no further thought to until about two years later.
Why on earth would a group of young, educated CAs(SA) with enormous prospects in the corporate and investment banking world decide to dirty their hands in the distinctly unsexy world of self-storage? Their solution has been to make it sexy.
During the property boom that started in 2004 dad Les had been already investigating ideas around small property developments. Gavin explains how that evolved: “Some ideas rumble around in the background and won’t go away,” as he recalled the couple bemoaning the lack of availability, costliness and poor quality of self-storage options they had seen. “They simply wanted a secure place to store their stuff run by a trustworthy and reputable company, while they worked overseas for a while. Apparently that was surprisingly hard to find,” he says.
Les first looked into the idea and returned convinced they had unearthed a massive gap in the market for professionally run and managed self-storage products. There was no dominant or even large-scale professional player. This growing market reflects two social trends: people are acquiring more and more consumer goods while living in ever smaller homes. Where South Africa had not kept pace was in recognising that the business was no longer about people storing stuff while seconded abroad, but self-storage had become an extension of the home, and therefore had to be conveniently located. In the past, self-storage was located out-of-town or in cheaper industrial property, run by sole operators usually as a sideline. What the market needed were self-storage options close to where people live, where it would be convenient to pop by and pick up your camping gear, squash racket or kayak, and where you could rest assured that professional people were taking care of your things in a safe and secure location.
Sold on the notion but without capital or property, Gavin needed an innovative business model to generate interest among financiers. “During my articles with KPMG, I read about something called the hotel rental pool scheme model. 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 in self-storage.”
Detailed research was undertaken into the self-storage industry 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 the major South African metropoles. They educated themselves on everything from what the receptionist should wear to rental rates.
“Few people realise that self-storage is not a pure discretionary spend. The significant majority of customers, both private and commercial, take storage space as a ‘need’ rather than a ‘want’,” explains Gavin.
He recruited – and borrowed almost R1 million from – his UK-based CA(SA) brother Stephen Lucas (currently CFO) to get the ball rolling, and they started selling. They secured R10 million in pre-sales from investors, selling 200 sections valued at R50 000 each. The affordable entry cost made these an easy sell.
They had secured a promising site in Edgemead, Cape Town, and now recruited friend and fellow CA(SA) Steve Horton. With signed contracts on the table they approached the banks for additional funding – all the while clocking in at day jobs.
Being auditors, their business plan and research was impeccable. “We are very thorough people and I believe the business plan we pitched to the bank was solid. There can be no doubt that our training as Chartered Accountants helped enormously,” says Horton.
The self-storage industry with its month-to-month leases was an unknown entity to the banks. But based on their preparation and pre-sales of the sectional title units as security, they secured the money they needed from Standard Bank and work commenced on the Edgemead site.
This was just the start and today the management team drives an aggressive growth plan. What they learned during the research phase 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 10–15 years. “Five years on, everything in that report has happened. The research was spot on,” says Horton.
Stephen adds: “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 on line approximately four to six new properties each year, as well as closing some acquisitions of existing self-storage operators.”
According to Gavin, “There is an undersupply in the market at the moment, but we know full well this situation won’t exist forever. While it does, we’re exploiting the strong growth potential visible over the medium-term. Thereafter, we plan to have entrenched ourselves firmly in the South African consumer’s mind as the dominant leader in self-storage.”
Each of the three attribute their success majorly to their education as a CA(SA). Gavin studied at the University of Cape Town and completed his articles at KPMG in Cape Town in 2006, though the business was started during his second year of articles and he immediately went into the business full-time.
“You’ve got to enjoy what you do, in order for you to be really passionate about it. We’re very passionate people,” he says.
“In our estimation every single middle- to upper-income residential suburb in South Africa will be serviced by probably two to three self-storage facilities within the next 10–15 years.”
The business sounds deceptively property orientated, but Gavin explains that it is really a people business at heart.
“A second fundamental of this business is training and development of staff. We all gain enormous satisfaction – as graduates and CAs – from passing on the benefits of education to our staff and to see them grow not only in work-related skills but life skills that they can use anywhere,” says Gavin.
All three being CAs(SA), the business operates off a very flat structure with a lot of strength, depth and ability to seamlessly step into each other’s shoes as required. “One might think three Chartered Accountants is overkill. In fact, we all have very different strengths and our skill sets complement each other. We promote a culture of debate in the senior management team, where it’s okay to voice a different opinion so as to make the best decisions.”
Gavin lauds the CA(SA) qualification: “I’ve often described accounting articles as a ‘business finishing school’ of sorts. While possessing all the hard technical knowledge from university, one arrives a ‘rough pebble’ and walks out three years later as a refined diamond.
“Through the entire growth spectrum from being a genuine start-up trading out of my parents’ converted lounge/office, to a small enterprise and through to our current position as a medium-sized enterprise, the value that has been added by our Chartered Accountants expertise has been immense. Keep in mind that the value provided by a CA(SA) is not just the hard technical skills. Often one overlooks the ability through our training to be able to solve problems in a structured and logical manner. The ability to have structured thought patterns in itself is incredibly valuable, together with a disciplined work ethic acquired through the years of completing both one’s university studies and articles,” says Gavin.
Stor-Age CFO Stephen joined the business from London and thoroughly recommends that any CA(SA) or trainee who has the opportunity for international travel and experience should seize it. “These are life experiences that cannot be taught in a classroom.”
He also makes the observation that chartered accountants are luckier than most in their entrepreneurial ambitions – if it fails, you can always return to number-crunching. The training also makes for a solid work ethic: “For over three years at the commencement, I worked most of my evenings and weekends providing support. It was tiring and tough at times – often at great personal sacrifice – holding down a demanding full-time job and using my spare time to constantly work on the business, but I always knew it would be worth it in the end.”
One of his functions in Stor-Age is acquisitions, and his experience with an M&A consultancy in London embraced transaction support, private equity and corporate finance, giving him invaluable international experience, “much of which has held me in good stead in developing our business”, he says.
He attributes the success of the business to its differentiation. Apart from its core customer focus, he explains, “Our stores are built to a high quality specification and located in close proximity to target markets so that it is convenient for customers.
“Self-storage is an administratively-intense business given the large number of tenants at each store, all on short-term leases. It is also a decentralised business with numerous locations across the country. It requires a substantial investment in technology, systems and procedures and, most importantly, people to ensure that we can rent space, manage the tenant base and collect cash. We are involved in all aspects from the planning, development and construction of stores to the overall asset management function of the property portfolio.
“At Stor-Age, we have a great ethos and working environment – we work hard but also have fun. It’s rewarding to watch our staff buy into the growth of our business knowing that each of them are contributing to its success and that they are developing both personally and professionally as the business grows. I enjoy mentoring and coaching our staff by sharing the knowledge and experience I have gained during my career. At an executive level, I also appreciate the manner in which we engage with each other. It’s done in a challenging and constructive manner, and in doing so we bring out the best in each other.”
Property director Steven Horton already had an entrepreneurial background when he joined Stor-Age having started a family export business, sending mostly perishable goods into Angola. During his articles, he was seconded to Boston (US) where he had the opportunity to do some informal research into what is the most developed self-storage market in the world.
With this experience, he assisted Stor-Age with raising finance on its first facility, and came on board full-time after completing his articles for the next development opportunity.
His tip to those studying at university: “I was very fortunate to have four very good friends (including Gavin) who chose to follow the same study path and we formed a lift club and would drive in to UCT every day. Looking back, I think our experience of studying was made that much easier with an incredible support network of five guys doing it together.” ❐
Author: Eamonn Ryan; Photography: BrightLiquidLight.