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Third-generation family business scales up going all-in on self-storage industry

Posted in ,   |  July 26, 2023

Add up all the storage units owned by Five Star Storage and they easily would equal the size of a small town.

At last count, “we are just shy of 11,500 units and 2 million square feet of total space,” CEO Ben Hendricks said. “The last 24 months have brought tremendous growth for us, and it’s been ever-changing.”

The roots of this family business go back to the 1970s, but the past two decades have brought an entry into the self-storage industry and subsequent exponential growth.

“We somewhat stumbled into the storage business,” Ben said. “Sometimes, it seems like only yesterday we had a snowplow on the front of my dad’s Suburban and my brother was having me fill his coffee cup.”

Diversifying into opportunity

Five Star Storage, which is based in Fargo, has 34 locations across four states, including in the Sioux Falls area, where it entered the market about a year ago.

The business began, though, as Hendricks Inc., a development, construction and property management company founded by Ben’s grandparents Mel and Harriett Hendricks. It was focused primarily on developing government-assisted housing projects across rural North Dakota, South Dakota and Montana.

Their son, Chuck, originally studied zoology and planned to enter dentistry when Mel needed help running the business and Chuck agreed to help temporarily. But temporary became permanent, and Chuck and Mel ended up working together, building the business for more than 40 years. Mel stepped down as the majority owner of the management business in 1994, and Chuck took the reins and began guiding the business into a new era.

In the early 2000s, things started to change dramatically for the business. In 2004, “my dad was originally looking for a new spot to house himself and a few other full-time corporate employees in property management, and they found a piece of property in Fargo with four self-storage buildings and a concrete pad poured and ready for a larger office,” Ben said. “So we bought it, and the rest was history.”

The site at the time was called Five Star Storage, so while storage was “a side gig” and property management was still the “bread-and-butter, in an effort to rebrand the company, we changed it from Hendricks to Five Star Services Inc.,” Ben said.

Ben and his brother, Jake, had grown up working in maintenance roles for the family’s properties.

“We mowed lawns, picked up trash and assisted with apartment turnover after someone moved out,” Jake said. “We had a major flood one of those years, and I was responsible for removing wet carpet and sheetrock from the lower level. It was hard work but a great experience and really created the foundation of my work ethic moving forward.” Jake eventually became the company’s first self-storage manager after the acquisition of the first Five Star Storage facility in 2004.

Ben pursued business and marketing in college and joined the family business full time in early 2009 after briefly working for a national retailer.

“I was applying for corporate marketing jobs, and my dad brought me in to fill in a management role, so I came in full time with the idea of helping out and wasn’t sure it was what I wanted to do, but I started to really enjoy it,” Ben said. “I thought, ‘If we’re going to do it, let’s make something out of it.’”

Jake pursued a law degree and joined a Twin Cities firm specializing in real estate development, syndication, finance, and mergers and acquisitions.

As Five Star Storage began to grow, he continued to hone his skills in business law and real estate before taking over the formation and operations of the parent company, which owns Five Star’s real estate and assets, and overseeing development, acquisitions and financing, along with long-term strategy.

“I am also somewhat involved at a very high level in the day-to-day functions of running our properties, but that is Ben’s primary role,” he said. “I get to wear a lot of different hats, which keeps the days interesting.”

They worked through “how to make some smaller deals happen” and began to branch into the Twin Cities area with storage units, then Bismarck and Grand Forks, North Dakota, Ben said.

“Next thing you know, you blink, and it’s 20 years later, and we have 34 locations,” he said. “You take a step back and have to breathe a little.”

Five Star entered the Sioux Falls area with the acquisition of All Seasons Storage, which had three locations on the southwest side of the metro area, and then Burma Storage, which brought a location at Interstate 29 and Russell Street.

The company is expanding both locations and has eliminated an old campground at its location on Louise Avenue and much of the outdoor parking to make room for more drive-up storage buildings and a multi-level, climate-controlled building with a drive-thru loading bay.

“We have added many enhancements to the sites already, with more planned in the future — paved driveways at our location on Sundowner, electronic gate access with Bluetooth technology and enhanced security cameras with AI, ” Ben said.

The company has become a regional leader in its industry thanks to its ability to think broadly and diversify, said Stephanie Larscheid, executive director of the Prairie Family Business Association.

“The Hendricks family has shown impressive longevity and growth, and now entering its third generation, they’re really leveraging both the experience of their past and the unique abilities of their emerging leaders,” she said. “It’s been exciting for us to connect with them, learn more about their journey and support them as they look to the future.”

Family business strategies

About a year ago, Chuck Hendricks transitioned from CEO to chairman, with Ben taking his place and Jake becoming president.

“I think we did a really good job of being proactive about the transition well before it occurred, which definitely made it smoother than expected,” Jake said. “We also made sure that Ben and I were fully capable of taking over by both working outside the family business before taking on a leadership role and getting involved with key business decisions well before Dad stepped away.”

While their dad “is not involved as much in daily operations, he’s working a lot on our expansion and working with our construction team because he brings a lot of experience in that,” Ben said.

“We got to a good end result, but it probably would have been a lot better if we had been members of Prairie Family Business Association years ago. We were already through the muddy water when we joined.”

The family went to its first Prairie Family Business Association annual conference in 2021.

“My brother and I were there and looked at each other and said, ‘Dad needs to be here,’” Ben said.

“It was very enlightening and eye-opening seeing what we have done well, what we could do better, and the biggest thing was communication. You must have those conversations. You can’t just think in your head that one day this is going to happen. You must talk about a plan, what the older generation wants to do and be upfront and honest, and eventually we got there.”

While the family attends a lot of industry-specific conferences, “Prairie Family Business Association gives us a look at our family and business through a different lens. I’ve really enjoyed the networking and content,” Jake said.

“Stephanie and her team are top notch and have one of the best-run associations we have been involved with.”

While they can laugh about a lot now, “the fact is during a transition, it is very stressful to figure things out,” Ben said. “But without a doubt, knowing how we needed to approach it – having established meetings and great communication – even four years ago, that would have been very helpful for us.”

Now, he’s involved in an Affinity Peer Group through the Prairie Family Business Association – they call themselves the “Far-go-getters,” which connects him with other family business owners in the Fargo area and into northeast South Dakota.

“It’s been very helpful. There are great, useful tools, and you can talk in kind of an intimate setting and express different scenarios or issues, and you can get help navigating through their different perspectives,” Ben said. “With Prairie Family Business, you get connected with people from such a wide array of backgrounds and businesses that it’s just fun to make connections you wouldn’t normally have had.”

Five Star also uses a four-person board of directors, including one nonfamily member, along with one nonfamily member advisory board member, “and there’s great dialogue through that,” Ben said. “We’re able to ask the difficult questions and challenge each other and know we’re all trying to achieve the same goals but with checks and balances.”

Within their own family, they’ve learned to balance the professional and personal sides of their relationships, Jake said.

“Thankfully, the three of us share a lot of interests and have a lot of fun together outside the business,” he said.

“I think we each have our respective skills that complement one another very well. We make a great team. My advice to other families facing a succession to the next generation is don’t avoid the elephant in the room. Address it head-on and early and you will be glad to have done so. I know Dad is enjoying more time on the golf course and the lake as well, probably more so than he expected.”

And the business itself could just be getting started. Five Star is working on centralizing its customer care to position itself for future growth while continuing to focus on a strong internal culture. Each year, for instance, all employees are allocated funds to donate directly to a nonprofit of their choice.

“We’re at 34 locations now, and I don’t see why in the next five years we couldn’t be at 50, 75 or 100,” Ben said. “One thing our Grandpa stressed to us from the beginning is never dream too small, and we plan to abide by that moving forward.”