Self-Storage Condominiums: The Advantages, State and Future of this Niche Investment Opportunity
|Copyright 2014 by Virgo Publishing.|
|Posted on: 05/10/2011|
While many self-storage facilities across the country can accommodate the storage of RVs and boats, there are few that offer an actual real estate investment opportunity. Enter the self-storage condominium, which allows a customer to buy a specific unit at a facility, pay a fee similar to that of a homeowner’s association, and sell the unit at any time.
Self-storage condos remain a niche market, but awareness of and attraction to the product is growing. The market that had begun to flourish in 2005 hit a wall when the economy soured. Construction stopped and potential condo buyers could no longer find financing. But interest is still there, says Ted Deits, developer and owner of Eucalyptus at Beaumont in California. His facility opened in March 2009 after three years of development. It has 108 condo units with resort-inspired amenities, including a 2,700-square-foot clubhouse, individual door alarms and 24-hour access.
Inside Self-Storage recently spoke with Deits about the advantages of boat/RV-storage condos, how the industry was affected by the recession, and what’s in store for the future.
Why makes a self-storage condo a good investment for a customer?
It’s fueled by three things: amenities, security and financial benefits. In most casts, rental facilities offer few amenities the serious RVer is seeking, such as wash areas and dump stations, and have limited access hours. Typically, they are built with an eye toward return on investment (ROI), but ROI can be skewed in the wrong direction when the owner starts adding amenities.
While cost is everything when building and running a rental storage facility, a storage-condo developer can “front load” his project with all the amenities required. The cost for these amenities is paid by each condo owner, bundled into the purchase price, and the continued operational cost for these amenities is minimal.
One unseen benefit of condominium storage is the community aspect. Condo owners are not transient. They’re on site several days a week, tinkering, talking and generally just hanging out. The result of this familiarity with the project is these owners know each other, resulting in a new unforeseen security benefit—neighbors.
There may be financial benefits as well. Depending on where a tenant lives and the cost of available storage, it could actually be cheaper to buy a condo than to rent. In our area of Southern California, enclosed storage averages about 60 cents per square foot. Using 650 square feet as an average, the rental cost per month is about $390. You can purchase the same size unit with a monthly cost of about $300 per month, including $35 per month association dues. If a condo owner holds the unit for five years, and it appreciates 2 percent per year, the monthly cost is actually about $202 per month.
Naturally, when paying $390 per month for a rental with no chance for any ROI, the actual cost benefits lean toward condo storage. Having said that, real estate is a long-term play. Those that only need storage for a year or two would probably be better off renting. There is a place for both revenue models.
What are the land and market requirements to develop self-storage condos?
There are three types of locations to consider: a neighborhood location, an “on the way” location, and a destination site. Neighborhood locations are the most ideal, as those who own RVs, cars and boats like to tinker. However, land costs often prohibit this type of storage.
On-the-way locations are facilities found on the way to a popular destination. These sell really well when potential buyers consider that driving the first 30 miles by car is less expensive than driving the RV. Since they own their unit, many simply store clothes in the RV, the refrigerator is running and ready, and the batteries are all charged up.
Depending on the surrounding demographics the destination itself, a destination site works really well. A good example is the Colorado River area, used primarily by commuters from Southern California who make the four- to six-hour drive several times a month from spring to fall. Why drag a boat all that distance when it makes perfect sense to leave it at the goal locale?
In terms of land requirements, there’s really nothing out of the ordinary for this style of construction. Flat is good, as is rectangular. Industrial zoning is good as it generally allows storage, saving the developer the time required to apply for a conditional-use permit.
Spend time with the city or county planning office and closely examine its developer fees. The difference from city to city can be staggering. In our case, developer fees were more than $450,000. So, while the cost for land is one consideration, the cost of development carries almost as much weight.
Condo-storage facilities are often built like clubhouses where owners meet. What other amenities do owners desire?
Owners want to feel comfortable and secure in their new garage. Clubhouses, while they may seem excessive, serve to round out the complete amenity package. Further, they can help present a comfortable upscale offering, justifying the condo cost. Potential buyers expect quite a bit from a project like this. They want to make certain they’re going to receive good value for their hard-earned dollars.
After a year or so of sales, the one thing that’s commonly requested is some sort of valet service. When the owner returns from a trip, he can turn his RV over to someone who will wash it, detail it, empty the holding tanks, and put the RV away, ready for the next trip. This is a really good idea, and we’re working on a few potential solutions for that issue. Other than that, security is high on the list, with other niceties like dump stations, electrical service, laundry and possibly showers.
One other feature people might like, especially those traveling from afar, is a few outdoor camping spots so they can spend a few days relaxing and provisioning their RV for the trip ahead.
How has the lack of financing affected the development of self-storage condos?
It stopped everything. Without construction financing and banks being tight-fisted with loans, all condominium construction was halted. It was hard enough to get a construction loan when things were good (2005 to 2007). Now that lenders have much tighter lending and reserve requirements, new construction financing for storage condos simply doesn’t exist. The only other resource is private lenders. They do have their place, but the funds are much more expensive.
The financing of individual condominiums for new buyers is also non-existent. No lenders have been willing to lend on such a new concept. After potential buyers jumping through hoops, there have been no lenders willing to take on a project like this. We’ve been providing our own financing since June 2010, but 90 percent of our buyers have paid cash for their units.
Did condo purchases suffer during the recession? What’s the status of the purchasing market now?
Yes, they did. Our grand opening was in March 2009, when the financing world was circling the drain. We had just come off of $5 per gallon gas, the deepest recession in my lifetime was underway, and the world lenders were failing left and right. Talk about your perfect storm. Yes, it scared away 80 percent of my potential buyers in the following two months. This is a consumer discretionary purchase, like RVs, cars and boats. Everybody and everything stopped and held their breath for what was about to happen.
Fast forward 18 months, and we’re once again selling garages at a respectable rate. We’re averaging about one unit sale per week, and we’re about 45 percent sold out. During the deepest part of the recession, March 2009 through May 2010, we stopped marketing and sat back and watched what the economy was doing. Fortunately, it does seem we’re a nation that’s recovering. It’s not what it was, but it seems consumer confidence is back and people are feeling good enough to invest in some of their own personal pleasures.
Do you expect condos will continue to grow in popularity?
Without question, yes. Many of the people buying at our project don’t even have their RV yet. In fact, we closed one like this recently. The owner wanted to secure storage for his RV now, before he went out and invested in a $200,000 vehicle and was forced to put it out in a field somewhere. I can’t tell you how many of our visitors have retirement plans for the next one to three years. They may not be able to buy today, but there certainly will be a bubble of interest in the next two to five years.