Climate-ControlWhat it means for your business and your bottom line
Copyright 2014 by Virgo Publishing.
By: Dan Curtis
Posted on: 03/01/1998



 
Climate-ControlWhat it means for your business and your bottom line

By Dan Curtis


Using the existing ceiling system for a conversion.

Writing this article prompted me to take a look back at what has been said in the past about climate control in self-storage. In the '80s, little was mentioned about climate control other than the fact that it could be used with conversions, probably because those buildings were already equipped for heating and cooling in their prior use. For that reason, conversions have always been the easiest way to add climate control to storage.

Converted buildings were usually located in a high-density area with heavy traffic. The obsolete use may have been a result of positioning by major retailers such as Wal-Mart or Kmart. Positioning is the real-estate practice of moving to the closest possible location to serve your projected market, which may change as new shopping malls, subdivisions and apartments are constructed.

Another change that created buildings subject to conversion was the creation of the "Super Store." In the mid-'80s, Wal-Mart, Kmart, Home Depot and Lowes were satisfied to locate in facilities of 60,000 to 100,000 square feet. Now they are locating in 150,000 to 200,000 square feet, handling an even bigger inventory. Grocery stores and other retailers have done the same. These converted buildings have caused developers--including everyone from Public Storage, Shurgard and Storage USA down to the single project developer--to seriously consider using climate control.

Definition


Mechanical equipment unit with lowered door for ventilation.

"Climate control" refers to keeping the temperature below 90 degrees in the summer and above 40 degrees in the winter, with humidity below 65 percent to stop mold or mildew. Most operators use 50 degrees in winter as a low and 80 degrees to 82 degrees as a high in summer. The old myth of maintaining 72 degrees in both the winter and summer is costly and not expected or necessary for the average tenant. Keep the above in mind as it will be dealt with later.

Building Design and Codes

Single-story or multistory buildings are equally suitable for climate control. As land costs go up, the need to build multistory buildings increases. Multistory buildings are more efficient and cheaper to heat and cool, and tenants don't seem to mind loading their possessions on an elevator. Try to keep the distance from the entrance to any one unit 120 feet or less, although many projects have been opened with distances up to 200 feet without problems.


Interior hallway in drive-through climate- controlled project; kickplates and corner guards.

One elevator is required for each 40,000 square feet of multistory use, with a maximum of three elevators. Remember that for every 100 units, only eight are visited each day; therefore, of 500 full units, only 40 will be visited on any given day. This usage represents very low or minimal use for an elevator when compared to any other building type. And, access to all floors is usually not allowed by the security system, so tenants can only access the floor their unit is on.

Always remember that floor load for self-storage is 125 pounds per square foot. This storage load is almost twice what is required for office-type buildings. Hallways are usually not figured in this loading as no storage is allowed in them.

As storage increases in height, fire and other safety codes are more strict. Fire codes are interpreted differently depending on the jurisdiction. Start working early with the building officials. The cost of items such as sprinklers, fire alarms, smoke alarms, fire doors, firewalls, and access windows or exits can be very high.

Unit Mix

The average unit mix for conventional outside units and climate-controlled units is about the same. It varies from an average of 90 square feet in inner-city locations to about 130 square feet in rural locations. Industry experts who claim tenants don't rent large units are simply wrong. Over and over again, climate-control projects run completely out of bigger units.

Demand

Demand is generated by several demographic and market factors. High disposable income generates the demand to store electronics, furniture, art and other valuable items. The comfort factor may be an important reason why the experienced storage customer selects climate-control storage.

Facilities in business areas have strong storage demand for items such as records, furniture, fixtures and retail inventory. Accessible sites to highly traveled roads or freeways offer a justification to store sales samples, vending supplies and semi-perishables. Salesmen with retail items such as cosmetics, pharmaceuticals and drug-store items may require a controlled environment.

Other Benefits

Climate-control spreads the market appeal to a wider range of tenants, probably reducing financial risk for the owner. It serves as a draw for new customers who have never used storage before because it lends a sense of security. These new tenants tend to stay longer and to have very low rent delinquency. Climate-control storage also uses land more efficiently. Multistory buildings may use more than 100 percent of the land--a fact that keeps low land cost per unit.

Financial Considerations

To determine the cost of offering climate control at a facility, add about 15 percent to the basic building cost. The extra cost is in the HVAC mechanical system and the additional insulation. Liner-wall or double-wall partitions are used to protect insulation. Proper construction planning must be used to prevent schedules from being extended--it doesn't have to take longer to complete a climate-control building. Don't forget to add the additional utility costs, but they may not be as high as you might anticipate. A cost study was done in the South that indicated a utility cost of 25 to 30 cents per square foot per year, using 8 cents per kilowatt hour as the energy cost.

With the temperature range mentioned earlier, design A/C loads at 1,250 to 1,500 square feet per ton. This figure is about one third of the requirement for a house or apartment. By undersizing the HVAC units, you do a more effective job of humidity control. The operator who sets his thermostat at 70 degrees to 72 degrees gets very near the dew point in summer. This will result in the humidity being above 65 percent, and mildew will cause trouble. Energy costs in multistory buildings can be lower, as only the top floor gets heat from the roof. Two-story, over-and-under buildings built into a hillside are also very efficient for both heating and cooling.

Well-designed buildings will be 75 percent to 80 percent efficient. If the design of unit mix indicates anything below this, the floor should be redesigned. If there is a large percentage of smaller units, it may be difficult to reach 75 percent efficiency. That is because small units require more hallways, which lowers efficiency.

Revenue


Climate-controlled facility with a driveway through center.

Revenues may vary greatly in different parts of the country. If education of the benefits have not sparked demand, rates may stay low. As soon as customers realize the benefit, rates can be raised. Eventually, rates will be 20 percent to 60 percent higher for climate-control units. Since large units are renting well, it is suggested that the rates for these units be raised more than those for smaller units. In the past, large units have been discounted. This is not necessary in today's market.

If resistance to price is encountered, "value marketing" is suggested. In value marketing, the operator rents the units farther from the entrance for a little less. When the facility is full, he can raise the rates informally. Don't be afraid to change a premium for more conveniently located units.

The Bottom Line

Of course the goal of every owner is to fill up his project. In this process, watch gross rental income to get near maximum potential income. Not counting expenses, how can gross potential be reached or exceeded? Consider the possible answers:

  1. Increase rent.
  2. Increase available storage.
  3. Add climate control.

Numbers two and three above, along with fill-up, will allow rent to increase due to demand. It is not unusual for these three factors to double gross rental potential without raising expenses. That means these increases go to the bottom line. In turn, the value of the project (defined by dividing net operating income by the cap rate) is often 50 percent to 100 percent higher. (Cap rate is net operating income divided by value of the property. Currently, cap rates are in the 9.5 percent to 12 percent range.) Climate control adds significant value to the project.

The Keys to Success

More than any other storage, climate-controlled storage benefits from marketing. Those businesses and sales representatives must be contacted. The apartment managers and condo agents must be called on or contacted. Since 1994, self-storage has been rapidly expanding with climate-control. As land get more expensive and harder to find, there will be much more climate-control in the storage market.

Dan Curtis is vice president of Doors and Buildings Components Inc. (DBCI). Based in Douglasville, Ga., the company provides the self-storage industry with roll-up steel doors, filler panels, partitions and complete hallway systems, as well as other services. Mr. Curtis, a 30-year veteran of the self-storage industry, is a frequent contributor to Inside Self-Storage and a well-reputed speaker at Inside Self-Storage Expos. For more information, Mr. Curtis may be reached at (800) 542-0501.