March 1, 1998

8 Min Read
Climate-ControlWhat it means for your business and your bottom line

Climate-Control

What 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 pastabout climate control in self-storage. In the '80s, little was mentioned about climatecontrol other than the fact that it could be used with conversions, probably because thosebuildings were already equipped for heating and cooling in their prior use. For thatreason, 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. Theobsolete use may have been a result of positioning by major retailers such as Wal-Mart orKmart. Positioning is the real-estate practice of moving to the closest possible locationto serve your projected market, which may change as new shopping malls, subdivisions andapartments 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 weresatisfied to locate in facilities of 60,000 to 100,000 square feet. Now they are locatingin 150,000 to 200,000 square feet, handling an even bigger inventory. Grocery stores andother retailers have done the same. These converted buildings have causeddevelopers--including everyone from Public Storage, Shurgard and Storage USA down to thesingle 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 thesummer and above 40 degrees in the winter, with humidity below 65 percent to stop mold ormildew. Most operators use 50 degrees in winter as a low and 80 degrees to 82 degrees as ahigh in summer. The old myth of maintaining 72 degrees in both the winter and summer iscostly and not expected or necessary for the average tenant. Keep the above in mind as itwill be dealt with later.

Building Design and Codes

Single-story or multistory buildings are equally suitable for climate control. As landcosts go up, the need to build multistory buildings increases. Multistory buildings aremore efficient and cheaper to heat and cool, and tenants don't seem to mind loading theirpossessions on an elevator. Try to keep the distance from the entrance to any one unit 120feet or less, although many projects have been opened with distances up to 200 feetwithout 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 maximumof 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 usagerepresents very low or minimal use for an elevator when compared to any other buildingtype. And, access to all floors is usually not allowed by the security system, so tenantscan only access the floor their unit is on.

Always remember that floor load for self-storage is 125 pounds per square foot. Thisstorage load is almost twice what is required for office-type buildings. Hallways areusually 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 codesare interpreted differently depending on the jurisdiction. Start working early with thebuilding officials. The cost of items such as sprinklers, fire alarms, smoke alarms, firedoors, firewalls, and access windows or exits can be very high.

Unit Mix

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

Demand

Demand is generated by several demographic and market factors. High disposable incomegenerates the demand to store electronics, furniture, art and other valuable items. Thecomfort factor may be an important reason why the experienced storage customer selectsclimate-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 orfreeways offer a justification to store sales samples, vending supplies andsemi-perishables. Salesmen with retail items such as cosmetics, pharmaceuticals anddrug-store items may require a controlled environment.

Other Benefits

Climate-control spreads the market appeal to a wider range of tenants, probablyreducing financial risk for the owner. It serves as a draw for new customers who havenever used storage before because it lends a sense of security. These new tenants tend tostay longer and to have very low rent delinquency. Climate-control storage also uses landmore efficiently. Multistory buildings may use more than 100 percent of the land--a factthat keeps low land cost per unit.

Financial Considerations

To determine the cost of offering climate control at a facility, add about 15 percentto the basic building cost. The extra cost is in the HVAC mechanical system and theadditional insulation. Liner-wall or double-wall partitions are used to protectinsulation. Proper construction planning must be used to prevent schedules from beingextended--it doesn't have to take longer to complete a climate-control building. Don'tforget to add the additional utility costs, but they may not be as high as you mightanticipate. A cost study was done in the South that indicated a utility cost of 25 to 30cents 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 squarefeet 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. Theoperator who sets his thermostat at 70 degrees to 72 degrees gets very near the dew pointin summer. This will result in the humidity being above 65 percent, and mildew will causetrouble. Energy costs in multistory buildings can be lower, as only the top floor getsheat from the roof. Two-story, over-and-under buildings built into a hillside are alsovery efficient for both heating and cooling.

Well-designed buildings will be 75 percent to 80 percent efficient. If the design ofunit mix indicates anything below this, the floor should be redesigned. If there is alarge 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 thebenefits have not sparked demand, rates may stay low. As soon as customers realize thebenefit, rates can be raised. Eventually, rates will be 20 percent to 60 percent higherfor climate-control units. Since large units are renting well, it is suggested that therates for these units be raised more than those for smaller units. In the past, largeunits have been discounted. This is not necessary in today's market.

If resistance to price is encountered, "value marketing" is suggested. Invalue 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 apremium for more conveniently located units.

The Bottom Line

Of course the goal of every owner is to fill up his project. In this process, watchgross rental income to get near maximum potential income. Not counting expenses, how cangross 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 todemand. It is not unusual for these three factors to double gross rental potential withoutraising expenses. That means these increases go to the bottom line. In turn, the value ofthe project (defined by dividing net operating income by the cap rate) is often 50 percentto 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 addssignificant value to the project.

The Keys to Success

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

Dan Curtis is vice president of Doors and Buildings Components Inc. (DBCI). Basedin Douglasville, Ga., the company provides the self-storage industry with roll-up steeldoors, 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 toInside Self-Storage and a well-reputed speaker at Inside Self-Storage Expos. For moreinformation, Mr. Curtis may be reached at (800) 542-0501.

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