PhasingWhen and when not to delay construction

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PhasingWhen and when not to delay construction

By John Wilson

Phasing, as defined in terms of construction of self-storage projects, means delaying the start of one or more parts of a project beyond the earliest possible completion. When utilized properly, this technique can yield real benefits for the owner and developer alike.

Whenever a potential project is reviewed, the entire site that is expected to include self-storage construction should be master-planned; that is, the maximum development potential should be quantified so that the full potential income can be weighed against the likely costs. This plan should include all necessary elements, including entries, exits, office-apartment, easements and setbacks that cannot be used as building sites, drives, building areas (climate-control and non-climate-control) hallways and multistory buildings. Also, in most urban areas, a certain amount of land must be set aside for landscaping.

After this master plan is finalized, the economic-potential profile is compiled, taking into consideration expected rents, construction costs, interest on loans, operating expenses, leasing rates and other factors. If it is determined that the project should be pursued, the construction scheduling should begin. This planning should include a description of how the project construction will be phased. As stated above, there are reasons to delay certain elements of the project beyond the earliest possible completion. These reasons vary with the type of element to be delayed.

Capital Availability

It is often true that there is just not enough money to complete a project's potential from the outset. A first phase of construction that will allow the owners to develop cash flow and create confidence in both themselves and their site can be a necessary first step, especially if they are first-timers or new to a lender.

Climate-Control Buildings

These are usually larger buildings that are more expensive to build. They are often delayed because of uncertainty as to the demand for the higher rents.

Non-Climate-Control Buildings

These are usually delayed because they are the easiest to complete, and there is uncertainty as to the market desire for unit size.

Slow Leasing Rate

If there is good reason to believe that the project may lease up slowly, it is a good idea to simply delay having to pay interest on units that are waiting for customers. For example, every month that construction is delayed on a 6,000 square foot building that is not yet needed, you create a savings of about $1,200. On the other hand, that is only equivalent to the revenue for about a dozen units.

Office-Apartment

This is often considered an element to be delayed on marginally capitalized projects where maximum revenue in the shortest time is a requirement. It is true that a unit can temporarily be finished as an office and that the permanent office-apartment can be delayed, but this shows the project for just what it is: a marginal operation. If the market is a secondary one, or the demand is very high, this may be one way to start cheap; but if there is quality competition, then your project will have a hard time getting more than the low-dollar business.

Landscaping

If the project is not in an area where the landscaping must be done before a building-occupancy permit is issued, then landscaping may be delayed. In general, this has to do with curb appeal and, as in the case of the office-apartment, may harm the image of the project if delayed too long. Naturally, seasonal adjustments are not a problem.

Site Work and Fencing

In some areas, particularly secondary markets, the minimum sitework is often done. This is a big mistake. All areas to be fenced and paved (certainly those areas within 50 feet of the buildings or streets) should be completed before opening. If an area is to be left for future building, make sure that there is another access from the street besides the front gate and between the buildings for the sitework equipment. Regardless of the situation, hire a civil engineer, and make sure the site work is done right.

Boat and RV Storage

The role for this type of storage is often the reverse of the buildings. An area that is graveled or paved and easily accessible is ideal for renting for outdoor or covered storage. The problem is that while this type of storage produces less net income than buildings for the land area, the demand is very high and the spaces fill up quickly. Once filled, it takes time to get the customers to leave if there is not another space available to offer them nearby. It also is sometimes hard to move those rent-paying customers out and lose any income from the space until all the buildings are built and rented.

Signage and Other Advertising

These should not be considered as reasons for delaying. The relative cost is very small, and this is the image the customers have of your business.

Security Systems

Beyond the very necessary gate with its coding and controls, electronic systems, especially cameras, can be a matter of marketing image more than actual operating necessity. It is a matter of opinion how important these are when opening. Sometimes the more elaborate security items, such as fence alarms, motion sensors and door switches, have proven themselves to be more trouble than useful.

Phasing is a tool that should be used for most projects--at least to some degree--in order to offer flexibility to the market and minimize capital exposure. But like many financial tools, phasing requires serious thought and evaluation as to the extent it should be used and in what way.

John L. Wilson, P.E., is president of Wilson & Associates Inc., offering architectural and engineering services for self-storage projects nationwide. For more information, call (210) 495-5736; fax (210) 495-4746; e-mail JLWA@worldnet.att.net.

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