By Harold Leslie
In today's market, it is more important than ever to do your homework before investing in a new self-storage project. Unlike the early days of self-storage when you could build a project and expect it to prosper with little or no market study, today you must take an educated approach to your project planning or risk losing large amounts of your hard-earned money. So, plan to spend at least $3,000 to $5,000 to develop information that allows you to make the right decisions--whether to stop or go forward with a project.
Some areas of the country are now overbuilt, with too many available square feet of storage and too few consumers. There are many resources available to the prospective self-storage owner that can tell you whether a site would be profitable, or if it is one that would fail.
I recommend using demographics/ market-research companies and consultants that work in this industry to tell you who are the available customers in an area, what is their mean income, what is the daily traffic count past the location you are looking to develop, what are the statistics and, if an area is growing, how fast. Also important is information on existing storage facilities (prices and occupancy). These facts will guide you, not only in the initial choice of facility location, but it will give insight in preparation of unit mixes, what size facility to build and how much you may be able to charge for your available units. Many market-research companies offer packages tailored to the self-storage market.
One useful source of information is the Inside Self-Storage Factbook. This is published annually each November and contains information on financing, real estate, development, marketing, consulting and other aspects of the self storage business. Also available is MiniCo's Self-Storage Almanac, an annual, statistical abstract containing information on topics such as unit mix, rental rates throughout the country, construction costs, population traits and more. It may not give you the exact information you need for your specific site, but it can give you an overview of self-storage industry statistics nationwide. If you have no previous self-storage experience, you may find both these publications to be most informative.
Another available tool is the use of industry experts. Attend the trade shows that are held throughout the year. There are self-storage development seminars and workshops held regularly, sponsored by several of the major industry publications (including this one). Watch for events in your area of the country. While attending, make good use of the experts available to you. Listen to the speakers and talk to other attendees. Keeping up with the changing trends of self-storage will allow you to build a facility that will meet the needs of your customers 10 years from now, not just today.
Once you have determined where your project should be located, there are some other important aspects to consider. A "good site" for self-storage should be:
- Located on a major traffic artery.
- Located between dense multi-family residential areas and retail locations.
- Located on the "going home" side of the road, if possible.
- Zoned for self-storage use by virtue of being eligible for a special-use permit.
- Depending upon population, the nearest competitor should be no closer than 3 miles. If this is an urban site, it can be as low as 1 to 1.5 miles.
When looking to purchase a parcel of land, you must know what you can pay and still be cost-competitive. I use the 66 percent rule of thumb developed by Bruce Manley and Buzz Victor, two of the founders of the self-storage industry. (See "The 66 Percent Rule.")
The 66 Percent Rule
Find the average annual per-square-foot rate for a 10-by-10 and 10-by-15 storage unit. Multiply by .66 (calculate 66 percent). The result is the most you should pay (per foot) for ground.
10x15 rent = $98/month x 12 months = $1,176
Average= $10.20 + $7.84 divided by 2 = $ 9.02 per square foot
Also, the building-to-land ratio of your project, including water retention, drives, setbacks, etc., must be in excess of 40 percent. For example, a site of three acres (130,680 square feet) must produce a minimum of 64,272 square feet of rentable storage.
Of course, in the process of purchasing a parcel of land, you will need to use a good title-search company that will find any recorded easements, highway right-of-ways, utility easements and service-access easements that you would need to be aware of before purchasing the land and planning your buildings.
Another factor to be aware of before signing the contract on a parcel of land is the state of the land itself. What kind of business was there before? You should invest in an environmental assessment before making a commitment on the land, particularly in urban areas. A professional environmental and geo-technical assessment will include several key components:
- An inspection of the physical characteristics of the property and surrounding area, including topography, geology and hydrology.
- A review of all reasonably ascertainable historic records.
- A review and inspection of the current condition and uses of the adjoining properties to identify the presence of any environmental conditions or regulated activities that may have a negative impact on the property.
- A review and inspection of the current condition and uses of the property, including compliance with appropriate regulations.
- Soil borings collected using a geoprobe drill rig. These samples are to be carefully handled and tested in a laboratory for the presence of harmful contaminates.
- A full written report completed by an environmental-evaluation firm including conclusions and recommendations.
While it may sound somewhat extreme to go through all of this, it can save you from becoming responsible for cleaning up a toxic-waste dump left by a prior owner, or being stuck with a piece of land that you cannot build on economically (or at all) due to poor soil conditions. Also, be mindful that it will be difficult (if not impossible) to obtain financing on a substandard site.
Permits and Zoning
There are issues to be reckoned with that relate to community acceptance of self-storage. Many areas are now requiring elaborate architecture or expensive facades to make the facility blend with existing structures and surrounding architecture. Zoning and planning boards must be approached with an eye toward education in the advantages of having adequate self-storage available in the community. Following are some benefits you can point out while presenting your case for allowing a self-storage project to go forward:
- Self-storage operations are quiet. It's a good buffer.
- It creates very little traffic.
- It has no impact on utilities.
- It has no impact on schools.
- It provides good tax revenues.
- It's a community service.
You will also need to be informed on the community standards for construction, such as allowable coverage on your land, building set backs, parking requirements, minimum drive widths, sign limitations and setbacks, landscape requirements, water use and storm-water management, etc. The better informed you are about these issues before you buy a piece of land, the better you will be able to design your facility correctly the first time, without costly changes after plan review.
After you have settled on where you will build, you must design the facility. Look for an engineer or architect who already has experience in self-storage. The unique requirements of storage projects, both in current building techniques and in conformity to codes, can be tricky. You want someone designing your facility who already knows which hoops to jump through. You do not want to have to pay while this person learns the ins and outs of self-storage. There are special code requirements for building separation, fire codes with special requirements for storage, and certain mandatory requirements as to hall widths and maximum travel distance between exits, etc.
When you have a preliminary plan ready, you will have to take it before the building department for permitting. In most cities and towns across the country, it would seem that most bureaucrats disseminate misinformation and inaccuracy. We have found that, in many cases, municipal employees feel it is their job to be adversarial rather than helpful. This is particularly true when it comes to providing answers that require interpretation. The following tips help to approach the bureaucracy.
- Be courteous.
- Be honest about what you do and do not know.
- If you cannot make the progress you want to make on your own, consider the services of an attorney, architect or engineer. But again, anyone you choose out of those three disciplines must have previous self-storage experience; you do not want to be the one paying to educate them.
After you have selected a site and had preliminary drawings made, you must bear in mind that, realistically, the occupancy rate of your facility after 18 months of operation must exceed 80 percent to achieve stabilization. If you fail to select a viable site, you may find yourself paying the mortgage out of your own pocket. If that continues for more than 18 or so months, you may find your financiers looking over your shoulders in a most unpleasant way.
So, make sure to do all of your homework before proceeding on an investment of what could easily amount to over a million dollars. Don't think you can do it on the "cheap." Paying a few dollars before you build may save you much more later in the development of your self-storage project.
Harold Leslie has been involved in the self-storage industry for more than 28 years and is considered one of its founders. He was instrumental in the early development of the Self Storage Association, and was a pioneer in the development of standing-seam roof systems and computer-aided design (CAD) use for unit mix and design. Mr. Leslie currently serves as president of Leslie Industries Inc., a design and engineering firm, which leads in the development of climate- control self-storage and has completed more than 50 million square feet of self-storage projects to date. Leslie Industries' European affiliate has completed more than 5 million square feet of building conversions to self-storage in Great Britain and the continent. He also is the owner of five self-storage facilities in the United States.