By Harold C. 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 where you could build a project and expect it to prosper with little or no market study, now you must take an educated approach to your project planning or risk losing large amounts of your hard-earned money. Plan to spend at least $3,000 to $5,000 to develop information that allows you to make the right decision of whether to stop or move 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 indicate whether a site would be profitable or if it would fail.
Resources for Information
Use demographics/market study companies and consultants familiar with the 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, if an area is growing and, if so, how fast. Also important is information on existing storage facilities in the area (prices and occupancy). These facts will guide you in the initial choice of facility location, and will give insight to the preparation of unit mixes, facility size and how much rent you may be able to charge. Many market-research companies offer packages tailored to self-storage.
One useful source of information is the Inside Self-Storage Factbook. This is published annually and contains information on financing, real estate, development, marketing, construction, management and other key aspects of the self-storage business. It is a great source for beginners. Also available is the The Self Storage Almanac, produced by MiniCo, an annual statistical abstract of the industry. It contains information on unit mixes, nationwide rental rates, construction costs, population traits and more. It may not give you the exact information for your specific site, but it can give you a statistical overview. If you have no previous self-storage experience, you may find both publications extremely helpful.
Another available tool is the expertise of industry professionals. Attend tradeshows and conferences held throughout the year. There are self-storage development seminars and workshops held regularly, sponsored by the major self-storage publications (including this one). Watch for events in your area. While attending, makegood 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 current and future customers.
Choosing a 'Good' Site
- Located on a major traffic artery.
- Located between dense multifamily residential areas and retail locations.
- On the "going home" side of the road when possible.
- Zoned for self-storage use by virtue of being eligible for a special-use permit.
- No closer than 3 miles to the nearest competitor, depending upon population (for urban sites, the distance 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. To determine this, I use the 66 percent rule developed by Bruce Manley and Buzz Victor, two of the founders of the self-storage industry:
The 66 Percent Rule
Average the per-square-foot rate for a 10-by-10 and a 10-by-15 storage unit. Divide the total by .66. The result is the most you should pay for each square foot of ground. For example, let's say the rent on a 10-by-10 unit is $85 per month or $1,020 per year. That means the unit will earn $10.20 per square foot ($1,020 divided by 100 square feet). The rent on a 10-by-15 unit is $98 per month or $1,176 per year. That unit will earn $7.84 per square foot ($1,176 divided by 150 square feet). The average of the two is $9.02 per square foot. If you multiply this amount by .66 (66 percent), the result is $5.95. This is the most you should pay for each gross square foot of land you purchase.
Keep in mind that 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.
- 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 with the potential to have a negative environmental 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, including conclusions and recommendations.
While it may sound 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 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. (For more information on the environmental site assessment, see the May 2001 issue.)
Permits and Zoning
- Self-storage is quiet.
- It acts as a good buffer.
- It produces very little traffic.
- It has no impact on utilities or 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 setbacks, 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--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 your industry. There are special code requirements for building separation, fire codes with special requirements for storage, and certain mandatory requirements for hall widths and maximum travel distance between exits, etc.
When you have a preliminary plan ready, you will have to present it to the building department for permitting. In most cities and towns, it would seem most bureaucrats disseminate misinformation and inaccuracy. We have found 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.
How to Approach the Bureaucracy
Be courteous. Be honest about what you do and do not know. If you cannot make the progress you want on your own, consider the services of an attorney, architect or engineer. However, as I advised before, any of those three disciplines must have previous experience, as you do not want to pay to educate them to self-storage.
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.
Make sure to do all of your "homework" before proceeding on an investment that could easily amount to more than 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. He currently serves as president of Leslie Industries Inc., a design and engineering firm that 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 the United Kingdom and continental Europe. Mr. Leslie is also is the owner of five self-storage facilities in the United States. For more information, call 850.422.0099; www.leslieindustries.com.