Getting Started

Selecting a solid site for a new self-storage business

By Harold C. Leslie

Intoday's market, it is more important than ever to do your homework beforeinvesting in a new self-storage project. Unlike the early days where you couldbuild a project and expect it to prosper with little or no market study, now youmust take an educated approach to your project planning or risk losing largeamounts of your hard-earned money. Plan to spend at least $3,000 to $5,000 todevelop information that allows you to make the right decision of whether tostop or move forward with a project.

Some areas of the country are now overbuilt, with too many availablesquare feet of storage and too few consumers. There are many resources availableto the prospective self-storage owner that can indicate whether a site would beprofitable or if it would fail.

Resources for Information

Use demographics/market study companies and consultants familiar with theindustry to tell you who are the available customers in an area, what is theirmean income, what is the daily traffic count past the location you are lookingto develop, if an area is growing and, if so, how fast. Also important isinformation on existing storage facilities in the area (prices and occupancy).These facts will guide you in the initial choice of facility location, and willgive insight to the preparation of unit mixes, facility size and how much rentyou may be able to charge. Many market-research companies offer packagestailored to self-storage.

One useful source of information is the Inside Self-Storage Factbook. This ispublished annually and contains information on financing, real estate,development, marketing, construction, management and other key aspects of theself-storage business. It is a great source for beginners. Also available is theThe Self Storage Almanac, produced by MiniCo, an annual statistical abstract ofthe industry. It contains information on unit mixes, nationwide rental rates,construction costs, population traits and more. It may not give you the exactinformation for your specific site, but it can give you a statistical overview.If you have no previous self-storage experience, you may find both publicationsextremely helpful.

Another available tool is the expertise of industry professionals. Attendtradeshows and conferences held throughout the year. There are self-storagedevelopment seminars and workshops held regularly, sponsored by the majorself-storage publications (including this one). Watch for events in your area.While attending, makegood use of the experts available to you. Listen to thespeakers and talk to other attendees. Keeping up with the changing trends ofself-storage will allow you to build a facility that will meet the needs ofcurrent and future customers.

Choosing a 'Good' Site

Once you have determined where your project should be, there are otherimportant aspects to consider. A "good site" for self-storage shouldbe:

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 squarefoot of ground. For example, let's say the rent on a 10-by-10 unit is $85 permonth 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 permonth or $1,176 per year. That unit will earn $7.84 per square foot ($1,176divided by 150 square feet). The average of the two is $9.02 per square foot. Ifyou multiply this amount by .66 (66 percent), the result is $5.95. This is themost 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 waterretention, 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 64,272square feet of rentable storage.

In the process of purchasing a parcel of land, you will need to use a goodtitle-search company that will find any recorded easements, highwayright-of-ways, utility easements and service-access easements you would need tobe aware of before purchasing the land and planning your buildings. Anotherfactor to be aware of before signing the contract on a parcel of land is thestate of the land itself. What kind of business was there before? You shouldinvest in an environmental assessment before making a commitment on the land,particularly in urban areas. A professional environmental and geotechnicalassessment will include:

While it may sound extreme to go through all of this, it can save you frombecoming 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 notimpossible) to obtain financing on a substandard site. (For more information onthe environmental site assessment, see the May 2001 issue.)

Permits and Zoning

There are issues to be reckoned with related to community acceptance ofself-storage. Many areas are now requiring elaborate architecture or expensivefacades to make the facility blend with existing structures and surroundingarchitecture. Zoning and planning boards must be approached with an eye towardeducation, highlighting the advantages of having adequate self-storage availablein the community. Here are some benefits you can emphasize while presenting yourcase:

You will also need to be informed on the community standards for constructionsuch as: allowable coverage on your land, building setbacks, parkingrequirements, minimum drive widths, sign limitations and setbacks, landscaperequirements, water use and storm-water management, etc. The better informed youare about these issues before you buy a piece of land, the better you will beable to design your facility correctly the first time, without costly changesafter plan review.

Design Options

Afteryou have settled on where you will build, you must design the facility. Look foran engineer or architect who already has experience in self-storage. The uniquerequirements of storage projects--in current building techniques and inconformity to codes--can be tricky. You want someone designing your facility whoalready knows which hoops to jump through. You do not want to have to pay whilethis person learns the ins and outs of your industry. There are special coderequirements for building separation, fire codes with special requirements forstorage, and certain mandatory requirements for hall widths and maximum traveldistance between exits, etc.

When you have a preliminary plan ready, you will have to present it to thebuilding department for permitting. In most cities and towns, it would seem mostbureaucrats disseminate misinformation and inaccuracy. We have found in manycases municipal employees feel it is their job to be adversarial rather thanhelpful. This is particularly true when it comes to providing answers thatrequire interpretation.

How to Approach the Bureaucracy

Be courteous. Be honest about what you do and do not know. If you cannot makethe progress you want on your own, consider the services of an attorney,architect or engineer. However, as I advised before, any of those threedisciplines must have previous experience, as you do not want to pay to educatethem to self-storage.

After you have selected a site and had preliminary drawings made, you mustbear in mind that, realistically, the occupancy rate of your facility after 18months of operation must exceed 80 percent to achieve stabilization. If you failto select a viable site, you may find yourself paying the mortgage out of yourown pocket. If that continues for more than 18 or so months, you may find yourfinanciers looking over your shoulders in a most unpleasant way.

Make sure to do all of your "homework" before proceeding on aninvestment that could easily amount to more than a million dollars. Don't thinkyou can do it on the "cheap." Paying a few dollars before you buildmay save you much more later in the development of your self-storage project.

Harold Leslie has been involved in the self-storage industry for morethan 28 years. He currently serves as president of Leslie Industries Inc., adesign and engineering firm that has completed more than 50 million square feetof self-storage projects to date. Leslie Industries' European affiliate hascompleted more than 5 million square feet of building conversions toself-storage in the United Kingdom and continental Europe. Mr. Leslie is also isthe owner of five self-storage facilities in the United States. For moreinformation, call 850.422.0099; www.leslieindustries.com.