If you are building a new single-story facility in an open area, stop reading now. This article is not for you.
KeepSafe Self-Storage Ltd.’s first facility was a two-story building in an urban location. It started life in the early 1900s as a fish-smoking factory and later became a battery-testing depot. It was seriously vandalized and stood empty for five years. Seven days after Keepsafe completed the purchase, the first self-storage customer moved in. The facility now operates at approximately 90 percent occupancy in a more competitive market than when it opened.
Since that first facility, my experience has taught me a lot about self-storage. Although this article is based on my experiences in the U.K. self-storage industry, there are principles that apply to any city where there is a high building density, tight planning controls and high development costs.
What’s Your Target Return?
Before purchasing a building to convert to storage, decide your target return on investment. Armed with this number, embark on the research and do the math based on realistic assumptions. You can now evaluate your proposition objectively.
Once you have chosen your building, investigate your nearest competitor. Remember, if it opened some time before you, its capital base to enter the industry is likely to be lower. But even if your market becomes over-supplied—if your profit per pound, euro or dollar invested is greater—you can afford to drop your prices and still remain in business.
Environmental risks apply more to conversions than to a new-build facility on a virgin site. There will undoubtedly be a whole legacy of risks stemming from an older building, which may have been used for a number of different activities before it becomes your pride and joy. Make sure you understand exactly what previous owners did in the building and what are the real pollutants that may be present.
This is a scary area, and the banks get very twitchy about these issues. The only way to evaluate environmental risks is through a physical environmental site investigation. The investigation makes it possible to quantify cleanup costs. If you do this before you commit to the purchase, you should be able to negotiate it into the price you pay.
One advantage of choosing an older building for self-storage is you can find an existing building with a type of zoning that enables you to start without going through the bureaucratic wrangles of your local planning department. This can save you many months.
Not all planning authorities understand self-storage.My favorite planning authority insisted we provide racks for all customers that bicycle to the facility, carrying all the belongings they are going to store. This requirement is not very useful in a 65,000-square-foot, edge-of-city facility with no public transport. I should not complain, as this was neither an onerous nor expensive condition to satisfy; but it is certainly demonstrative of the lack of understanding of self-storage.
How Quickly Can You Open Your Doors?
Time is of the essence. From the moment you commit funds to the moment you have your first paying customers, the cost of your funds—whether in interest to the bank or a future return to investors—is compounding rapidly. The quicker you can open for business the better.
Clearly, the condition of your building will determine how much refurbishment needs to be done. If you get your project preplanning right, a lot can happen quickly after committing funds. Contrast that with a new build where the upfront costs run for a considerable time before payback starts. With an existing building, the original owners are the ones who have absorbed the costs of the walls, roof, etc.
Phasing the Development
The cost of land in high-population cities means buildings must be multilevel; therefore, you have to get your roof on before you can let customers in. I prefer someone else to pay for that. In an older building, you can build out the ground floor while your contractors are working on the upper levels. You have to contain the dust and noise to ensure staff and customer safety is not compromised, but it can be done. The real merit of this approach is your early customers are paying for your later stages of development.
The key sensitivities in self-storage are the rent per square foot, the rent up rate and the amount of available rentable space. You have got to shoehorn as much as you can into your multilevel urban facility. Very often, you can split a floor; but look carefully at ceiling heights to allow for the thickness of the mezzanine floor itself and the fire-protection system. And remember to check out the floor loadings.
It is always necessary to remember customer access requirements, so consider adding extra lifts for access to larger floor areas. If cost is a concern, consider using rolling walkways for smaller areas. Also, in a multilevel building, the floor above is supported by structural beams that hang down, and customers may need to pass under them. These beams can always be cut.
The Generation Game
I recently attended a conference where a lot was spoken about first- and third-generation storage centers. I am not sure I agree with the concept, unless “first-generation” means “more expensive.” It is quite possible to refurbish an older building in a city location, dress it up with a quantity of crinkly tin, add all the latest access control and security systems, and have a building that is almost indistinguishable from a purpose-built facility.
For the larger operators that want a cookiecutter approach, uniformity of development perhaps gives more cost predictability and helps build a brand. But building new usually costs more. Clearly, older buildings will have higher maintenance costs and might not be in the best locations, but this should be compensated by the lower purchase cost.
Currently, self-storage is a local business in Europe. This approach, driven by the irregular layout of cities and the historic nature of their development, will continue to present opportunities for some time to come.
Rod Edge is the managing director of KeepSafe Self-Storage, which operates seven facilities in the United Kingdom. He has been involved in the U.K. self-storage industry since 1987 as an employee, consultant and owner. Mr. Edge has been involved in the development of more than 30 buildings, including one new build. For more information, e-mail firstname.lastname@example.org; visit www.keepsafe.ltd.uk.