Insight to a Great Site

Erik Hermes Comments
Posted in Articles, Development
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Self-storage has changed dramatically over the past 30 years. The industry has become more refined, high-tech and competitive. In the '70s and '80s, the challenge was to convince potential customers they needed storage. Today’s goal is to convince prospects they should use your facility over the competition’s. To be successful, you need more than a good location, you need a great location.

Lot Size

You can build your storage facility on sites smaller than an acre or as large as 6 to 10 acres. It all depends on your game plan, zoning restrictions and demographics. As a rule of thumb, you’ll need at least 40,000 square feet of rentable space to justify the cost of a full-time manager. A facility of that size will require 2 to 3 acres. A facility of 80,000 or more square feet will require 4 to 5 acres.

Many operators are successful managing smaller facilities remotely without an onsite manager. Others have effectively developed large facilities on small lots by building multilevel buildings. Do your homework, know the zoning rules, and know your market. If you conduct the proper research, any size lot can thrive.Lot Cost

A cheap piece of property can be very expensive in the long run. Here’s a hypothetical situation: The development of a 60,000-square-foot facility is going to cost about $1.5 million plus the cost of the land. You have the choice of building on site A or B, both with 4 acres.

Site A costs $50,000 per acre and site B cost $100,000 per acre, but B is a better location. No matter which site you choose, on opening day, you have operating expenses, a mortgage, real estate taxes and a horde of empty storage units.

The question is whether site B’s location can offset the extra cost. The accompanying chart shows it will rent its units faster, and just two years of operation will make up the cost of the land. By year three, the difference in cash flow is significant. In the end, the long-term benefits of B outweigh the cost savings of A. (Note: Debt service for site B is higher due to its land. “Net unit rentals” is the number of units rented less the number of move-outs.)


What Makes a ‘Great’ Location?

When it comes to determining what comprises a “great” site, several factors come into play, including visibility, demographics, competition, neighboring properties, zoning and utilities. Let’s take a look:

Visibility. The facility must be visible to as many people as possible, particularly potential customers who live or work within a 5-mile radius. If your facility is visible from an interstate, a percentage of your traffic count won’t qualify. An ideal location is visible from a major arterial street with a traffic count of 30,000 local vehicles per day. Even better is to be on a busy intersection with a stop sign or traffic light. Although signage is important, a sign does not replace good visibility.

Demographics. Who are your potential customers? Typically, they are homeowners or businesses within a 5-mile radius of your facility. You want a market of at least 50,000 households with a minimum average income of $50,000 per year. A combination of older homes and new development is favorable because older homes tend to lack storage and new homes signal growth. Other growth indicators include new retail development, schools, grocery stores, banks, subdivisions and utility stations as well as the widening of arterial streets.

Note: Be aware of physical barriers near your site. Rivers, streams and highways can make it difficult for customers to get to your facility. Homes and businesses on the opposite side of a river or intersection that lacks direct access should not be included in your demographics.

Competition. More than likely, you’ll have a competitor within 5 miles of your site. Whenever possible, you want to distance yourself from other facilities by at least 3 miles. Choose the location with the best visibility and access, close to the main flow of traffic. But don’t try to go head-to-head with established competitors by building right across the street. This will only create ill will with the other owners and even the surrounding community. The only exception is if the competitor is on the opposite side of a physical barrier such as a freeway.

Neighboring Properties. The operation and profitability of your facility can be affected by neighboring businesses. A good neighbor would be a clean operation with a high level of activity, such as a Wal-Mart or McDonald’s. A bad neighbor would be an industrial business that creates a lot of noise or foul odors, or even just a business with low customer activity. An undesirable neighbor will be a detriment to your facility, deterring potential tenants.

Zoning. Zoning varies in every municipality. Don’t be surprised if the property with the right location, size and price doesn’t have the right zoning. In this case, you’ll need to talk to the zoning director about a variance or zone change. A variance is easier but isn’t always possible. An actual zone change can be time-consuming, costly and complex. If local authorities will not allow a change, look at the local incorporation map. Sometimes a parcel will be unincorporated into the county and will border a city that can annex it with the desired zoning. Annexation is usually a win-win situation—the city gets a bigger tax base, and you get the desired plot. Be imaginative and persistent. It’s often worth the effort.

Utilities. Fortunately, a storage facility doesn’t necessarily require all utilities. Some require only water and electric service, and even water is sometimes optional. A cistern can provide adequate water supply; and since a typical facility will only have one or two bathrooms, a septic system can work if a sanitary sewer is not available. When it comes to heating and cooling, electric will suffice in place of gas, unless gas is preferred and available.Big Benefits

A great location will allow you to enjoy higher rents, lower expenses and less competition. It will help ensure you rent units and keep them full. Finally, you’ll have lower marketing and advertising costs because people in your market will know who and where you are. So take the time to find the right spot. Once the project is developed, it’s one of the few decisions that can’t be changed. All things considered, the benefits of a great location will outweigh the cost-savings of a bargain.

Erik Hermes is the president of Hermes Construction Co., which offers consulting services for site selection, site analysis and site design, as well as full construction services. For more information, call 859.781.7198; e-mail ehermes@hermesconstructionco.com; visit www.hermesconstructionco.com.

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