I recently spoke with someone new to the industry who was certain he owned the best development site on the planet. When I asked about his feasibility study, he sternly told me his county was the “fastest growing in America,” all local competitors were completely full, and that he knew “everything going on in 50 miles.”
He was attracted to the industry because it “just seemed so simple.” When I asked where he was in the permitting process, he said he had just applied, but it was a sure thing. I felt sorry for him, because at that very moment I had one project under construction and another loan request on my desk—both within his immediate market.
Lately I’ve been on a kick telling developers, “Do your homework!” When it comes to site selection, market demand and approaching a lender about an upcoming project, you better know your market well. One key element in your next development project is outlining your deal to partners, your lender, management team and, most important, to yourself. Before you can define your strategy, you have to know your market and the competition.
A development deal should begin with a strong feasibility study that provides a thorough analysis and a well-defined starting point. You’ll know you’re building the right project, with the best financing and an efficient management team.
The Right Project
All self-storage properties are not created equal. Next time you’re out of town, notice how storage businesses differ from those in your area. Market rates, zoning ordinances, lot dimensions, traffic, competition and demand are driving forces when planning a project. Every market warrants an investigation of the dynamics that will affect your business.
In times of overbuilding, you’ve got to know what it takes to go the extra mile. Gone are the “build it and they will come” days. Once a site is identified, quantifying the market should be your next step in determining a self-storage winner. Development costs are hefty, but easier to swallow when you’re confident you’ve the right project in the right location.
Use an experienced self-storage feasibility consultant to assess the viability of your project. This way, you’ll determine beforehand if the venture will be profitable or a money loser.
I’ve enjoyed watching projects evolve from a rough concept with a tight budget to an efficient profit center as a result of the proper fine tuning. Often what makes a project better is simply adding a little more experience to the planning and development team. It’s amazing how incremental improvements in expenses, unit mix, site layout, office presentation and the management team can add strength to the bottom line. In short, make sure your money is chasing the right project in the right market.
The Best Financing
When approaching lenders, don’t just anticipate questions; dazzle them with your knowledge and answer confidently.
- Is the market overbuilt?
- Will it become overbuilt?
- How long until this project is cash-flow positive?
- How good is the competition?
For construction projects, much of the financing is through local or regional lenders who may only service a few applications a year. You must convince the bank your concept will work. Be at the ready with site and unit-mix recommendations, local government investigation, full competitive analysis, cost and pro forma projections, and quantitative market-demand information. Even if you possess the financial credentials to make a project go, your lender will want to see the data behind the site and marketplace.
An Efficient Team
Being a self-storage owner and developer is often an exercise in team building. You must have pre-development counsel, the right professionals during planning and development, good contractors, and the appropriate management structure and employees. Whether your collar is blue or white, both will be working for you. Organizing and effectively motivating your team to move your concept toward reality, then toward success, is ultimately what drives your bottom line.
Once again, a sound feasibility study makes your job easier. As you identify the nuances of your market, you’ll be able to match the right people to your business. If you’re searching for partners or investors, a formal package defining the project’s strengths and weaknesses will make your project more attractive. You’re in a better position to support claims of projected returns when your data has been quantified and built into a model that anticipates investor returns and profits.
Will you use third-party management? Is phasing the project a good idea? How? Who do you need on your team to shorten the lease-up period? What has to happen before opening day? The answers to these questions should be customized according to your location. Knowing “ins and outs” and understanding the competition allows you to leverage the right team. That pre-development team you’re building should be geared around determining the viability of your site, what the market needs, and ultimately how to efficiently capture your market share.
We’re lucky to be in a growing industry that constantly makes strides toward efficiency and improvement. Make sure your next project fosters your long-term profit and success. Do your homework and be the leader in your market.
Benjamin Burkhart is eastern region vice president of Development Services Incorporated. DSI is headquartered in San Clemente, Calif., and provides full-service consultation to the RV/boat and self-storage industry. DSI specializes in site feasibility, market identification, due diligence, project management and sales training. For more information, call 949.218.3655 ; e-mail email@example.com .