We’ve all heard business success depends on location. But even the best perch in the world can’t promise a pot of gold. Achieving facility occupancies and financial goals takes planning.
While nobody has a magical equation for self-storage, several known factors contribute to profitability: site selection, budgeting (or pro forma) of development, construction and operational costs, financing, structure of ownership, preliminary marketing and facility development. All greatly influence the operational and financial success of the project.
What criterion is the most important in choosing a building site? While a site should always be judged for visibility, convenient accessibility and nearby competition, don’t overlook other qualities.
For instance, we often hear that a price of $3 to $5 per square foot is a sensible deal, which could falsely assure the purchaser that development makes sense. Little consideration is given to other factors impacting the viability of its success. Too many facilities are struggling today because other issues weren’t investigated thoroughly. Numerous facilities fail or succeed with lower and much higher initial land costs.
Little or no competition doesn’t give you a green light for storage. The overall market area determines a prospective location. Demographics, population density, growth projections and future plans for roadways, utilities, zoning changes and many other should be analyzed before making a decision.
Remember, too, that the standard 3- to 5-mile radius rule won’t fly for every location. Other considerations often influence a market. Geographical obstructions such as freeways, railways and lakes greatly impact the market and site’s success. Traffic signals and turning lanes affecting ingress and egress are also major factors.
When creating the pro forma or budget, keep in mind these two words: Be realistic. Facilities failing financially often call our office for help. In most cases, the pro forma they used to structure financing or ownership was way off track. They should have included contingencies for construction time or cost overruns, zoning requirements, fire and ADA regulations.
We highly recommend utilizing contractors and suppliers with a good track record of building self-storage facilities within specified time frames and budgeting guidelines—even if their initial bid is higher. This saves a great deal of time and money in the end.
Rental projections should be conservative, especially if competitors are still in lease up. Immediate or planned roadway closures that might affect accessibility should be researched. Base your rental rates on direct competition rates, promotions and occupancy not on rental rates of facilities outside your market area.
Unit mix should also reflect the demand for your market, and not just to make numbers work, which is too often the case. Plan an adequate number of units or square footage in the first phase to financially carry the project if expansion is in the plans. Sometimes land mass or zoning requirements prohibit enough units or square footage to carry the project. Beware: Adjusting unit mix and rental rates to account for shortfalls won’t work out in the long run. Don’t forget to also factor in special promotions for lease up.
Finally, it’s always smart to plan ahead for an exit strategy. Many potential buyers look for a minimum square footage of 50,000 to 60,000. Will your site measure up if you decide to sell in the future?
After due diligence, prepare for financing and structuring ownership. All parties involved in the project must be able to financially fulfill their obligations under the agreement. Partners often can’t fund in the event of cash calls after the bank loan has been depleted. This usually is a result of an unrealistic pro forma that failed to calculate contingencies, poor construction management and other delays that force projects into negative capital reserves.
Such a situation causes upheaval within the organization, subsequently disrupting day-to-day operations. Again, it can’t be emphasized enough, each project should be evaluated on merit in its individual market. What worked successfully in the past doesn’t promise the same results in today’s market. Consider hiring a third-party professional consultant to guide you through the process.
Once all these steps have been completed, get some momentum rolling with marketing. Start with placing a sign at the site indicating self-storage is under development; include a phone number for rental or other information. You may also discourage any potential competitors looking to build in the area, especially those in the feasibility process.
It’s always a good idea to max out signage allowed under zoning requirements. Zoning will change regularly, usually limiting size and amount of signs, so post what is allowed now and make a big splash in case you’re restricted later.
Check with Yellow Pages and other marketing media sources to determine deadlines for placing advertisements. Place ads well in advance of opening to gain interest of potential customers. Get brochures, fliers and other promotional materials ready.
Word-of-mouth is one of the best and least expensive marketing tools you have. Use it well by making community connections whenever possible. Join your local chamber of commerce and attend networking functions.
Your onsite managers should be hired based on their marketing and sales skills. Self-storage has become highly competitive and we can’t wait for customers to come to us. We have to get out, get involved and be where potential customers are. Managers need to be motivated in marketing to make a difference in your occupancy.
Success and failure is never guaranteed, but we can always learn from others’ experiences. Good or bad, they’ll help guide you through development and operational phases. Seek advice from experienced self-storage professionals who’ve witnessed the rewards and pitfalls of many developments. And consider working with consultants who provide development, financing and operational expertise.
If a project is poorly planned and inadequately financed, it’s impossible to operate it successfully. Even the most experienced professionals can’t wave a wand or provide an immediate cure to fix the situation. Fortunately, successful businesses don’t need magic when proper planning is in their bag of tricks.
Cheryl Kelley is president of G & C Holdings Inc.’s Innovative Management Solutions, providing self-storage consulting, management and training services. For more information, call 972.396.0511; e-mail email@example.com.