Basics for the First-Time Builder

Donna May Comments
Posted in Articles, Development
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My grandparents traveled to their home in South Dakota in a covered wagon, but my daughter has never seen a day when a cell phone was not readily available to call anywhere on the planet. What a dynamic world we live in!

Even the self-storage industry has experienced generations of change. Though it remains a relatively austere business venture, the complexities of building in today’s market require knowledge of the procedure and players involved in bringing a project to fruition. Delving into self-storage for the first time can be overwhelming, but an overview of the process will help keep things in perspective.

Five Phases

Most construction projects have the same basic components, follow a particular flow of progression, and incorporate experts to work with each other and the owner in pre-defined capacities. Once that concept is set in the mind, it becomes easier to envision your own project in process.

There are five phases in the life of a self-storage venture: feasibility, design, construction, operation and exit. Development encompasses the first three. The developer may be the owner or professionals hired by the owner to oversee the project.

The processes of feasibility, design and construction get the business ready to go. Feasibility concerns the determination of whether the business can be viable in the desired location. Design envisions the product and brings together the necessary talent to create a plan for building it. Construction actually builds it.

Although there are specific disciplines involved in each phase, there are few definitive separations in the structure. For example, it’s common for the civil engineer, who is an integral part of the feasibility study, to report to the architect, who may also be responsible for the construction contractor’s compliance to plans. In our industry, the general contractor often assumes responsibility for design and construction, reporting directly to the developer or owner.

During his initial venture, an owner may not have a complete understanding of everything that needs to take place or who does what to make it happen. His goal, then, is to possess a solid understanding of the elements in each phase and the progression of events, then to select service providers with the qualifications and experience required to cover all the bases. The relationship between the owner and the professionals he chooses will vary according to the skills and resources each brings to the table.

Feasibility

The feasibility study is a discovery phase to find the true costs of pursuing the project and verify that anticipated income makes it worthwhile to move forward. These duties can be conducted by the owner or hired experts; most frequently, it will be a combination of both.

In assessing potential income, the feasibility study anticipates the type of facility the community is likely to need and the rates customers will be willing to pay. This is determined by analyzing the environment in which the business will operate. Some key factors are land size and location, population density, and demographics such as age, income and travel patterns. These types of considerations in addition to information regarding the competition—proximity, square footage, unit mix, occupancy and rental rates—indicate the rentable square footage and unit mix that will be most profitable.

This hypothesis regarding optimum square footage and unit mix is the starting point to designing the project for maximum potential. A simple chart including the number of each type of unit and its rental rate can be used to determine gross income. A 10 percent vacancy allowance for turnover is typically deducted in financial calculations. Rents plus anticipated ancillary profits (retails sales, etc.) are the basis for income estimates.

Determination of project costs starts with the land and all expenses associated with its use. Back in the “old” days, land, site work, design and construction presented a pretty close estimate of total project cost. Alas, this is no longer true.

Now there can be tens of thousands of dollars required for surveys, studies and fees. For example, an endangered turtle species (gopher turtle) was found on one of my company’s construction sites in Florida. This necessitated a $1,500 survey of turtle territory and a $3,369 permit fee. The turtle was never relocated; fees were just assessed. (For $4,869, the turtle should have received his own private condo, but I digress.)

Miscellaneous expenses such as turtle fees, city fees (zoning, building permits, tree mitigation, etc.), county fees (flood plane, school, fire, road, environmental impact, etc.), jurisdictional fees (Municipal Utilities Districts) and state fees (Department of Transportation permit), all impact the project price tag. Local civil engineers or other professionals are frequently employed to determine who has jurisdictional authority over the property and what fees may be assessed.

The third substantial cost associated with land is site work. Tying into existing sewer, water, gas and fire lines, importing and exporting fill, rock excavation, soil conditions, underground springs, and hitherto undiscovered dump sites all fall within the parameters of site work and can be very costly. This is why contractors quote “slab and above” prices.

The developer must also estimate building costs, startup costs in opening the business, operating expenses, and cash to carry the business until it is self-supporting. These are often part of a bank package to assist the owner in obtaining financing. Developer’s fees are usually contracted separately and negotiated with the owner based on the extent of services required.

Design

All expenses must be calculated up front to determine whether the income the owner expects is sufficient to carry the burden of building and operating the project and generate sufficient profit. If the answer is “yes,” the owner moves forward with design.

Design has already been a part of the development process during the incorporation of the desired unit mix into the style of building that works best on the land. From this point, it brings together all the players who work together to create the project. Design fees can be contracted separately by the owner or included in the developer’s or general contractor’s contract. The architect collaborates with the developer or general contractor to design buildings and layout in accordance with the owner’s wishes. He generally oversees other design professionals too.

Typical design plans include:

  • Site plan 
  • Civil engineering 
  • Architectural engineering 
  • Structural engineering 
  • MEPs 
  • Landscape design 

The site plan is an overview showing how the project lies on the land and is drawn by the architect. It illustrates boundaries, adjacent streets, buildings, drives, etc. The developer, general contractor or architect will generally hire a local civil engineer, because he will be familiar with governing authorities and restrictions on land use. He will be responsible for the placement of utilities, building setbacks, zoning, easements, ingress and egress, land elevations, watershed, etc.

In addition to the site plan, the architecturals will include floor plans displaying the walls and partitions for each floor; elevations of exterior faces (what buildings will look like); cross-sections, to clearly indicate floor levels and details regarding footings, foundation, walls, floors, ceilings and roof construction; and large-scale drawings exhibiting construction details.

The structural engineer details the proper material allowances to accommodate vertical loads and lateral stresses in the building. He makes sure the design of the building, materials used and the way they are put together is strong enough to withstand the weight of any use they may be put to, and all internal and external forces that may be applied to the building.

MEPs refer to mechanical (air-conditioning), electrical and plumbing drawings. These are often drawn by one engineer. In smaller projects, construction or shop drawings provided by individual trades may serve instead.

Landscape drawings may or may not be required. They specify ground coverage and plant materials as dictated by local ordinances. They are typically provided by the landscaping contractor.

The general contractor or architect coordinates all necessary approvals from governing authorities and ensures necessary revisions are carried through consistently at all levels.

Construction

Plans in hand, the construction contractor takes over. A general contractor (GC) is responsible for construction of the project in accordance with design specifications. It may provide labor and materials itself, use subcontractors and vendors, or use some combination of both. The two most important functions the GC provides are construction coordination and quality control. It’s the GC that weaves all of the workmanship provided by trades into the completed project.

As a rule, the GC has a preliminary budget based on estimated costs. It then bids out the project to qualified subcontractors and vendors and selects those that will work on the job, contracting with them directly for the work. On a simple self-storage project, trades and costs may include:

  • Architecture and engineering 
  • Concrete (horizontal and vertical) 
  • Detention/retention ponds 
  • Door and hallway systems 
  • Electrical systems 
  • Erosion control 
  • Excavation and grading
  • Fencing 
  • Fire protection 
  • Masonry 
  • Mechanical systems 
  • Office finish-out 
  • Painting 
  • Paving 
  • Permits, fees, testing 
  • Plumbing 
  • Retaining walls 
  • Roofing 
  • Security systems 
  • Signage 
  • Steel building systems 
  • Supervision, office trailer 
  • Thermal/moisture protection 
  • Utilities 

The GC also creates the job schedule that indicates the path of construction, what trades follow each other, and how to complete the project in the shortest possible time. It is responsible for quality control of all trades and has fiscal responsibility for the project.

Typically, the GC bills the owner once each month on documents approved by American Institute of Architects, which detail the progress of the job. The owner then submits billings to the institution financing the project. That institution verifies progress as detailed on the AIA draw documents before issuing payment. The GC receives payment and then pays all subcontractors and invoices for work completed to date. It is also responsible for ensuring his subcontractors pay their job-related invoices and expenses so there is no outstanding debt against the project.

In today’s service-provider market, the trend is for everybody to offer everything. Project development is complex, and first-time builders should not hesitate to ask probing questions and expect straightforward, solid answers. Be armed with a basic understanding of the elements included in a project package and take time to investigate the qualifications of the professionals involved. This will allow you to proceed with confidence in assembling a team that complements your own skills and resources to create the project of your choice. 

Donna May is president of Cross Metal Buildings, a member of The Parham Cos., which specializes in assisting first-time builders, providing cost-effective, high-quality commercial, agricultural and self-storage buildings throughout the Southern United States. Ms. May is the former president of Joshua Management Co. and a commercial real estate broker. She has been a partner in 11 start-up self-storage projects totaling more than 703,500 square feet. For information, call 210.477.1260; e-mail ask@crossmb.com ; visit www.crossmetalbuildings.com

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