Many times projects are completed without climate control, and if competition offers it, phase two may include it. Attempting to add climate control to an already completed project is difficult due to required insulation, doors, security and electrical systems
Climate-controlled space is similar to conventional space when phasing. Often, the complete building will be constructed with the heating and air conditioning systems already in place. The hallways, doors and some of the partitions can be omitted.
By leaving the doors, hallways and partitions out of the first phase, the unit mix can be adjusted to whatever is renting best. This adjustment ability for changing the unit mix will keep the project on track for having units to suit all needs.
Multi-story buildings will need to be built out with the exception of doors, hallways and partitions. One recent four-story building project left one floor for only conventional units (no HVAC). This was done to initially offer both non-climate-controlled and climate-controlled spaces. The eventual goal is to convert the entire project to climate control, thus increasing revenue. Multi-story buildings are usually 60,000 to 100,000 square feet or more. Most often, the first half of the project is built with phasing in mind.
Usually, it will require seven months or less to complete a project and 50 percent will be rented within one year. At that time, second-phase work can start and should be completed within four months. Of the total cost, about two-thirds will be in the first phase with the balance in the second.
Improve Financial Statements
The impact on the financial statement is shown in two or three different ways. Rent-up percentages are higher. This is a confidence builder for the lender. High mortgage payments are not made early on, but delayed until a time when the project has more operating income. In fact, some projects will have cash flowing by the time the second phase is completed.
The impact on reduced negative cash flow is very positive and lender confidence will be improved. Since phase two will have a unit mix based on actual units rented in the first phase, income will improve. If the market calls for better security, door alarms or other features, these needs can be accommodated in phase two.
Phasing is a familiar process for the large operators in the self-storage industry. It offers flexibility to market changes, minimizes capital exposure and reduces risk. Phasing should be considered on every project, even conversions. Flexibility is the goal for every owner of income property. Many owners and lenders are now realizing the benefits of phasing and use it as a valuable tool on every project.
Dan Curtis is president of Atlanta-based Storage Consulting & Marketing, which provides feasibility and marketing studies to potential self-storage owners. He is a frequent contributor to Inside Self-Storage as well as a speaker at numerous industry conferences. To reach him, call 770.432.2417; e-mail firstname.lastname@example.org.