Some significant changes in the development process have evolved adding complexity to the already challenging process. The emergence of city planning boards focused on architectural appeal has made it much harder and more expensive to find a site for construction. When combining the scarcity of land zoned correctly and affordable enough to build on, the search becomes a treasure hunt of sorts.
Municipalities historically have often outlined specific zoning requirements for self-storage development. Now they also typically add a clause that you need “conditional approval.” This allows the board to veto your project at any time for almost any reason, eliminating the builder’s argument of “Use by Right.”
The Money Game
City review boards have increased their expectations to the point where the self-storage project should be as aesthetically pleasing as approved strip malls or office complexes. The result of the tighter regulations is that industry newcomers are having an increasingly difficult time navigating the approval process, which can be extremely long and expensive.
The economic feasibility of self-storage development has also changed. In the past, a developer only had one question to consider when determining the feasibility of the project: “Can I fill the site?” The economics of the industry were rock solid. If the target area had enough demand, the developer knew the project would be a profitable venture.
Today, many issues should be considered before a developer can be confident the project will be successful. Land and construction costs have dramatically increased, while rental rates have only increased a fraction of the percentage of everything else. Now the question one must ask is: “Can I afford to pay $6 per square foot for land ($12 or more in some areas) and still make this project work?”
To answer this and any other scenario, look at the financial viability of the site. Site layout becomes critical; the question becomes, what is the net rentable square feet you can secure? In addition, you must calculate the estimated cost of construction, land cost, rental rates and management expenses. These numbers must be put into a spreadsheet to see where your project breakeven lies, and what your potential profit is. Analyzing the financial aspects of the site will lead you to restrictions on building your self-storage property.
Site layout and design are the first critical elements. For example, in an ideal situation the site would be designed with all drive-up access units since they are the easiest to rent. However, after considering the financial feasibility you may find to increase income flow you’ll need to expand the site’s square footage.