The best self-storage developers have a plethora of tools and techniques they use to locate, evaluate and develop their properties. This article will teach you some of those valuable tricks of the trade as they apply to the site-selection process.
Before I equip you with tools to find better sites, I want to eliminate the idea that developing self-storage can be boiled down to an exact science. One of the most limiting paradigms you may encounter in this industry is the idea of “benchmarks.” While some of these benchmarks can be good tools, more often than not, they are misused. Here are a few to be cautious of:
When supply in your market is below 6.5 square feet per person, there is a good opportunity for expansion. False. This statement is one of the most misleading in the entire industry. I’ve seen markets with 12 square feet per person that could still absorb 100,000 square feet of self-storage. Conversely, there are overbuilt markets with as little as 2.5 square feet per person. Basic economics teaches us that what is important is the relationship between supply and demand. You must measure both.
You should budget $30 per square foot for a single-story development. False. Of the past 50 ground-up projects I’ve reviewed, I’ve seen maybe one or two where the actual cost to build was less than $30 per foot. There are too many variables in each project to use any type of broad benchmark for development costs. Costs unique to every project include permitting, site work, engineering, utilities, storm-water management, architectural details, construction interest, cash-flow deficit financing, start-up costs and more.
Don’t overlook the value of putting together an actual budget for your specific project. Just because the cash flows when you use a generic benchmark, like $30 per square foot, doesn’t mean it will work if construction costs are $50 per square foot.
The average project leases up at 5 percent per month. False. We do not rent percentages in this industry. We rent units. Tenants also move out regularly. Forget using a percentage growth rate in lease-up. It’s a faulty measurement.
Operation costs will be about 35 percent of gross income. Maybe. It might cost 50 percent of your gross income; it might cost 30 percent. This will be unique to every project, every business model, every micro market.
You’ve read that your market is under supplied.