New self-storage construction has been down for nearly two years, but we’re now seeing improvements in occupancies and net income per project. As builders and entrepreneurs see demand exists, they’ll pull the trigger on new facilities. The huge opportunity created by the current economic climate is you can get a self-storage project approved in an area where it would’ve been deemed impossible just a few years ago.
If you’re ready to make this leap, don’t make the same mistakes other developers have made in the past. To be successful, you must start by doing your homework. The great land opportunity you discovered might have a willing planning board that leaves you feeling good about your prospects for approval, but there could be pitfalls ahead.
Mistake No. 1: Not Recognizing Potential Problems
You may have your site approved, but the question to ask yourself is: “What problems exist that I don’t yet know about?” This is a loaded question with many potential answers. Some of the issues you may need to address include:
- The city gives you approval, but with so many strings attached that your cost spirals and your breakeven point is way too high.
- You run into problems with grading/drainage issues that “torpedo” your site.
- The planning board limits your available land so you can’t get enough square footage to make the project feasible.
To avoid as many of these problems as possible, it’s best to think of all potential obstacles and get a feel for if there could be anything wrong with the site up front. Address all dilemmas as soon as you discover them. Too many developers assume problems will just work themselves out. In reality, they don’t, and they can cost you a lot of time and money.
Mistake No. 2: Not Maximizing Your Site
This doesn’t refer to getting the maximum square footage out of your land, it refers to creating the most square feet of rentable space. Some developers squish as much storage space as possible on the site and fail to consider who would actually want to rent such a unit or size.
For example, in some markets, tenants may not be interested in lugging stuff upstairs or into wide, single buildings, instead preferring drive-up units. In other markets, customers have no qualms about accessing units on upper floors. You may need to re-evaluate your site plan and determine potential income based on what you can actually rent, not theoretically rent. This may mean your gross potential is lower, but your project’s rentability is higher.
Mistake No. 3: Not Securing Financing
Failing to come up with enough money to fully finance your facility is a huge error. In today’s market, lack of financing kills many projects. You need money to get into this industry. If you can’t get it on your own, consider entering a limited partnership.
Many business owners might shy from investors or partnerships; however, if you’re sitting around waiting for the 85 percent loan-to-value ratio the industry touted a few years ago, it’s going to be awhile. In a perfect world, it’s best to minimize partnerships; but in this environment, you may have no choice.
This facility in Brookfield, Wis., owned by Rod Barnett and Thomas Ferber, is a good example of a self-storage site done right. Photos courtesy of Trachte Building Systems Inc.