Many things can go wrong during the development and construction of a self-storage facility. Following are some of the key difficulties that are often unpredicted by builders and owners. These can lead to significant cost overruns, delays and even project shutdowns.
The most overlooked mishaps relate to environmental issues, permits/approvals, state department of transportation (DOT) requirements, cost estimating and bid specifics. All can be avoided with the proper research, planning and design.
With any self-storage project, there are three environmental issues that can spell disaster: wetlands, endangered species and soil contamination. Typically, you can’t disturb wetlands, ponds or water courses without significant risk of denial from the municipality, longer design and review periods, and additional expense. Often, there are wetland setback areas you can’t build in without commission approval.
Walk the site and obtain any existing wetland mapping on the property before you make an offer. Since wetlands aren’t always obvious to the untrained eye, have them delineated in the field as soon as your offer is made so you have a good understanding of their impact before the due-diligence period is over. If unknown wetlands are found on the site, the purchase price is typically lowered due to the loss of usable land.
An early check of the state’s endangered-species maps by your engineer will determine if your site is in a known area of conflict for wildlife. If it is, you’ll need an expert to conduct an onsite study to determine the potential impact of developing the site. If endangered species are involved, approval can take considerable work and time.
Typically, your lender is going to require a phase-one environmental study to ensure there’s no pollution or soil contamination on the property. The lender will order the study, and you’ll reimburse the company for the cost, which is about $2,000. It might even require you to employ one of its preferred vendors. In any case, I highly recommended doing the study before spending $50,000 to $175,000 on engineering and architectural designs. Contamination is more likely if the land or abutting properties have previously been developed or farmed.
Permits and Approvals
There are many approvals and permits required for any development, on a local, regional, state and federal level, and from a wide range of agencies such planning and zoning, the architectural review board, utilities commissions, and others. Create your permitting list early with the help of your civil engineer, architect and attorney.
The cost for each permit and the time to obtain it should be determined and planned for ahead of time. Even one forgotten permit can cause a redesign, cost tens of thousands of dollars or delay a project for months.
Many commissions and boards require preliminary applications, which can add 30 to 45 days to the approval timeframe. Your applications will typically require a public hearing; however, the city first needs time to review the plans and publish a hearing notice. This means the hearing could be scheduled 45 to 60 days after you submit the plans. That initial meeting is generally followed by a second when votes are cast, typically a month later. Once a project is approved, the city must publish a notice in the local paper, which sometimes followed by a 15- to 30-day appeal period.
The point is, even a six-month purchase option might not give you enough time to design and obtain all the approvals you need. If you must pay for additional months, it’s best they be included in your option to buy.
If your driveway is on a state road, you’re required to get a permit from the DOT. The agency can restrict where your driveway is located and even limit the access (right in/left out) based on required sight lines, traffic counts and other items. It can even command expensive onsite and offsite enhancements to improve sight lines. For high-volume roads, the DOT may even require dedicated turn lanes.
Your engineer should review the sight lines and requirements as part of the initial project layout. Submit those plans to the DOT as soon as they’re complete. Don’t wait until the city has approved your plans or just before construction begins to get this agency’s input, as this can lead to delays and extra expenses.
Soft costs for self-storage development and construction are often significantly underestimated. The site and architectural design itself can run from $100,000 to $200,000 or more. In addition to listing the services they’ll provide, your engineer and architect should itemize any supplementary services required, including ones that must be provided by others. Here are examples of items that can fall between the cracks, creating additional costs and delays:
- Soil borings and geotechnical report
- Traffic report
- Wetlands delineation
- Site lighting
- Subdivision plan, if required
- Elevations and renderings for commission applications
- Endangered-species review
- Regulatory permits
- Meetings and hearings
- Security design, including video-camera location
- Office design
- HVAC design
- Applications and fees, including DOT
- Utility applications (water, sewer, electrical and gas)
You also need to consider additional costs including the following, which can run another $300,000 to $400,000 or more:
- Regulatory process
- Plan revisions
- Soil testing
- Utility fees
- Construction inspection and supervision
- Erosion and sedimentation inspections
- Professional and banking fees
- Startup fees (including insurance)
Construction bids should include a specific list and description of the work to be done. However, site plans don’t always detail everything required to open the doors for business, and so items get excluded from bids, or they’re left unspecified. Consider the following examples:
- Office cabinets and countertops
- Office doors and windows
- Security equipment
- HVAC equipment
If specifics for these items aren’t included in the plans, the contractor may exclude them from the bid or insert costs for inferior-quality products. You should provide as much detail in your plans as possible, even specific brands and product names whenever possible.
Because contractors only bid on what’s clear and specified on your plans (and often less), a 15 percent contingency fund is common and highly recommended. It’s critical that you and your designers review your plans to ensure they’re detailed and specific, and that any bids you receive are comprehensive.
Lack of research and planning on the above areas can lead to lost time and money, not to mention unrealistic financial projections. Pay careful attention to these items during the development phase to avoid costs and delays during the construction phase.
Marc Goodin is president of Storage Authority Franchising and the owner of three self-storage facilities that he personally designed, built and manages. He’s been helping others in the industry for more than 25 years. To reach him, call 860.830.6764 or e-mail [email protected] You can also purchase his books on facility development and marketing in the Inside Self-Storage Store.