Author Charles Dickens opened his epic novel “A Tale of Two Cities” with a line that seems applicable to where we find ourselves today in the self-storage industry: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…”
It’s the best of times due to the fact that interest rates are as low as they’ll be in our lifetimes, and self-storage has become a mainstream investment vehicle. You no longer have to explain to your banker or possible investors what the industry is all about. On the other hand, it’s the worst of times because of all the money chasing our business, the lack of quality properties available for sale, and the increased competition for potential development sites. Land prices are at record levels in many communities, and the lack of properly zoned parcels makes it difficult or, in some cases, impossible to find a parcel on which to build.
In this “age of wisdom,” some storage builders and owners are diligently doing their homework, turning over all the rocks in their target market to find their best prospect. However, the “age of foolishness” has brought out countless others who’ve started to believe that “if you build it, they will come.” “I already own the land” is often repeated as justification for building in a specific location.
Finding a solid self-storage site has gotten more challenging as our industry has become increasingly competitive. There are no perfect sites left in the United States. Every location now involves some trade-offs and risk. The key is to consciously balance those drawbacks from the very beginning.
If you’re planning to build a new self-storage facility, this article covers some factors to consider when searching for a plot of land. Many are items that few people think about at the start of their quest but can have a huge impact on the outcome of a project. I’ll also discuss the characteristics of a good site for new construction.
Things to Consider
Site selection involves balancing the target market’s demographic profile with the characteristics of the parcel. You’ll need to research several different aspects of the area.
First, you need to look at the rental rates of established facilities in the market. You might find a storage facility on one side of town earning an annualized equivalent rent of $8.25 per square foot, while the rate at a facility just 20 miles away is $10.75 per square foot. On which side of town would you rather build? Yes, the land will probably be more expensive on the upscale side, but the difference in construction costs will be zero.
On the list of site-selection criteria, the performance and location of existing competitors is vital to examine, but there are other factors to consider and obstacles you may encounter. Keep in mind a site’s gross square footage may not produce the buildable acreage you anticipate. Here are some possible reasons why:
- A storm-water retention pond is necessary and can easily eat up half an acre.
- The wetlands area with its beautiful cattails must be set aside, per city zoning regulations. Often, there will be a buffer area around the pond as well. Say good-bye to another acre.
- The Army Corps of Engineer’s Flood Plain Map shows the far corner of the parcel is in the 50-year flood plain. You can’t build on that ever.
- A Phase 1 and then Phase 2 Environmental Assessment reveals you have petroleum contamination from a prior use as a truck-parking lot. Will your lender even consider offering a loan after you spend the money to clean it up?
- You could lose half an acre for the community’s landscaping or green-space requirement.
- You can’t build under the overhead power lines that bisect the land. There may be an option, however, for outside vehicle parking if the zoning code allows it.
- You could be facing new competition. Ask at the zoning or building department if there are any new facilities in the pipeline for your assumed market area.
- You can’t forget about the mandatory front, back and side-yard setbacks. That 100 feet from the road, 25 feet in the rear and 35 feet on both sides take another chunk of buildable acreage.
Ingress and egress will also have a huge impact on whether a site is buildable. Your proposed parcel may have a drive-by rate of 35,000 vehicles per day, but what happens when entry to your property is hampered because the department of transportation won't allow a “right turn in/right turn out” curb cut? How far will customers have to drive to make a U-turn? Will it be a deal-breaker for some potential tenants?
And please don’t think the 90,000 vehicles per day driving by the back of your proposed site, which abuts the interstate, is outstanding. People are driving at 65 to 75 miles per hour along that stretch of road, and there may be no exit in either direction for 10 to 15 miles. No one is looking at your facility as they rush to and from work. It’s better to have road frontage on a highway with just 8,000 to 10,000 vehicles driving by, with most being local residents. Remember, one of the primary reasons people select a storage facility is because they’ve driven past it.
Another big hurdle is possible “impact fees.” This has become institutional blackmail in many communities. Municipalities are saying, “You want to build on your land? This is what we want from you.” One developer had to buy a fire truck to get his project approved—crazy, but true. These are just some of the reasons a site may not be ideal for a new self-storage project.
What Makes a Good Site
At this point, you might be asking, “So what’s a good site?” The answer to this depends on how much storage space you’re looking to build. For a single-story, 65,000-square-foot facility in which 60 percent of the property is drive-up units, you would need roughly 3 to 3.5 acres. This also depends on the other requirements outlined above, which could lead to the need for a 4.5- or 5-acre site. If you’re going vertical, you can possibly build a two- or three-story facility on 1 to 2 acres of land.
Again, the level and quality of established competition can’t be overlooked. Simply put, the answer is “less is better”; but don’t ignore the qualitative measurements in addition to the math. A properly zoned “by-right” parcel is a whole lot better than trying to get a property rezoned. Anything that avoids a public hearing is preferable.
Finding a site that gives you the opportunity to risk an investment in self-storage isn’t for the faint of heart. That said, this industry is still one of the best entrepreneurial opportunities for starting a new business. Not only do we have one of the lowest ratios of payroll costs to gross revenue, all of our operating costs are fixed, so once you achieve breakeven, every gross dollar in additional rental income is a net dollar. There are very few businesses out there that can make that claim.
Remember, everyone trying to enter your target market must overcome the same barriers to entry. Surround yourself with a team of professionals who can help you successfully navigate the site-selection process.
There may not be any perfect sites left, but I continue to see good and even great sites every day. It takes a lot of homework and “kissing a bunch of frogs,” but when you find that location with the positive characteristics, it’s worth your effort.
Jim Chiswell is an industry veteran and owner of Chiswell & Associates LLC. Since 1990, his firm has provided feasibility studies, acquisition due diligence, coaching and customized manager training. He’s a frequent speaker at industry tradeshows. To reach him, e-mail [email protected]; visit www.selfstorageconsulting.com.