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Retrofitting a Building Into Your Dream Self-Storage Facility: A Guide for Intrepid Souls

While retrofitting a building into self-storage can be a rewarding and successful project, there are also many pitfalls to avoid. Learn how to steer clear of stumbles and think about retrofitting in a more critical way.

July 20, 2012

8 Min Read
Retrofitting a Building Into Your Dream Self-Storage Facility: A Guide for Intrepid Souls

By Lewis Pollack

The following words of advice are for those of you whove passed that dark Circuit City or the closed Winn Dixie every day on the way to your office and mused about the possibilities of stealing it for a song and converting it into a self-storage facility. As one of those intrepid souls, along with my partners whove chosen to follow the muse, I welcome you, pilgrim!

In this article, I will not unravel the secrets of the universe, but I will attempt to offer my opinions on retrofit selection. I will not address issues which would be common to any other asset class or type of storage development or straight purchase such as financing. The goal is to focus your attention on how to steer clear of making some avoidable stumbles and think about retrofitting in a more critical way than you might now.

Site Selection

Without exception, a commercial zone 2 (C-2) location is the most desirable in a market area. It will typically have a large and destination-bound traffic count and great visibility. Experience has taught us that facilities in C-2 rent up faster than those in light industrial 1 (I-1). Go figure!

It used to be a fairly hard and fast rule that self-storage properties were not going to be permitted in any C-2 area. However, many jurisdictions are now willing to swallow hard and allow a class-A storage product in a C-2 area to mitigate the problems of vacant and vandalized buildings in whats typically a heavily trafficked retail-shopping corridor. While this window of opportunity exists, search in C-2.

You should also eliminate any potential site that cannot accommodate a minimum of 50,000 net rentable feet. This isnt a hard and fast rule but a sweet spot for cost-efficient management.

While a single-story building is preferable, many older, dark retail boxes seem to contain no more than 40,000 square feet. Oddly enough, with a clear span of 19 feet at the low eave, a smaller building might be an appropriate candidate for an interior mezzanine level, which can essentially double the net rentable square feet. Bring your tape measure!

Extra Land

Many retrofits are within existing shopping plazas and are self-contained buildings that must, by the restrictions of the footprint and design, be climate-controlled. However, its always prudent to enhance a climate-controlled facility with a goodly number of drive-up conventional storage units, for several reasons. First, conventional units typically rent up more quickly than climate-controlled ones, thereby minimizing the shortfall inherent in leaseup. Also, such an addition will also advertise the facility in the most graphic way, offering terrific visibility.

Traffic Counts and Visibility

While its always better to see a high traffic count, in the case of a retrofit, it seems that many older potential sites are on secondary streets with few vehicles passing by. Whatever the reason (and because a newly renovated facility in a shopping center is typically far back from the main road), look for a site with great traffic counts. This would be in the range of 35,000 vehicles per day.

Many jurisdictions have severe restrictions on what we most want: visibility, read as big signage and no bushes or trees to obscure visual recognition. Dont be surprised if current code restricts signage to a small unlit pedestal sign and camouflages the building from public view by a hedge row and trees designed for this purpose. This penchant for obscurity will be a hurdle for you.

Due Diligence

Despite your reluctance to pull out the checkbook, youd better be prepared to commit to at least $35,000 to determine the feasibility of your retrofit. Always keep in mind that while these upfront expenditures mount, theyll dictate whether your multi-million-dollar bet can be retrofitted to self-storage at the pro forma budget you devise. Most will also be necessary for both engineering and plans, and for bank financing should you need it.

Physical Integrity of the Site

Congratulations! Im assuming youve placed your dream conversion under contract and the clock has begun ticking for due diligence. You should prepare your budget to withstand problems from any of the following components, all of which Ive encountered at one time or another and are not uncommon when looking at an older building with an eye to converting the pumpkin into a coach.

The slab. The as built plans you inherit (if there are any) may indicate your dream retro has a solid 6-inch concrete slab. After all, it was permitted and inspected during original construction. Dont believe it! Have core samples taken by a structural engineer to ensure the slab will support storage use or a mezzanine, if thats in your plan.

Soils analysis. Another possible issue is the underlying soil composition. There are many areas of the Southeast with horrible soils that will need expensive added fill brought in.

Lighting audit. New federal energy-efficiency standards in lighting took effect in July. Its likely your building has older, inefficient bulbs and ballasts. Lighting audits are usually provided free of charge by companies that specialize in this. At the end of the process, you should receive a written proposal for bringing the lighting up to current code. Fold this into your pro forma as a capital-expenditure improvement. Estimated cost would be $40,000 to $60,000 for a typical 50,000-square-foot building. In the event your state is deregulated, there may even be rebates available.

HVAC. Determine the age of the HVAC systems. Older buildings have units that most likely require recharging with R-22 refrigerant gas. Since production of R-22 has been banned, the cost of recharging older units using whats left of the diminishing stock of R-22 has skyrocketed. Recharging an obsolete HVAC unit can easily cost more than replacing the unit with a new energy-efficient one. We always include replacement of existing non-compliant units, even if theyre in working order.

Roof. On older buildings, such as your dream facility, a potentially big-ticket item will be the repair or replacement of a failing roof. Before making any repairs, or even when having it inspected, be certain to read any existing warranty. It could very well be the roof is still under warranty. Merely reading the procedure on making a claim on an older roof could save you a bundle should you move forward. Ignoring the exact instructions for making a warranty claim, or even having the roof inspected by a non-approved contractor, could cost you the warranty, so follow instructions to the letter.

Asbestos. It may be that your older bargain building was constructed with asbestos insulation or flooring. In a recent project, we discovered this when we cut a hole in the concrete roof. The job was red-tagged for three weeks while we spent $50,000 to remediate the problem. This is probably something we couldnt have avoided. Nevertheless, it put us back almost a month. So, while one cannot predict every contingency, a line item that over predicts issues such as asbestos remediation is an excellent idea. Be certain to add a month to the construction schedule, exclusive of weather delays.

Water leaks. Many old buildings have pipes under the building that are very old and deteriorating. Have a qualified engineer test for leaks. We recently spent more than $10,000 to jackhammer inside a facility to get to a leaking pipe.

Environmental (Phase 1) testing: Yes! Yes! Of course, I know this is common to all classes of development and a financing requirement. But with an older building, and before you do much else, a clean Phase 1 is a necessity. If the report comes back ambiguous, dont hesitate to go to a Phase 2. Dont spend a lot of money on anything else until the property has a clean environmental report.

Other Considerations

There are some elements that are common to all commercial redevelopment. However, with storage, theyre simply more critical. Here are a few to consider.

Title insurance and survey. It may seem obvious, but older properties must be vetted for encroachments, setbacks, easements and zoning compliance. Current use or lot coverage can mask a variety of these issues, which could seriously impact your site plan and unit mix.

Timing considerations. From the day you actually target a site location to the point at which a building permit is issued should take about six months. From building permit to grand opening might take an additional four to seven months, depending on the complexity and scope of your dream facility. Youll probably want a spring opening. Try working backward from the proposed opening date to pick a target date for commencing construction.

Financial risk. Ive tried to confine this discussion to some of the hurdles you might encounter on the way to a building permit. Really, the elephant in the room is financing, as many of you will need. To secure a loan, youll need a complete set of plans, pro forma and more.

From the bank side of the transaction, an independent appraisal must support the values being proposed in the pro forma. As you grizzled veterans of appraisal wars can attest, some of the fiercest battles weve fought have been with independent appraisers over valuation. But this is a topic for another evening around the campfire with a bottle of Maalox at hand.

I would like to close with, In conclusion However, I hope this is just the beginning of a very profitable and interesting venture for you. Do not be deterred. The rewards are well worth the effort.

Lewis Pollack is a self-storage owner and managing principal of StoreSmart Development LLC, which operates facilities in six states under HAT Management LLC. A long-time corporate executive and entrepreneur, Pollack has been involved in the development and management of self-storage for more than 25 years. For more information, call 561.212.5350; e-mail [email protected]; visit www.storesmart.org.

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