Developing a self-storage facility is a process that can include hiccups even in the best of times. For those of us going through it today, the coronavirus pandemic adds an extra layer of mystery and stress. Let’s look at some ways COVID-19 could impact your next project and how to move forward successfully.
The self-storage planning phase typically takes a long time, normally months to years. If you’re just starting, the pandemic will hopefully be over by the time you break ground, or by the time you open. But what if it isn’t? Designing a more conservative project to be built in smaller phases is one way to reduce exposure in case your rent-up projections don’t match reality.
The most immediate impact of the coronavirus on project planning is it can be more time-consuming to get through government approvals, particularly those that require an open public meeting. Municipalities are struggling with how to balance these meetings with social-distancing requirements, though this is becoming less of a problem with each passing week.
Land and Structures
The pandemic has been especially brutal on land-intensive industries such as brick-and-mortar retail and hospitality. If you’ve been looking at land or vacant structures for expansion, there are deals to be had.
Prior to the outbreak, major retailers were shuttering big-box stores at a rapid clip, creating plenty of opportunities for self-storage conversions at a steep discount. Major operators have historically targeted larger markets, though they’ve ventured into smaller mid-markets in recent years. As an independent investor, you may see that you can replicate their success if you spot the right building in an area with demand.
How COVID-19 affects your financing will depend on where you are in the development process, the type of financing you seek and the strength of your project. While the pandemic has already resulted in tremendously high unemployment, lending hasn’t imploded like it did during the Great Recession.
Before the coronavirus, some markets were already experiencing saturation and declining self-storage rental rates. Lending standards were becoming stricter as a result, but there doesn’t appear to be a tightening due to the pandemic. Low interest rates are still making it an attractive time to borrow.
Lenders continue to issue Small Business Administration (SBA) loans, too. For those who already had SBA financing in place or will close on a loan soon, there’s major relief available as part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. It will pay six months of principal and interest, even for new borrowers, so long as they close their loans by Sept. 27. Unfortunately, it would be impossible to start a ground-up development now and meet that deadline, but there may still a chance to purchase an existing site.
Supplies and Services
Once construction begins on your self-storage project, not much should change. Thankfully, most stay-in-place orders excluded the construction trades. You’ll likely still have trouble getting your subcontractors to return your calls, as the shortage of skilled labor remains. Tradesmen who are good at what they do are keeping busy.
Ordering supplies and accessories may be another story. I’ve experienced delays in receiving gates and security hardware, for example. Contact your vendors early to request all items you’ll need for your property.
On my current project, the installation of high-speed Internet became a problem. The cable company refused to schedule the install until the property had a mailing address with the U.S. Post Office, which became a fight. Once we had the issue resolved, the company was months out in its fieldwork schedule. Our temporary solution is a cellular modem which was, of course, back-ordered due to high demand.
The trend toward automated self-storage rentals was strong before the pandemic, but this year’s events will likely make them a permanent consumer demand. The additional interest in contract-free rentals has inspired industry kiosk, software and security vendors to offer more options than ever. They’re working hard to come up with better, more affordable ways to operate storage properties.
When you budget and design your self-storage project, it’s important to plan for technology, even if it won’t be installed as part of your initial phase. Popular items include self-serve kiosks, smart locks, remote video surveillance, access mobile apps and others. An onsite presence may still be necessary at your site, but technology can buy you a lot of flexibility—and safety, in this case, for customers and employees.
Pandemic or no, it’ll always be important to look closely at local factors when developing a self-storage facility. Is the competition full? Are there other projects in the pipeline? Are there increasing numbers of households in the area?
Also, look carefully at the types of storage being built. Larger players often build projects that are heavy on smaller and climate-controlled units, because those tend to yield higher rent per square foot. But consumers do appreciate the convenience of drive-up units. Margins are slimmer in large boat/RV-storage projects, but there may be more demand for them.
We don’t know what the future holds. As I write this in late May, states are beginning to open up and life is starting to inch toward normal. I hope this continues, and that treatment and prevention comes through to help us get past this. But for all I know, we could slip back. A vaccine may never be found, more jobs could be lost, and financing could collapse. Each developer will need to assess his personal tolerance for risk, the stability of his day job if applicable, and the steadiness of his own local economy. Good luck with your next self-storage project, and stay safe!
Steve Hajewski is the marketing manager at Trachte Building Systems, which designs, manufactures and erects a full line of pre-engineered and customized steel self-storage systems, including single- and multi-story, portable storage, interior partition and corridor, and canopy boat/RV. He also owns a self-storage facility in Wisconsin and is a frequent contributor on Self-Storage Talk, the industry's largest online community. For more information, call 800.356.5824; visit www.trachte.com.