The biggest mistake I see potential and even experienced self-storage developers make is failing to act in a timely fashion. If I had a dollar for every time I’ve heard someone say, “I wish I’d done this 10 years ago,” I’d be retired by now!
Developers and owners sometimes get stuck in the decision-making process, unable to move forward. No doubt, pursuing a project can be overwhelming. There’s a lot to do and many choices to be made. Understandably, you don’t want to make a mistake.
By being disciplined and taking one step at a time, you can make smart investing decisions. If a self-storage development is worthwhile, each choice is a step closer to fruition. You can easily have a new facility built within two years! The following nine-step plan will help you avoid indecisiveness and keep things moving in the right direction, at a healthy pace.
Step 1: Identify a Usable Piece of Land
It isn’t rocket science, but you must really focus on site selection, as it’s critical. Begin by doing an online search. There are numerous tools you can use to identify potential plots. I personally use CBRE, Crexi and LoopNet for commercial real estate.
Next, drive around in the areas that interest you. This is how I found land for my first facility. The lot wasn’t on the market, so I looked it up via the county assessor. I couldn't find a phone number for the owner, so I called a local broker and he connected me.
Speaking of commercial brokers, they can be a great resource. If you’re a new developer, they may not take you seriously in the beginning, but don’t be deterred. You may have to call them weekly and ask if they have new listings. If you do this regularly and respond to every listing they send you, positive or negative, you’ll make headway.
Finally, contact your municipality. When I was looking for land in a small town near me, I discovered the city was selling multiple parcels it owned. It’s worth reaching out to see if there are potential sites available.
Step 2: Evaluate the Potential Site
Once you’ve located a promising parcel, you need to dig in and make a preliminary decision on whether it’s worthy for self-storage. First, call the municipality to find out how the land is zoned and any relevant regulations regarding industry development. Don’t trust a broker or seller to tell you whether self-storage is a permitted use—get confirmation from the city. This leads me to the next point.
You don’t need to share with any broker or seller what you plan to build on the land, and it may be better not to. I learned this the hard way after telling a seller what I wanted to pursue. He looked at my website and decided that if a self-storage expert wanted to build on his property, he’d do it himself. Out of luck, I had to find a new submarket.
Next, conduct a quick assessment to look at current self-storage supply in the market, development in the pipeline and consumer demographics. You can do this yourself or work with a feasibility expert to ensure you’re pulling the most relevant information.
Finally, run through various scenarios to determine how much you can afford to pay for the land. There are free online investment calculators that can help with this.
Step 3: Put the Land Under Contract
This step may seem scary, but it isn’t. If the land doesn’t ultimately work for you, for whatever reason, you don’t have to buy it.
The purchase contract should allow a 60-day due-diligence period. You need this time to conduct research and ensure you still want the parcel. (More on this in the next section.) The contract should state that your deposit is refundable during this period if you decide to forego the purchase. If you choose to buy the land, your deposit becomes non-refundable at 60 days.
Another thing to put in the contract: After your 60-day due-diligence period, give yourself 180 days to close. Trust me, you’re going to need every single one of them. Brokers will push back on the extra time, but they’re obligated to present your offer and terms to the seller. Mind you, if you can afford to buy the land outright and don’t need financing, 180 days may not be necessary; but give yourself some breathing room.
Step 4: Conduct Due Diligence
Once the clock is ticking on your 60-day due-diligence period, the pressure is on. This is when you should hire a third-party feasibility and market study. This will be a more robust dive than your initial assessment in step 2.
You want to determine if the market will support more self-storage, if you can build within your budget, and if the anticipated return on investment is acceptable. This study will also help determine your unit mix, what phases to build and the amenities you should offer to achieve your desired return. It’s the basis of your business plan, providing your operational budget, lease-up period, financial projections and marketing plan. The process is going to take two to four weeks, depending on your analyst’s schedule.
Step 5: Prepare for Development
Assuming your due diligence is positive, you need to keep pushing forward so you can close on schedule. At this stage, there are things you must do to prepare for building. For example, you’re going to need various reports and geographical and topographical surveys, such as a phase-one environmental site report, a soil-borings report, an engineer’s preliminary report and an endangered-species report.
The civil-engineering plan provides information the excavation and grading subcontractor need to prepare the soil for foundations, ensure rainwater drains from the site, determine contours and elevations, and provide an earthwork estimate. That data will also help them provide an accurate bid for crew size, equipment and timeline, and it’s needed by the retaining-wall subcontractor and building manufacturer.
In addition, you’re going to need stamped foundation plans for your building permits and a site layout, which can get from your engineer or an architect. You can also buy a layout plan from a self-storage building manufacturer. This is the route I recommend because these providers see a zillion sites and know a lot of tricks. Also, if you buy from a manufacturer, you own the plan and can shop it around when collecting bids.
That brings me to the next item on the to-do list: Get project bids from at least three general contractors (GCs). Make sure you give them the civil-engineering and site-layout plans, so their estimates are specific, not general. Vet your candidates to ensure they’re “too legit to quit.”
Step 6: Financing
For this step, you’ll want to contact multiple self-storage lenders and shop for the best terms. Some will say no to your project, so don’t put all your eggs in one basket. Also, if you’re going to raise equity from investors, now’s the time. You might be tempted to do this earlier, but you won’t have all the information they need until you get to this phase.
Be ready to send each lender or investor all the documents they need to make a quick decision. (I recommend doing this digitally via DropBox.) Your packet should include everything from steps 4 and 5 above, along with your business plan, tax returns and personal financial statement.
If you ultimately choose a Small Business Administration loan, allow 90 days to close. If you’re going with conventional financing, allow 60 days. (By the way, the clock doesn’t start until you have a commitment letter.)
Step 7: Build Your Facility
Once you’ve reached this step, it’s all systems go! You’re ready to put on boots, grab a shovel and get to work. First, assemble your construction team. Hire your GC and sign bids to lock in prices. Then do the following:
- Get a Gantt chart and schedule from your GC—and hold them to it!
- Apply for permits as required, such as access-road permission.
- Closely monitor your GC’s progress. Take pictures and keep them on schedule.
- Set up your property-management systems and marketing initiatives to be ready to open as soon as you receive your Certificate of Occupancy.
Step 8: Start Lease-Up
Congratulations! You’ve made it to opening day. Market your tail off and fill those units! Just don’t neglect your mental health. Do lots of meditation and yoga. Play golf. Do whatever you can to avoid worrying about how quickly your facility is leasing. You’ve done your homework; it’s going to happen whether or not you allow yourself to get an ulcer.
Step 9: Run It Like a Pro
Your self-storage facility is built, open and renting. Now all you have to do is hit or exceed your projections and maintain high performance. That’s a loaded topic for another article, but in general, keep answering your phone, raise rates regularly and monitor your online presence. In addition, give back to your community, reward your employees and start looking for land for your next facility!
Katherine D’Agostino is the founder of Self-Storage Ninjas, a self-storage feasibility-consulting firm. A former marketing-communications executive turned sensei, Katherine has a background that includes 24 years of creating and implementing business plans for a wide range of companies. A self-storage owner herself, she focuses on delivering unbiased reports that enable investors to make informed decisions. To reach her, call 402.570.5021; email [email protected].