In the mid-60S, state-of-the-art self-storage facilities were generally in remote, industrial sectors. Land was cheap, construction aesthetics were nonexistent, and the Field of Dreams approach was the sole marketing strategy.

Since then, all aspects of the industry have evolved. The profitability of the trade has created an unprecedented swell in competing storage complexesand a heightened industry standard. Facility quality, design and location are all immensely improved. While self-storage may once have been an easy way to make money, todays market is complicated and competitive.

Tremendous opportunity still exists for those willing to complete the proper due diligence: Examine 20 or more potential locations; find the one worthy site; struggle with difficult agencies and neighbors; and, finally, provide the most convenient, visible, attractive facility in the target market. In this regard, the mixed-use development (or planned development) has become a common, often essential vehicle used by self-storage developers to get ahead.

In the MUD

The technical definition of a mixed-use development (MUD) may vary from one jurisdiction to the next. For the purposes of this article, it is defined as a specified property tract that is master planned by the developer and approved by the local planning and zoning authorityto allow specific land uses.

For example, a 100-acre MUD on a major arterial street might allot the rear 70 acres for single-family development, another 15 acres for multifamily, and the prime 15 acres of frontage for retail. The tracts that comprise the MUD may be given a generic zoning classification, such as C-1 Retail, to designate allowed uses; or the developer and planning/ zoning board may approve a list of specific uses, such as restaurant, convenience store or self-storage.

A MUD lets planning and zoning staff closely monitor and control the type and quality of each development while allowing builders to secure approval for otherwise restricted uses. For example, in seeking endorsement, a developer may consent to deny taverns and automotive sales but permit self-storage or a car wash. This give and take eliminates controversial uses, satisfying the city's requirements, but opens the doors for businesses that normally fall outside generic zoning classifications. The savvy storage developer should be aware of this opportunity, particularly in major urban markets.

A Slice of MUD Pie

Although smaller developers may only be interested in self-storage and not up to the task of a MUD, they can still benefit. One strategy is to monitor newspapers and business journals for MUD developers and contact them about carving out a location for a storage site. By getting involved in the project early on, the small developer has a chance to negotiate the purchase of leftover parcels that are perfect for storage and the MUD developer can sell at an affordable price.

In restrictive urban areas, this newly created self-storage site may be the only entitled one in the immediate market. This tactic reduces lease-up risk and creates an outstanding long-term location that will be valued at a premium. As self-storage advances to a widespread product type, the advantage of a captured market cannot be understated. Researching and collaborating with MUD developers may be more tedious than finding an average property already zoned for storage. But the higher property value and profit potential as well as the reduced risk are worth the effort.

The MUD Makes Money, Honey

For the developer with extensive capabilities and financing, a MUD can create some exciting financial potential. Consider this hypothetical opportunity: A developer finds a 10-acre corner parcel on a major arterial for $2.18 million ($5 per square foot). The land is not currently zoned for self-storage; its zoned half for Office and half for Retail. The site has secondary frontage on a road leading to residential developments and adjacent property consisting of office condos. The current owner will not subdivide or will only do it for a premium.

To capitalize on the prospect at hand, the developer can rezone the property as a MUD to achieve several win-win outcomes. Lets suppose he is primarily interested in self-storage. The most cost-effective location is a flag-shaped site farthest from the hard corner with a modest amount of frontage (perhaps 150 feet). To garner the support of neighbors and zoning staff, the developer should meet with each party individually, presenting the positive attributes of the storage development:

The remaining portion of the MUD would include C-1 Retail useswith any required exclusions based on negotiations. Of course, the office-condo neighbor will be thrilled there wont be a competitor next door!

The parcels might include, for example, a 1-acre hard corner bank site, a 1.5-acre restaurant pad and a 3.5-acre shopping center, with the conceded benefits to the neighbors/zoning board of increased landscape buffers, cross access and parking mandates for the entire lot. There may be minor increased requisites for aesthetics, landscaping, etc. However, the developer can now build his self-storage project in a first-class location and sell (or develop) the remaining parcels.

Lets take a look at how the economics might look if he decides to sell. Assume the following sale prices:

Subtract those amounts from the $2.18 million cost of the original 10-acre parcel, and youre left with an $87,120 price tag for the self-storage project. Thats not bad when you consider the fair market value of an entitled self-storage site of that size is $800,000 to $1 million.

Although the exact numbers will vary, this opportunity is available in most major markets across the country. In fact, its often easier to find an attractively priced 10- to 15-acre MUD in a prime location than it is to find a suitable 4-acre site properly zoned for self-storage. Now thats how you have fun playing in the MUD!

Jeff Eckols is a veteran real estate attorney and president of San Antonio-based Maverick Investments, which handles land and property acquisition, sales and development. He has been involved in the development of 16 Noah's Ark Self Storage locations and facilitated the sale of 10 storage complexes in the last three years. For more information, call 210.477.1707.

Mike Parham is the founder and president of San Antonio-based Noahs Ark Development, which executes market analysis, preliminary site review, site development and land contracting. Parham launched his career in self-storage more than 20 years ago as the owners of NDS Construction, where he serves as CEO. NDS is a full-service design/build construction company responsible for the completion of more 300 self-storage projects. For information, call 210.477.1220; visit www.noahsarkselfstorage.com.