The atmospheric pressure inside the commercial real estate market is rising, and the self-storage sector is wide awake. With the industry growing behind an influx of new supply, achieving success requires more skill than it once did. The good news is most new product is being absorbed by the macro-housing booms occurring within urban pockets of growth. Though these attractive markets require patience and are a tad more complex to penetrate, breaking their barriers to entry is also very rewarding.
Whether it’s better to buy or build a self-storage facility is a common debate, and both approaches have merit. Typically, the upside to an acquisition is the ability to improve revenue through capital upgrades and operational improvements. A purchase is also likely to provide immediate cash flow. This is a sound strategy that helps leverage new deals.
But while many investors are combing the market for acquisition opportunities, developing a new property from the ground up can offer distinct advantages. Let’s examine some of these benefits as well as fundamentals that influence timely returns.
Developing a new facility is a unique privilege that offers numerous advantages over the purchase of an existing site. Chief among those is your ability to choose your location; and diligence in this regard will promote facility value in the long term. You have the chance to target prime, high-traffic sites, as well as communities with population and income growth. Location often equals convenience, which is paramount to customers. Being industrious in your research and finding your sweet spot is key!
Designing your buildings from scratch, including the layout and amenities, is another huge advantage. Self-storage is becoming more sophisticated, and the better you understand the needs of your target audience, the easier it is to customize features that will facilitate integration into the market, meet your lease-up goals and provide long-term value.
For example, you may see a need in the market for wide drive-up aisles, a circular driveway, or multiple entry and exit points for easier loading and unloading. If you’re building a climate-controlled facility, perhaps you’ll plan for multiple access points to the second floor or include a second elevator.
A proper unit mix will also broaden your asset value by maximizing gross potential income. It plays a huge role in facility success but is easy to overlook. But doing the proper research at the start of the project, you can identify which units are in demand but lacking in supply in your market, and design accordingly. A one-size-fits-all approach to unit mix is certainly easier, but self-storage shouldn’t be treated like a cookie-cutter business.
Success materializes through regularly recurring cycles of change—the operative word being change. Tailor your mix to support present and future demand, even if the supply isn’t quite there yet. That’s innovation. Demand should always influence supply instead of the other way around.
It can be extremely advantageous to be involved in the front-end framework of your self-storage facility. By building vs. buying, you can sculpt your project to fit demographic needs and prepare it for optimized revenue growth.
Cody Reynolds is district manager for The Sterling Group, an Indiana-based real estate investment firm that specializes in self-storage and multi-family housing properties. The family-owned company owns and manages both property types, with a concentration in the Midwest and Southeast. Cody got his start in self-storage in 2006 and has held resident, area and district-manager positions. To reach him, call 469.955.2837; e-mail [email protected]; visit www.thesterlinggrp.com.