Taking on a self-storage development project can feel daunting. Design and construction take a considerable amount of time, and you need a solid plan. The good news is once you have a “roadmap” to follow, the overall process is much more manageable.
Whether you’re building a facility from the ground up, converting a structure from another use or renovating an existing property, you’ll need to do the following:
- Define the project. How much land do you need? How much storage do you plan to build? What products and amenities will you offer? Some of these questions won’t be answered until you conduct a feasibility study, but you need a place to start.
- Hire a feasibility expert. This is critical before you move forward. You need to know if your project is financially viable and the market can support new storage inventory.
- Find a lender and apply for a loan. Consider your qualifications and connect with potential lenders. Obtain pre-approval for a loan to determine what you can afford.
- Anticipate costs. You’ll need to get quotes for all products, services and materials involved in your project, from architectural drawings and engineering services, to building components and security equipment, and much more.
- Assemble your development and construction team. Choose an architect and general contractor with self-storage experience. You may also need an engineer, attorney and other key players.
- Determine a timeline. Every project is unique, and there’s likely to be challenges along the way. Still, a preliminary timeline will help ensure you stay on time and within budget.
Now that you’ve got an overview, let’s delve a bit deeper into the design, financial and time-planning aspects.
Once you’re equipped with a feasibility study and a have greater understanding of how much you can afford, you can begin determining what your project will actually look like. With the help of your architect, create a list of wants vs. needs, for example:
- Will you build single- or multi-story structures?
- Will you include climate-controlled units?
- Will you create large units or outdoor parking for boat/RV storage?
- Will the property be manned or automated?
- Will you build in phases or all at once?
The answers to these questions will influence design and, ultimately, the total cost of the project.
One of the most important considerations is whether you can afford to build what you want. You have to examine your finances early in the process to set appropriate expectations. The goal is to create a profitable business, not stress your cash flow. If you overbuild, you risk not being able to generate enough income to support your expenses.
Consulting with a team of professionals experienced in self-storage will help ensure your construction budget includes all necessary categories such as architectural, electrical, mechanical, structural and civil engineering. You need to factor in site-acquisition costs, utilities, paving, stormwater management, and the actual “sticks and bricks” for the building itself. Other costs include IT cabling, security systems, phone service and office equipment. Contingency funds are also important, as they serve as a buffer in the case of unforeseen issues or cost overruns.
To determine how much debt you can reasonably support, your lender will evaluate your ability to pay back the loan and whether the business cash flow will be sufficient to cover your monthly payments. It may even consider revenue trends and any necessary upgrades or amenities you need to keep up with competitors. Your personal credit and financial history is a major factor in the lender’s decision-making, so early conversations can put you in better position to receive the funding you need.
It’s critical to set realistic expectations regarding project timeline. The development process alone can take months or even years. A lot will depend on the zoning of your land. If it isn’t zoned for self-storage, you’ll need to get the proper approvals and permits, which could significantly impact your timeline.
When it comes to building, it’s important to understand the cost-influence curve, which shows that as you advance through the phases of a construction project, your ability to decrease costs continually diminishes. The time from groundbreaking to full operation can be months if you’re converting an existing structure or more than a year if you’re building from the ground.
Seasonality is another important factor to consider when setting your timeline. For example, frozen ground might make it difficult to build in northern states during winter months. Likewise, the risk of flooding and excessive rain could be problematic for building in coastal areas during rainy seasons.
The key to setting a realistic timeline is assembling the right team from the get-go. This will likely consist of a lender, an architect and a contractor. Expertise about self-storage construction may cost more upfront but will likely save you time, stress and money in the long run. Remember, your team exists to execute a successful project that will prosper. Working in your best interests, it should help lay the foundation for a business you will love and maximize..
Terry Campbell is the executive vice president of small business lending at Live Oak Bank, which specializes in financing for self-storage facility acquisitions, construction, expansion, refinancing or renovation. He has more than 23 years of self-storage industry experience as a supplier as well as ownership in self-storage projects. For more information, call 910.202.6933; e-mail [email protected]; visit www.liveoakbank.com/self-storage.