While storage condominiums are similar to traditional self-storage in many ways, the model targets and attracts a very different breed of buyer. The operative word there, of course, is “buyer,” not “renter.”
Typically, customers are attracted to storage condos after having an extended, negative experience at a traditional self-storage property. Frustrations often surface around access-hour restrictions, limitations on what can be done within the unit, and the irritation of paying monthly rent with no possible return on investment (ROI). Storage-condo owners enjoy a fixed cost each month, with the possibility of asset appreciation over time, without ever having to worry about rent increases.
Another key difference between the two business models is most self-storage facilities don’t offer units larger than 400 square feet. This is understandable from the owner’s perspective because the ROI is typically much lower on larger units. Further, developers of pure industrial properties tend to stay away from units smaller than 1,500 square feet, since the construction cost is much higher than with large, tilt-up buildings. This has left a gap in the market for storage units from 400 to 1,500 square feet. The storage-condo concept has begun to fill it.
Despite their differences, storage condos and self-storage facilities can coexist in harmony. In fact, our condo property in Palm Springs, Calif., has a self-storage business directly next door. When the self-storage operation can’t meet the need for a large unit, the customer often takes a hard look at the storage condos next door. In fact, we can attribute about 20 percent of our sales directly to referrals from our self-storage neighbor.
But even though the two models have good synergy as separate entities, don’t get fooled into thinking you can mix rentals into a storage-condo project. Many condo builders lean toward a mix of rentals controlled by the developer along with some outright sales. This has been a recipe for disaster.
Condo buyers really take ownership to heart. They tend to be very protective of their property and guard every aspect of the development. They view transient renters poorly, believing they don’t take care of the property as well as those with an ownership stake. And, for the most part, they’re correct.
When you mix both models together on the same property, a division of classes—renters vs. owners—tends to occur. It can get very nasty, and renters wind up not feeling very welcome. During annual owners’ meetings, most of the time and energy is spent fielding complaints about renter behavior. The general feeling is anything out of order on the property is renters’ fault. It’s an exercise in futility that ultimate makes the developer an enemy.
A Nice Complement
Those in the self-storage business who are thinking about developing storage condos should consider building the site as close to their existing self-storage property as possible. While the market for condos is currently rather small, the concept is growing quickly. If you conduct a quick Google search for storage condos or garage condos, you’ll see what I mean.
The only real Achilles heel to the storage-condo concept is a lack of take-out financing for prospective unit buyers. Generally, your construction lender will be willing to provide short-term financing. The required down payment may be 30 percent to 40 percent, with a relatively short loan term of five to seven years. This limits buyers to the upper 5 percent of the potential market. Not everyone can afford that down payment. If 20- or 30-year financing becomes available, there’ll be no stopping this concept, but as it stands, the lack of financing limits your target demographics to the “upper crust” of your market.
Property owners who have experience in building and stabilizing self-storage facilities will have an easy time creating storage condos with just a little common sense and research. The construction costs are slightly higher, but the ROI is measured in months, not years.
Ted Deits is the owner and developer of Monstore Garages in Beaumont and Palm Springs, Calif., which offers private storage condominiums. He’s had a varied career, including being an early developer of PC accounting software, creating the first website to report worldwide ocean and surfing conditions, and a stint as an on-air personality for Los Angeles radio station KFWB. He built his first storage-condo facility in 2006. Additional Monstore locations are in development in Arizona, California and Nevada. For more information, call 714.928.0527; e-mail [email protected]; visit www.monstoregarages.com.