Does your self-storage site need some redevelopment? Not sure? Let’s talk about what that means and how to make some decisions.
Redevelopment is making improvements to an existing facility to maximize its physical and economic performance and preserve asset value. Redevelopment programs have become popular with some of the real estate investment trusts in recent years as they look to compete with the flood of new supply entering their markets.
Whether to engage in a redevelopment project should be determined by several factors including how well your facility competes in its market, functionality, opportunities for growth and others. Understanding your competition and the condition of your facility will provide you with the information you need to decide the correct type of project and scope of work.
Evaluate Your Site
The first step is to make an honest assessment of your property. Start by driving around your area and touring all your competitors as far out as five miles. Make a checklist so you can keep track of what you see and learn. Focus on:
- Curb appeal
- Branding and signage
- Access control
- Parking lot
- Site layout and circulation
- Unit doors
- Visibility into office
- Office fixtures and interior
- Americans With Disabilities Act accessibility
The more detailed and thorough your analysis the better. Make a spreadsheet and give each property a rating of one to five in each category so you can compare them side by side. In addition to the physical condition of the facility, identify what products and services each provides. For example, does it offer climate-controlled units, drive-up units, boat/RV storage, wine storage, record storage, packing and shipping supplies, truck rentals, other amenities?
Be as objective as you can. This will help you understand how your facility compares to others. Does your site rate significantly lower on curb appeal? Is it the only one in the area with a tiny management office, wood swing doors, gravel drive aisles, old management software, etc.? Also, consider common deferred-maintenance items such as leaky roofs, cracked or broken asphalt, and creaky gates. Finally, are you missing key products and services being offered by other operators in your target area?
Allow any deficiencies in your operation to guide the next phase in the process: deciding on the upgrades to consider. Understanding how your property competes in your market will not only help you discover if you should do a redevelopment project, it’ll show you what that project should include.
Project Focus and Type
Redevelopment can be broken into the following four categories. A really good project incorporates all of them.
Aesthetics. This is the obvious place to start. It includes things such as painting, façade upgrades, signage and landscaping. The objective of an aesthetic project is to attract attention with a retail appearance and clear branding elements, so potential customers driving down the street see this is storage, and it’s clean and modern.
Functional/operational upgrades. These include things like door replacements, additional parking, gate upgrades, point-of-sale systems and office retrofitting. It might include the installation and implementation of technology such as kiosks and smart locks. These improvements enhance the customer experience and make your site more competitive.
Asset preservation. This is critical and normally includes items that have been neglected over the years such as roof replacements, parking-lot repaving, seal-coating, mechanical-equipment servicing, drainage issues and more. The goal is to replace items that have outlived their useful life. Most should be addressed with yearly capital projects, but if they haven’t, it’s critical that they’re completed as part of any redevelopment.
Expansion and conversion opportunities. This is the fun part. It includes expanding existing buildings, constructing new ones on extra property, teardown and rebuild, or a conversion of portions of your existing facility.
Define Your Scope of Work
Now that you’ve decided you need some redevelopment, how do you determine the scope? The information you collected when evaluating your property and competitors is a great starting point. Prepare a “wish list” from that analysis. If money were no object, what would do to maximize facility aesthetics, function and value?
Next, start prioritizing based on the most critical needs and add conceptual pricing. You’ll need to adjust your scope of work until it falls within your budget and hits the highest priorities. Verify your pricing with local contractors before finalizing. You may need to hire architects or other consultants, or obtain permitting or approvals from the local jurisdiction.
Determine Long-Term Reward
Is it worth it to spend this money? That’s the million-dollar question. Determining the long-term value of aesthetic, functional and value-add improvements is difficult because these factors are hard to quantify. Still, they’ll pay off with the better site performance.
Expansions and conversions are much easier to model based on the financial return. For the numbers to work on an expansion, you generally need to build three to four times the square footage you’re tearing down. For example, if you tear down 20,000 square feet of existing storage, you need to build at least 60,000 to 80,000 square feet for it make financial sense.
Look at it another way: It’s possible that if you don’t redevelop, you’ll drive customers to the competition. When people have a nicer, newer option, they’ll probably take it. New supply will begin to steal your tenants. You won’t be able to increase rates. In fact, you may have to even lower rates to maintain occupancy.
Redevelopment is a great way to add lasting value to your self-storage facility and maximize its physical and economic performance. Creating an honest assessment of your property and understanding how it competes in your market will allow you to create an appropriate scope of work that’ll make your operation competitive and viable in today’s changing market.
Scott Wyckoff is a founding principal of Wasatch Storage Partners, a nationwide acquisition, development and operating company. He began his career in the self-storage industry as a vice president of development and construction for Extra Space Storage Inc., where he was instrumental in the company’s redevelopment and Certificate of Occupancy purchase programs. His background in the nationwide development of self-storage facilities is unique and provides insight into the zoning and approval process. To reach him, call 801.692.1474; visit www.wasatchstoragepartners.com.