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PhasingWhen and when not to delay construction

April 1, 1998

5 Min Read
PhasingWhen and when not to delay construction

Phasing

When and when not to delay construction

By John Wilson

Phasing, asdefined in terms of construction of self-storage projects, means delaying the start of oneor more parts of a project beyond the earliest possible completion. When utilizedproperly, this technique can yield real benefits for the owner and developer alike.

Whenever a potential project is reviewed, the entire site that is expected to includeself-storage construction should be master-planned; that is, the maximum developmentpotential should be quantified so that the full potential income can be weighed againstthe likely costs. This plan should include all necessary elements, including entries,exits, office-apartment, easements and setbacks that cannot be used as building sites,drives, building areas (climate-control and non-climate-control) hallways and multistorybuildings. Also, in most urban areas, a certain amount of land must be set aside forlandscaping.

After this master plan is finalized, the economic-potential profile is compiled, takinginto consideration expected rents, construction costs, interest on loans, operatingexpenses, leasing rates and other factors. If it is determined that the project should bepursued, the construction scheduling should begin. This planning should include adescription of how the project construction will be phased. As stated above, there arereasons to delay certain elements of the project beyond the earliest possible completion.These reasons vary with the type of element to be delayed.

Capital Availability

It is often true that there is just not enough money to complete a project's potentialfrom the outset. A first phase of construction that will allow the owners to develop cashflow and create confidence in both themselves and their site can be a necessary firststep, especially if they are first-timers or new to a lender.

Climate-Control Buildings

These are usually larger buildings that are more expensive to build. They are oftendelayed because of uncertainty as to the demand for the higher rents.

Non-Climate-Control Buildings

These are usually delayed because they are the easiest to complete, and there isuncertainty as to the market desire for unit size.

Slow Leasing Rate

If there is good reason to believe that the project may lease up slowly, it is a goodidea to simply delay having to pay interest on units that are waiting for customers. Forexample, every month that construction is delayed on a 6,000 square foot building that isnot yet needed, you create a savings of about $1,200. On the other hand, that is onlyequivalent to the revenue for about a dozen units.

Office-Apartment

This is often considered an element to be delayed on marginally capitalized projectswhere maximum revenue in the shortest time is a requirement. It is true that a unit cantemporarily be finished as an office and that the permanent office-apartment can bedelayed, but this shows the project for just what it is: a marginal operation. If themarket is a secondary one, or the demand is very high, this may be one way to start cheap;but if there is quality competition, then your project will have a hard time getting morethan the low-dollar business.

Landscaping

If the project is not in an area where the landscaping must be done before abuilding-occupancy permit is issued, then landscaping may be delayed. In general, this hasto do with curb appeal and, as in the case of the office-apartment, may harm the image ofthe project if delayed too long. Naturally, seasonal adjustments are not a problem.

Site Work and Fencing

In some areas, particularly secondary markets, the minimum sitework is often done. Thisis a big mistake. All areas to be fenced and paved (certainly those areas within 50 feetof the buildings or streets) should be completed before opening. If an area is to be leftfor future building, make sure that there is another access from the street besides thefront gate and between the buildings for the sitework equipment. Regardless of thesituation, hire a civil engineer, and make sure the site work is done right.

Boat and RV Storage

The role for this type of storage is often the reverse of the buildings. An area thatis graveled or paved and easily accessible is ideal for renting for outdoor or coveredstorage. The problem is that while this type of storage produces less net income thanbuildings for the land area, the demand is very high and the spaces fill up quickly. Oncefilled, it takes time to get the customers to leave if there is not another spaceavailable to offer them nearby. It also is sometimes hard to move those rent-payingcustomers out and lose any income from the space until all the buildings are built andrented.

Signage and Other Advertising

These should not be considered as reasons for delaying. The relative cost is verysmall, and this is the image the customers have of your business.

Security Systems

Beyond the very necessary gate with its coding and controls, electronic systems,especially cameras, can be a matter of marketing image more than actual operatingnecessity. It is a matter of opinion how important these are when opening. Sometimes themore elaborate security items, such as fence alarms, motion sensors and door switches,have proven themselves to be more trouble than useful.

Phasing is a tool that should be used for most projects--at least to some degree--inorder to offer flexibility to the market and minimize capital exposure. But like manyfinancial tools, phasing requires serious thought and evaluation as to the extent itshould be used and in what way.

John L. Wilson, P.E., is president of Wilson & Associates Inc., offeringarchitectural and engineering services for self-storage projects nationwide. For moreinformation, call (210) 495-5736; fax (210) 495-4746; e-mail [email protected].

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