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September 1, 2002

10 Min Read

Converting a bus station to self-storage-roof, fascia, parking and paint.

Since the real estate crash of the late 80s and early 90s, conversion of real estate from an absolute use to one of renewed activity has been a challenge to all owners. Whether it is an old mill building in the Northeast, a factory in the South, an office building in the Southwest or a discount store in the West, finding a new use for unoccupied buildings has been a problem.

The best idea is always to find a use similar to the prior one, and at similar rental rates. This is impossible in most instances. If the past use had worked, the original company would still be using the building. Sometimes the owner may take years to decide if a new use must be found. In many cases, the best use may be to go to a climate-controlled self-storage facility. This decision may come after trying other secondary uses that proved to be marginally profitable or not at all.

Another form of self-storage conversion is for an owner to take an existing, conventional self-storage property and convert one or more buildings to climate control. Stor-All, out of Deerfield Beach, Fla., recently converted two of its properties in Atlanta. The company changed out the old doors, which had been installed in 1972, and converted parts of two other buildings to climate control. After the project was complete, the properties looked newly constructed.

For the purpose of this article, I will be referring to the conversion of existing buildings of a different use to self-storage. These buildings may include retail stores, office buildings, schools, hotels, industrial buildings, and miscellaneous properties such as abandoned bus stations, underground parking lots, etc.

Center City Focus

For many years, it was thought that self-storage should be primarily located on a ring outside the city. In many cases, it was relegated to industrial parks or other out-of-the-way locations. Most people storing belongings were required to drive from their in-town locations to the suburbs.

Industry experts agree conversions seem mainly to be formerly commercial businesses or industrial manufacturing. Just about any structure can be adapted to a self-storage use. The most important feature seems to be that the building must have a design load of 125 pounds per square foot. Often, this will require adding structure to an exisiting building, which might include foundation structure, additional wall structure or both.

An in-town allocation allows for very easy access for potential renters. Premium rents are often received for the convenience of a shorter drive and easier access. Many properties have large parking lots that can be used to build extra, conventional storage. At one Philadelphia property that had been a discount store with 120,000 square feet, the owner converted the parking lot to an additional 85,000 square feet of storage. One additional benefit of these in-town locations is they lend themselves to rental-truck operation, which can provide a considerable amount of additional income.

Although in-town locations usually demand higher rents, they attract more customers. It is not unusual to find in-town facilities with rents that are double those of suburb properties. The buildings are usually attractive, fitting the aesthetic requirements of the neighborhood. This can save the owner money when reconstructing the building and gives the architect an opportunity to spruce up the local area. Most of the time, these conversions are already properly zoned, but have been neglected in terms of maintenance and appearance. Building and planning boards are generally receptive to a new use for a building if it means lower traffic counts and improved looks.

Choosing a Conversion Site

As with any real estate investment, the biggest priority is location. For example, a building may be obsolete for its present use because it was just too small for its intended purpose. Such is usually the case with large retailers and building-material companies. Stores that were considered large with 70,000 to 90,000 square feet a few years ago are today being replaced with buildings of 120,000 to 200,000 square feet.

This leaves a property that may be in good physical shape with a large parking lot and very good demographics for self-storage. Recently, a closed Wal-Mart in southern Louisiana was converted to storage. The building had been empty for three years (Wal-Mart had relocated to a 180,000-square-foot superstore 1.5 miles away). Prospective renters still pass the building on their way to the new Wal-Mart, adding visibility. The conversion to climate-controlled self-storage currently has 90,000 square feet of rentable space, though the parking lot can later be converted to storage or sold for another retail purpose. This scenario is being played out all over the country.

Another source of properties suitable for conversion have been speciality retailers like Service Merchandise that have filed some form of bankruptcy. These buildings always have good demographics and sometimes harbor rear storage areas that are 25 to 30 feet high. These can easily accommodate mezzanine areas to provide more storage. Since the original use probably did not include an elevator, one must be added, which can usually be done at a cost of less than $50,000.

Details and Costs

Costs for a conversion site vary greatly. As a general rule, as little demolition as possible should be done to the building. When all is said and done, the cost of conversion can vary between $7 and $20 per square foot of gross floor area. The variance can be due to the cost of waterproofing the roof, and adding flooring, sprinklers, mechanical systems and exterior refurbishments.

If there is an existing suspended ceiling system, it should be left in place and stained ceiling tiles replaced. These buildings are most often already sprinkled, and the ceiling heights are usually in the 12-foot range. Most often, there are more lighting fixtures in place than necessary for storage purposes. Sometimes half of these fixtures can be abandoned.

If sprinkler systems are already in place, they probably only need the usual inspections. If a mezzanine has been added, the costs of adding a system can range between $7 and $10 per square foot, not including the cost of additional sprinklers. As sprinkler heads are required to be 12 to 18 inches below the bottom of the floor above, the floor-to-floor height of the mezzanine will need to be 10 feet. For the mezzanine to work with the elevator without protruding through the roof, the total clear height of the building will need to be 22 feet.

Entrances for the building are usually in place in a conversion, and fire exits are adequate, as the original building occupancy was far more than in self-storage use. If there are exterior canopies and walkways attached to the buildings, they can be converted to exterior storage units, which help identify the new use of the building. Most of the time, sign pylons and canopies can be signed for nominal cost without going to the trouble of securing a new sign permit. The buildings were originally located to be easily identified from the street, which is perfect for the new application.

The heating and air-conditioning systems are generally still operational. The heating and cooling needs of self-storage are less than half that needed in a retail operation. As the conversion is in a large space, all that is generally needed is to direct the air conditioning to create a flow of air over the entire building.

The office can be just inside the main entrance, which is usually existing with glass and doors in good condition. As this space has already been used for retail purposes, it lends itself to the sale of ancillary items, generating additional income--as much as 15 percent of gross. It is not unusual to find a copy store, packaging, a mail center and other storage-related items for sale at a facilty, which can be very profitable.

A wise buyer will always carefully inspect the property for any environmental problems or potential hazards. Many of these issues can be resolved but have a habit of being very expensive.

The floors are usually tile or concrete and should be cleaned and/or repaired. In the case of unlevel flooring, carpet can be a solution. A medium-quality indoor/outdoor carpet can cost $35 to $45 per square foot and solve many floor problems. Carpeting also greatly enhances the appearance and friendliness of the property, as it looks "warmer" than bare floors.

Security systems are easy to implement and can be adapted to any desired security level. Some developers elect to have CCTV cameras in all hallways. Others want to go a step further, alarming each individual unit. At a minimum, some sort of entrance system and alarm for exit doors should be in place. An intercom system, which can be used to play music or for communication, is also recommended.

The last and most expensive item is the interior build-out of door and partitions. The cost varies according to unit mix and wall height. A standard unit mix costs approximately $3 per square foot installed, including metal mesh over the tops of the units for security. Partition height is generally 8 feet, 8 inches, with 7-foot doors. This is standard garage-door height. Most hallways are painted glossy white, providing light, and may use a complementary door color. It is recommended that Galvalume corner guards and floor kick plates be used to minimize damage by moving carts. These can keep a property looking new for years to come.

Depending on the special circumstances, it is possible for a conversion to cost more than new construction. This usually occurs in an older building that requires foundation and structural improvements along with major exterior renovations. The advantage of converting a building with these problems is it can be done faster, allowing for an earlier opening. This can be a trade-off with the higher costs, as a conversion can take 70 percent less time than a new build.

To Convert or Not to Convert

An inexpensive building in a high-density location should be a good candidate for conversion. There are several factors, however, that will affect the decision to convert:

1. Accessibilty of the entrance

2. Locations of loading docks and secondary entrances

3. Condition and availability of elevators

4. Condition of existing electrical and mechanical systems

5. Conformity to existing occupany codes

6. Availability and quantity of parking space

7. Size and quality of competition area

It must be kept in mind that operating expenses may be higher than usual at a conversion site, e.g., real estate taxes, utilities, insurance and Yellow Pages marketing. Some areas may also require 24-hour security, which is not usually needed in suburban locations.

When reviewing the demographics of an urban conversion, it is important to consider the population in the immediate area. One Chicago conversion had more than 11,000 apartments within a mile. As apartments have relatively little storage space, this indicated a large demand for self-storage. The property is extremely successful.

Whatever problems there might be to consider with conversions, there is no doubt they have opened up an entirely new market for the self-storage industry. Not only are their locations good, but the ease of offering climate control makes them a great investment. Conversions offer the potential for creativity, too. Unit mix in high-density areas may be quite small and include lockers, while in less dense areas, the unit mix may be quite large. The phasing of a conversion is easy and gives the owner a chance to adjust unit sizes with each phase. This provides an opportunity to enter a market that would be nearly impossible with a new construction project.

Prospective owners should keep their eyes open to the possibility of a conversion in their areas. These buildings are often overlooked; but the cost of converting is less, the rental rates are the same or higher, an the profit potential is greater than with conventional storage.

Dan Curtis is president of Storage Consulting & Marketing in Atlanta, which specializes in market studies, feasibility, site layout and design, marketing, conversions and climate control. He is also vice president of Janus International Corp., of Temple, Ga. For more information, call 770.432.2417 or 404.427.9559; e-mail [email protected].

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