The Potential Minefield of Self-Storage Development: Avoid These 8 Pitfalls

In the competitive world of self-storage development, avoiding critical pitfalls is key to ensuring a successful project. Here are eight potentially devastating mistakes that can derail your efforts, plus advice to help you avoid them.

1. Procrastinating

Too often in self-storage development, we see paralysis by analysis. Author, business expert and entrepreneur Alex Hormozi said it well: “If you just did all the [stuff] you already should be doing, you’d be 10 times further along than you are right now. Sometimes we need to be reminded more than we need to be taught. Less information, more implementation.”

For example, if you wait to start looking for development land until you’re “good at it,” you never will be. Step one is to start looking for land today, and look every day. Don’t wait. You’ll learn 10 times faster by doing than studying.

2. Underestimating Project Costs

Every year, we see distressed self-storage projects go on the market because the developer wasn’t financially prepared for the total cost. Some sites are merely approved and shovel-ready when they’re abandoned while others are halfway through construction! All progress comes to a screeching halt when the owner realizes they don’t have enough money to complete the project. Misunderstandings, poor contracts or inadequate plans lead to cost overruns, which eventually become too burdensome to manage. When you’re spending every penny on a project and you accumulate extras that run well into six figures, those added expenses can easily and quickly put you out of business.

Sometimes a self-storage project makes it all the way to completion, but then it leases up at a much slower rate than expected. Over time, the owner may find their capital is being entirely consumed by carrying costs before they reach the break-even point.

These types of financial tragedies can be avoided by working with an industry expert who understands all development costs and best practices.

3. Overlooking Land Features

Not understanding the physical features of the land on which you’re building or how to manage them will easily cause a self-storage project to go over budget or timeline. To avoid costly surprises, conduct a thorough site assessment early in the planning process. For example, do a detailed boundary survey, environmental study, geotechnical report and topographical survey. Also, walk the site and review the current mapping.

Extreme slopes may lead to expensive grading, retaining walls or specialized foundation work, which can dramatically increase site-preparation costs. Even a 10-foot grade difference on a 7-acre parcel can create substantial cuts and fills. This can cost more than $500,000 if the material needs to be hauled off-site or brought on-site, or you have to construct retaining walls.

Drainage, water-quality and wetlands issues might require costly environmental mitigation or special permits, which can cause delays. Additionally, the need to remove dense brush, mature trees, bad soils, old dump sites, old buildings or large rocks can generate unexpected expense.

A quick self-storage project killer is bad soil. Significant ledge removal is often cost-prohibitive. We’ve seen soils with extremely low bearing capacity that required a specialized foundation, which hundreds of thousands of dollars.

4. Using Incomplete or Poor Design Plans

When your self-storage construction plans are incomplete, it can easily lead to hundreds of thousands of dollars in cost overruns. Many contractors assume that items like signage and access control are the owner’s responsibility and won’t do anything about them unless it’s clearly stated. For example:

To eliminate these issues, have your civil engineer and architect add a bold note on the plans that reads, “Everything shown on these plans shall be provided and installed by the general contractor.”

Also, keep in mind that if your self-storage plans don’t specify the exact products you want, you’ll likely end up with the cheapest, lowest-quality options. Take your access gate, for example. Without clear specs like the preferred brand, you might receive a subpar system without battery backup that may not even meet industry safety standards, which could turn into a long-term liability. Without specifying video-camera requirements, you could get a 30-day backup when a 60-day is needed, along with poor video quality. You want to choose leading products that can ease your site manager’s workload and improve customer experience.

Ultimately, poorly designed plans can lead to inefficient self-storage operation, safety hazards and less profit. Here are a few more examples:

5. Failing to Understand Contractor Bids

Every self-storage developer must thoroughly review and compare their contractor bids. Ask detailed questions to clarify the scope. You need to fully grasp what the bid includes, but just as important, you must understand the exclusions. Failure to do so can lead to unexpected costs when a change order for additional work is required.

You can’t assume everything is included in the self-storage construction bid. It isn’t. Common exclusions include permit fees, owner inspections and material testing. Some contractors may have an unexpectedly long list of omitted items. Avoid assumptions. Always ask the contractor what isn’t included.

6. Failing to Understand the Construction Contract

Once you’ve chosen a contractor for your self-storage development and received a construction contract, you and your attorney should review it to make sure you’re comfortable with the terms and that all necessary information is included. Generally speaking, it will require modification or an addendum to balance the terms.

Many construction contracts, including those from the American Institute of Architects, are written to favor the architect or contractor. For example, they might allow your architect to make project changes without your approval or permit the contractor to charge additional fees after a certain number of rain delays. 

Contracts also typically lack a firm completion date. Even if a deadline is provided, there’s usually no penalty if it’s missed.

Your self-storage construction contract might also specify a total dollar amount but lack a payment schedule. You should agree on this up front and include it in the contract to ensure the payments align with the value of the completed work. Without this, the project can be front-loaded, leading to extra costs and significant issues if anything goes wrong.

7. Failing to Do an Initial Market Analysis

Success in self-storage development requires building in the right location and knowing the project numbers before breaking ground. It’s essential to first conduct your own market analysis; then, if your findings look promising, proceed with a professional feasibility study. If you don’t do that critical, initial assessment, you risk spending thousands of dollars on a third-party report; and about 70% of the time, that expensive study will recommend you pass on the site.

8. Giving Up on Finding Land

This big hurdle stops many self-storage developers. They underestimate the time and effort required to find suitable land, not realizing it’s their responsibility to put in the work. Even with the right tools and systems, it can take six to 12 months of consistent effort to identify the right site. To succeed, you must commit to the long haul.

Marc Goodin is president of Storage Authority LLC, which operates self-storage facilities in two states and has 31 franchises nationwide. He has more than 30 years of industry experience and owns three self-storage facilities that he designed, built and manages. To reach him, call 860.830.6764 or email [email protected]. You can also purchase his books on facility development and marketing in the Inside Self-Storage Store.

Kevin Harless is the development director for Storage Authority Franchise. He’s a resident of Dallas, Texas, where he’s spent the last 15 years of his career in self-storage construction, management and acquisition. You can send him your industry franchising, development, marketing, sales and operations questions at [email protected].