Top Five Mistakes Made by New Self-Storage Developers: Know What They Are So You Can Avoid Them

Before jumping into a new self-storage development project, review and understand these five potential mistakes other developers have made.

July 2, 2010

6 Min Read
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New self-storage construction has been down for nearly two years, but we’re now seeing improvements in occupancies and net income per project. As builders and entrepreneurs see demand exists, they’ll pull the trigger on new facilities. The huge opportunity created by the current economic climate is you can get a self-storage project approved in an area where it would’ve been deemed impossible just a few years ago.

If you’re ready to make this leap, don’t make the same mistakes other developers have made in the past. To be successful, you must start by doing your homework. The great land opportunity you discovered might have a willing planning board that leaves you feeling good about your prospects for approval, but there could be pitfalls ahead. 
 
Mistake No. 1: Not Recognizing Potential Problems

You may have your site approved, but the question to ask yourself is: “What problems exist that I don’t yet know about?” This is a loaded question with many potential answers. Some of the issues you may need to address include: 

  • The city gives you approval, but with so many strings attached that your cost spirals and your breakeven point is way too high.

  • You run into problems with grading/drainage issues that “torpedo” your site.

  • The planning board limits your available land so you can’t get enough square footage to make the project feasible. 

To avoid as many of these problems as possible, it’s best to think of all potential obstacles and get a feel for if there could be anything wrong with the site up front. Address all dilemmas as soon as you discover them. Too many developers assume problems will just work themselves out. In reality, they don’t, and they can cost you a lot of time and money.
 
Mistake No. 2: Not Maximizing Your Site

This doesn’t refer to getting the maximum square footage out of your land, it refers to creating the most square feet of rentable space. Some developers squish as much storage space as possible on the site and fail to consider who would actually want to rent such a unit or size.

For example, in some markets, tenants may not be interested in lugging stuff upstairs or into wide, single buildings, instead preferring drive-up units. In other markets, customers have no qualms about accessing units on upper floors. You may need to re-evaluate your site plan and determine potential income based on what you can actually rent, not theoretically rent. This may mean your gross potential is lower, but your project’s rentability is higher.
 
Mistake  No. 3: Not Securing Financing

Failing to come up with enough money to fully finance your facility is a huge error. In today’s market, lack of financing kills many projects. You need money to get into this industry. If you can’t get it on your own, consider entering a limited partnership.

Many business owners might shy from investors or partnerships; however, if you’re sitting around waiting for the 85 percent loan-to-value ratio the industry touted a few years ago, it’s going to be awhile. In a perfect world, it’s best to minimize partnerships; but in this environment, you may have no choice.

   
This facility in Brookfield, Wis., owned by Rod Barnett and Thomas Ferber, is a good example of a self-storage site done right.  Photos courtesy of Trachte Building Systems Inc.

Mistake No. 4: Not Phasing the Development

Here’s another mistake many first-time developers make: building the entire site at one time. In the last 10 years, more owners have opted to build their entire site at one time. Why? Common answers included, “I can get the money, so why not now?” or  “My pro forma looks better.” And for those who struggled through the city-approval process: “I never want to talk to the city ever again.”

Today, we’re seeing the consequences of all these 60,000-square-foot or more facilities built at one time. They take a long time to rent up, particularly if there’s plenty of nearby competition.

Owners often forget self-storage facilities only rent 1,500 to 2,500 square feet per month even in a good economy. These owners were delusional about how fast their facilities would fill.

Phasing a site minimizes the downside (loan amount) and offers the greatest flexibility to fix mistake No. 2—building the wrong size units for the marketplace. Each market is different, but later phases are your opportunity to fine tune your unit mix and build what customers need.
 
Mistake No. 5: Not Being Ready for Business

The last mistake often made by many new self-storage operators is not being 100 percent ready on opening day. You should begin preparing to rent units long before you actually pull your occupancy permit. The list of items that should be addressed is plentiful and includes: 
 
Website. Have your facility website up and running early. Look at all your options for driving people to your website or get connected to one of the many companies specializing in getting you leads.
Software. Pick out a software system early, know how to use it, and start reserving spaces as soon as it’s operating.
Advertising. Secure your ad in the Yellow Pages before you start construction. You should also consider online advertising opportunities, as more customers are turning to the Internet to find self-storage.
Phone sales. Answer the phone before your facility opens. While tenants cannot move in today, they can reserve a unit, or ask about pricing, unit sizes and amenities.
 
By avoiding the common mistakes above, you’ll attract more tenants, and be successful in developing a quality self-storage facility that will have minimal problems.
 
Jamie Lindau is the national sales manager for Trachte Building Systems in Sun Prairie, Wis. Lindau has crisscrossed the United States and Canada for 23 years helping people plan, develop, build and profit from self-storage. Drawing from his own experiences as a former self-storage owner, he has also led more than 200 Trachte seminars since 1988. For more information, call 800.356.5824; visit www.trachte.com.

Related Articles:

Self-Storage Development Trends: Conversions and Multi-Story Building Lead the Way

Insight for the First-Time Self-Storage Developer: What You Need to Know About Feasibility, Financing, Construction and More

Seven Myths of Self-Storage Development and Operation

Maximizing Profit With the Right Self-Storage Unit Mix

Self-Storage Talk: Finding Better Sites

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