The best self-storage developers have a plethora of tools and techniques they use to locate, evaluate and develop their properties. This article will teach you some of those valuable tricks of the trade as they apply to the site-selection process.
Before I equip you with tools to find better sites, I want to eliminate the idea that developing self-storage can be boiled down to an exact science. One of the most limiting paradigms you may encounter in this industry is the idea of “benchmarks.” While some of these benchmarks can be good tools, more often than not, they are misused. Here are a few to be cautious of:
When supply in your market is below 6.5 square feet per person, there is a good opportunity for expansion. False. This statement is one of the most misleading in the entire industry. I’ve seen markets with 12 square feet per person that could still absorb 100,000 square feet of self-storage. Conversely, there are overbuilt markets with as little as 2.5 square feet per person. Basic economics teaches us that what is important is the relationship between supply and demand. You must measure both.
You should budget $30 per square foot for a single-story development. False. Of the past 50 ground-up projects I’ve reviewed, I’ve seen maybe one or two where the actual cost to build was less than $30 per foot. There are too many variables in each project to use any type of broad benchmark for development costs. Costs unique to every project include permitting, site work, engineering, utilities, storm-water management, architectural details, construction interest, cash-flow deficit financing, start-up costs and more.
Don’t overlook the value of putting together an actual budget for your specific project. Just because the cash flows when you use a generic benchmark, like $30 per square foot, doesn’t mean it will work if construction costs are $50 per square foot.
The average project leases up at 5 percent per month. False. We do not rent percentages in this industry. We rent units. Tenants also move out regularly. Forget using a percentage growth rate in lease-up. It’s a faulty measurement.
Operation costs will be about 35 percent of gross income. Maybe. It might cost 50 percent of your gross income; it might cost 30 percent. This will be unique to every project, every business model, every micro market.
You’ve read that your market is under supplied. Maybe. Most data publicized in this industry is on a broad-market basis. You will actually serve a micro market—those residents and businesses in immediate, convenient proximity to your site.
Now that I’ve exposed a few myths, here are three rules for identifying, evaluating and securing a great self-storage site, not just a site.
Rule No. 1: Be prepared to look many potential sites. I’ve worked with Richmond, Va.-based self-storage developer Tom Kern of Innovision Development LLC for more than three years in evaluating self-storage sites. During that time, he has developed a comprehensive database of potential self-storage locations in his target markets.
“You have to look at site selection as a process of filling your pipeline,” Kern says. “You have to evaluate multiple sites simultaneously before you can eliminate the lesser sites and focus on the good ones. Plus, there are lots of things that can hold up a great site for months, even years. The more you get in your pipeline, the better positioned you will be to be objective in evaluating sites.”
Rule No. 2: Understand the local zoning rules and approval climate for self-storage. It may be a great site, but if you can’t build storage there, you must be open to moving on. I’ve seen developers get so locked into a site that isn’t zoned for self-storage that they overlook equally strong sites. They end up spending a ton of cash and valuable time on rezoning applications only to wind up at square one at the end of the day—without a site and with less cash for the next project.
Don’t get me wrong, I’m not opposed to applying for rezoning. Great sites have been developed that way. But in the first stages of your site-selection process, know where the opportunities exist ... and where the doors are closed.
How do you learn about zoning? First, go online and check to see if your city or county has online zoning resources. Many will provide (sometimes for a nominal fee) a zoning map that details stratified zoning classes. Often self-storage is allowed only in manufacturing or industrial areas. Other municipalities have a commercial zone that allows self-storage. Some cities or counties only allow it by special-use permit or as part of a larger development.
By contacting the local zoning office in your jurisdiction (city, county, township, etc.), you should be able to quickly learn the rules for developing self-storage—where it can go, how much can be built and how to gain approvals.
Rule No. 3: Do the work. When you identify a site, know the competition. Walk in and speak to the local self-storage managers. Rent a unit. Observe the market. Too often, would-be developers rely solely on brokers to find them quality sites. “A good broker is essential to your team, but you have to be your own birddog,” Kern says, “And like any profession, you have to have the right tools to locate and evaluate sites.”
Now that you have a general idea of the rules, here are the tools you’ll need to secure the best self-storage site.
Tool No. 1: Online resources. If you’re looking for sites, get familiar with the local resources that may be available on your city or county website. Cities, states and counties often have great information you can access right from your computer. If they offer a GIS-mapping resource, you can often identify zoning, acreage and property data quickly.
There are two great real estate websites you should check out: Loopnet.com and CoStar.com. For a basic membership fee, you can access property listings in your target market. These sites allow you to quickly focus your search by property type, ZIP code, county and other variables. Basic memberships may not provide all the data you need but will point you in the direction of listing brokers, who should provide as much info as you need for an initial review. Don’t be afraid to ask for data such as zoning, demographics, site limitations, traffic patterns, etc.
I use Google Maps to quickly identify major competitors in any given market. By searching “self-storage near 123 Main Street,” I can quickly identify approximately how many competitors are within a given distance of my potential site. From there you can often directly access competitor websites, which sometimes contain rate and availability info.
Tool No. 2: A big map. One developer I know had an 8-by-16-foot aerial map of his target market. He pointed out every competitor and residential development as well as the main traffic patterns around his site―no doubt a great resource. You can do the same thing with a big road map. Map out the competitors and zoning areas to identify specific ones where you should direct your search. Some great sites have been identified where others were not looking. Not all great sites are listed for sale.
“I look for sites in good locations that might have a little hair on them,” Kern says. “What I mean by that is a site that is not great for retail, might have some irregular qualities, maybe a ‘flag’ lot or a tract with great visibility near a power line or a railroad. They’re out there; you just have to be willing to go find them.” Having a big map that identifies zoning classifications and competitors will help direct your efforts.
Tool No. 3: The letter of intent. Your letter of intent should give you time to investigate how you will pull a deal together and specify your desired terms of purchase. It will give the seller an idea of how much you will pay, how long you need to investigate the feasibility of the site and market, and identify any contingencies that you will require in the contract.
Your letter is your first entry into the contract-negotiations phase with the seller or listing broker. It should spell out everything that’s important to you in acquiring the property. Give yourself adequate time to deal with any market investigation, feasibility analysis, valuation, environmental review, zoning, site planning and necessary approvals. It’s the vehicle to specify trigger points for contract length, extension, cancellation, earnest money handling, closing, etc. Your broker and attorney can help you draft one.
As you move toward finding your next self-storage site, keep in mind that great sites are out there, but you will have to work to find them. It is not easy, but it can be rewarding. Plus, finding the right site for your project is great for your long-term business strategy.
Ben Burkhart is the owner of BKB Properties and StorageStudy.com, a full-service self-storage consulting and resources firm. He works with developers around the country in assessing site feasibility, market strength, marketing strategies, financial analysis, profit enhancement, site design and deal structure. To reach him, call 804.598.8742; e-mail [email protected].
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