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The Self-Storage Feasibility Study: Understanding the Process

If you’re contemplating a new self-storage project, it’s imperative that you perform a feasibility study, particularly in these times. Many markets are overbuilt or at the saturation point. You don’t want to build a project that becomes the tipping point to rent concessions and occupancy slides in the marketplace. A well-done feasibility study by a third-party, unbiased provider will tell you if your project has the attributes it needs to succeed or, more important, if it fails to meet the criteria for success. 

Study by Whom?

First and foremost, consider who is actually going to prepare and complete the study. Ask a lot of questions before you award the assignment. Is the person unbiased in his opinions? Be wary of those who have something to sell should the study conclude with “build.”

Does the provider have experience in developing self-storage projects, either for a large company or his own portfolio? Is this experience recent? Things are much different today than 20 years ago in almost all aspects of development and construction.

Does the provider have experience in what it takes to lease up properties to 85 percent occupancy? Everything looks easy on paper, but leaseup is the toughest thing to accomplish.

When did the provider last research development and construction costs? A well-prepared study should include a construction budget that’s very close to actual costs. It should also reflect the latest market rates and terms for financing. Remember, a great feasibility study is the road map to a successful project. 

What the Report Should Include

Let’s look at what comprises a quality feasibility study.

Executive summary. The report should include an executive summary that clearly states if the project should or should not be built and the reasons why. You’re paying good money for a clear answer―demand it. Your bankers and partners may not read the whole document, but they will read the executive summary to get that answer.

Site examination. The study should evaluate the site being considered and provide recommendations on general layout. Most feasibility-study providers are not professional engineers, so don’t expect CAD drawings. You want a general site design you can provide to your engineer to save time and money and, most important, create the best design possible.

This general design determines the approximate square footage a site may produce, which is critical to the study. The design will also dictate construction costs, which will vary widely between a traditional single-story, drive-up facility on a flat lot and a four-story structure built into a hillside, for example. To maximize a site’s square footage, consideration should be given to visibility, office location, security, ingress and egress, where to push snow in northern climates, storm-water management, and building location.

Demographic analysis. Who are your customers and how many are there? That is the question this section should answer. There are several indicators that bode well for self-storage. Apartment renters are typically good tenants, as well as military and college students. Household-income levels give some clue as to the likelihood of renting self-storage. Be careful of levels that are too low (can’t afford it) and too high (will build their own storage in their 10-car garage).

Residents in rural, suburban and urban areas have different motives for self-storage use. Your provider should be experienced in these various markets and rely on industry data to make an educated estimate of the customer base. This will later be used in the demand analysis.

Competition analysis. Every site has competition. To a greater or lesser extent, competition will determine how much storage you build and the rental rates you can achieve. Your feasibility-study provider should personally visit each competitor and provide a report on the location, general appearance, security, occupancy levels, rental rates, manager capabilities, store hours, amenities offered and size of the project.

Determining the average unit size also will help in designing the ideal unit mix for the subject property. All this data will be used to determine demand and rental rates, as well as how to operate the store competitively. A map showing competitors’ proximity to your potential store and pictures go a long way in telling the competitive story.

Supply and demand analysis. This is the most critical part of the study. It must answer the question of whether there is remaining demand to support the development of a new store.

Supply is the easy part. Simply visit each competitor in the market and determine how many square feet or units it has. The market may be measured in blocks in the urban areas and miles in suburban and rural markets. Three and 5-mile market rings are the most commonly used. Be cognizant of drive times. In traffic-congested areas, drive time will be more critical than distance.

There are numerous methods employed to determine demand. Square feet per capita is the old standard, which has generally been replaced by units per household. The formula used is not as critical as the provider’s experience using it. What’s the history of projects built based on his formula? Did they meet their lease-up projections? Be sure there’s some room for error in determining the project’s viability. In other words, make sure there’s excess demand in any market you’re considering, not just enough to squeak in your project.

Financial projections. If the supply and demand analysis is the most critical, the financial projection is the second most important. There are markets in which there’s excess demand, but due to low rental rates or high construction or land costs, the project cannot meet the financial return hurdles demanded by most developers.

The financial model must take into consideration the amount of square footage to be built, how many units of what size and rental rate, phasing of the project, construction costs, financing rates and terms, operating costs and, most important, how long the lease-up period will take. The lease-up period will determine how much operating capital and lease-up reserves are needed to get to the breakeven point.

Many projects are not cash-flowing today, and the owners are in financial trouble because they didn’t allow enough time and money to get the store to the breakeven point. Make sure the model your feasibility provider uses takes rent discounts into consideration and that rental rates are not inflated. The model should cover a 5- to 7-year period, month by month, so you can see the seasonality.

Common Pitfalls

Here are a few things to watch out for in a feasibility study. Ask the provider how he takes the following into consideration:

  • No discounts in financial pro formas
  • Aggressive lease-up periods (more than 2 percent or 1,500 square feet per month)
  • Poor design layouts
  • Aggressive rent levels
  • Small unit mix (small units get high rents per square foot, also called a banker’s mix)
  • Too much climate-controlled space
  • No space for snow
  • Understated construction costs

The feasibility study is a great tool to help you determine the viability of your project. Interview several providers and get multiple quotes. When completed, ask to see a draft of the report before it’s published. You may catch a few items that need to be corrected or clarified. The provider would much rather make those changes for you up front rather than later.

Remember, supply and demand changes every three miles or so. There are development opportunities out there. Find those sites, get a feasibility study done, and do the American capitalist duty of filling that remaining demand!
 
John H. Gilliland is the CEO of the Investment Real Estate Group of companies, which provides self-storage brokerage, management, construction, consulting and feasibility studies for facilities in the mid-Atlantic and northeast United States. To reach him, call 717.779.0804; visit www.irellc.com.

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Christmas Week in Self-Storage: Feast or Famine?

We're one week away from the most distracting holiday of the year. Are you eager to enjoy it ... or to get it over with?

Now don't bristle. There are a lot of wonderful aspects to Christmas, but even those who find joy or spiritual inspiration in the event have to admit it causes a lot of brain damage, too. People are more testy this time of year. Traffic is heavier. Stores are more crowded. Money is tighter. Expections are higher, energy often lower. And unless you're in a retail business, you may be struggling to maintain status quo around your place of work. Good luck keeping employees' (and customers') heads in the game this coming week.

What lies ahead for you self-storage operators out there? Will you be busy with folks using units to hide gifts from prying eyes, or will you be watching the tumbleweeds blow through your office? Historically, how does Xmas week fare for your business? If it's a strong dose of quiet you're anticipating, here are a few suggestions for idle hands:

  • Reorganize your office. Nothing feels better going into a new year than clean shelves, desks and filing cabinets.
  • Make a list of maintenance items to tackle in the year ahead. A list will help you keep track of the to-do's. Remember: What gets measured gets done.
  • Create a newsletter for tenants. Make 2010 the year in which you reach out to your customer base with news, tips, specials and reminders via e-mail. Communication improves collections, and a newsletter is fantastic marketing.
  • Spend time on Self-Storage Talk, the industry's largest online community. Have fun reading and interacting on topics such as late-paying tenants, manager-owner squabbles, difficult customers, marketing, special events, legal challenges and much, much more.
  • Read your own website. When's the last time you checked your facility website for out-of-date info, typos and missing information? It's easy to take a website for granted, but it needs maintenance, too. Your site should be updated and refreshed regularly.
  • Call or e-mail your 20 best customers with a special holiday greeting. They'll appreciate it.
  • Visit neighboring businesses with a treat. Many of your fellow shopkeepers may also be experiencing a lull. Take advantage of this time to chat it up and create fodder for referrals.

Please add to this list! What do you do during the downtimes? Share your comments and suggestions on the blog.

Whatever you do over the next week, busy or not, I hope you enjoy a wonderful, relaxing holiday. Even if it's not "your" celebration, take advantage of the distraction of the world, and do something you wouldn't normally make time for. Salute!

Santa Rents Self-Storage Unit in North Pole, Alaska

The owners of Forbes Storage of North Pole, Alaska, have offered proof that Santa Claus is a user of self-storage. According to Buzz Otis and Renee Webb Otis, a man by the name of Kris Kringle rented a unit at their facility on Dec. 10. Kringle (aka Santa) appeared at the facility after hours and used its INSOMNIAC self-storage kiosk, provided by OpenTech Alliance Inc., to complete the rental process so his elves could start loading packages into his unit. Kids everywhere will be happy to know he has so many presents to deliver this year that Santa needed some extra storage space.
 
The Otises operate two facilities in North Pole. The first they purchased in 2002; the second is a 15,000-square-foot annex facility eight miles west of the first. The annex is primarily run via its INSOMNIAC 900 kiosk. Since opening in late October, the facility has rented 20 units.
 
“You can imagine our excitement when we reviewed our INSOMNIAC reports and saw Santa had rented a unit using our kiosk,” Buzz said. “It feels good to know we were able to help him when he needed it most."
 
Santa could not be reached for comment, though a copy of his rental agreement can be viewed at www.opentechalliance.com/PR/images/hkrefer-cube1-lg.jpg.
 
OpenTech offers six kiosk models ranging in price from $9,000 to $18,000. The company also offers a call-center service and a network for online self-storage reservations.

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Safebox Self Storage Raises Money for Kidney Cancer UK

On Dec. 6 the staffs of Safebox Self Storage and Safebox Document Storage of the United Kingdom raised more than £300 for Kidney Cancer UK by washing cars in the Safebox parking lot. The team washed approximately 40 vehicles in five hours. Safebox will triple the funds raised and present a check to the charity next week.
 
Kidney Cancer UK is a registered charity based in Coventry, England, that offers support for cancer patients and caregivers. The organization provides practical advice and up-to-date information on the management of kidney cancer, and works closely with the medical profession to improve standards of care.

Safebox Self Storage, located in Cambridge, provides residential and commercial storage. Safebox Document Storage offers a fully managed archiving service to clients nationwide.

Source: Business Weekly, Charity car wash a resounding success

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Facility in the Spotlight: Thornwood Self Storage and its Green Approach

To say the development of the Thornwood Self Storage Center in Thornwood, N.Y., was a challenge is an understatement of lofty proportions. In fact, the project unrolled as a series of challenges that tested the ingenuity of everyone involved: owners, engineering consultants, construction crews, security specialists, building manufacturer and the local community.

The first major hurdle was converting the existing building into self-storage. Generally, new construction is less complicated than a conversion, and typically doesn’t present the structural problems developers sometimes face with existing buildings. Real estate developers Dan Kasman and Michael Gyory chose to convert a two-story downtown building that formerly housed a health club.
 
Construction

Situated on sloping terrain, the structure had an entrance on the top level and a second floor partially below grade. Its floors offered extraordinary floor-to-ceiling height, and the new owners wanted to replace them with three floors of leasable self-storage space. They removed the two existing floors, reinforced the building with large steel pylons, and created three new levels within the existing building envelope. All floors are accessible by two high-capacity elevators.

Once the structural renovation was complete, BETCO Inc., a self-storage building manufacturer, installed the door and hallway system. The company’s timing had to coincide with the existing structural changes and the subcontractors’ schedules so as not to delay overall progress of the project.

BETCO’s certified construction crew had to perform field modifications, which meant custom-fitting some interior materials to the building to maximize available space. In addition, site work in and around the building often diminished available space for door and hallway materials delivery.


 
The Facility Goes Green

Part of the owners’ vision for the Thornwood project was a modern facility with environmentally friendly features ranging from rooftop solar panels to an energy-saving, motion-sensored lighting system. Both owners are committed to the health and improvement of the environment. In fact, they engaged the New York State Energy Research and Development Authority to facilitate the energy-efficient development of the building in accordance with its guidelines.

“We wanted Thornwood Self Storage Center to reflect our long-term and deep commitment to the local community and to energy conservation,” Kasman says. “The opportunity to address growing consumer demand for eco-friendly services is extremely rewarding.”
During the conversion process, 95 percent of the building’s structure was reused, and construction debris was recycled and reclaimed to reduce the impact on local landfills. Converting the building to self-storage also reduces traffic congestion and auto emissions by more than 80 percent.

The facility offers packing and moving supplies that include recyclable and biodegradable materials. It also uses only environmentally friendly cleaning products. Local vegetation was planted around the facility to eliminate the need for an underground irrigation system.

“These green practices help to dramatically decrease energy consumption, save natural resources, and provide a better experience for customers and employees, at no additional cost,” Gyory says.

The new facility also has several outreach-based initiatives and partnerships with environmental organizations in development. “We feel it’s important to raise awareness of good environmental practices among members of our local community,” Gyory says.
 
The Basics

The 48,000-square-foot building offers a total of 35,563 square feet of rentable space and 361 climate-controlled units, with energy-efficient heating and cooling systems. Individual units range in size from 5-by-5 to 22-by-20.

The center also features a high-tech security system, onsite power backup and an aerodynamically-designed, dual-alternative fuel truck available for public rental. Onsite customer service is another hallmark initiative of the owners, which includes being open seven days a week.

The developers of Thornwood Self Storage Center are an outstanding example of those who are sensitive to the environment and the community. The key was for them to surround themselves with suppliers who could support of their vision of how responsible business owners should behave in the 21st century.
 
Terry Campbell is the vice president of sales and marketing for BETCO Inc., a single-source manufacturer of self-storage metal buildings, doors and hallway systems. To reach him, call 800.654.7813; visit www.betcoinc.com.

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Self-Storage Companies Support Toys For Tots - RUNNING RELEASE

This holiday season, self-storage companies nationwide are helping to give underprivileged children a happy Christmas by serving as collection, storage and/or distribution points for items donated to the Marine Toys For Tots Foundation. Inside Self-Storage has published several press releases in recent weeks about individual companies and their campaigns. Below are additional firms that deserve recognition for their charitable work with Toys For Tots this winter. ISS will add recognitions to to this list as they are submitted.

  • A-1 Self Storage is collecting toys at its 40 locations throughout California.
  • Stor-N-Lock Self Storage will collect toys through Dec. 15 at its stores in Boise, Meridian and Nampa, Idaho.
  • StorSecure Self-Storage in Kapolei, Hawaii, is collecting new, unwrapped toys through Dec. 18.
  • Personal Mini Storage Management Co. of Central Florida has placed Toys For Tots collection boxes at each of its 31 locations. So far the company has collected more than 500 toys.
  • Starkey Self Storage of Foley, Ala., will once again serve as a collection spot for toys. Donations can be dropped off until Dec. 18.
  • Amazing Spaces is participating with Toys For Tots through a company-wide marketing effort and collections at its three Houston-area self-storage facilities. Donations are being accepted through Dec. 13.
  • San Diego Self Storage is collecting donations of toys at its 18 locations. The company kicked off its campaign with an event at the U.S. Marine's USS Midway.
  • Access Self Storage of North Bruswick, N.J., has served as a toy drop-off location for five years. The facility will gather collections through Dec. 16.
  • Cochrane Road Self Storage of Morgan Hill, Calif., is once again serving as a collection and distribution branch for the Santa Clara County Toys For Tots drive. The facility has supported San Jose,  Calif., marines in the effort since 1997. Cochrane Road accepts toys year round; donations can be dropped into the facility's Santa box 24 hours per day.
  • For the 10th consecutive year, Westy Self Storage of Stamford, Conn., is supporting Toys For Tots by serving as a drop-off location. In addition to collections, Westy will provide storage for the donations as well as make the final delivery.
  • Westy Self Storage of Chatham, N.J., is also serving as a toy-collection location through Dec. 18.

Following are recent press releases related to self-storage and Toys For Tots: 

Arizona Self Storage Association Launches Toys For Tots Campaign

A-Mini Storage Supports ‘Cash for Cans’ Program, Toys for Tots  

Out O' Space Storage of FL Suppports Marine Toys for Tots 

U-Store-It Self-Storage to Support Toys For Tots Nationwide

Cranney Self Storage Serves as Toys For Tots Drop-Off Site

PacVentures Fights for Self-Storage Development in Bear Valley

On Monday, 80 residents of Bear Valley, a semi-rural community just east of Escondido, Calif., gathered to express their anger about a proposed self-storage facility they claim would ruin the pastoral charm of their area.

Last year San Diego-based PacVentures proposed to build Bear Valley Self-Storage on a 4-acre plot, inciting opposition from Bear Valley Rural Neighbors. The proposed project would consist of four buildings providing 586 storage units and a 950-square-foot office building.
 
After taking its grievance to the news media, the community group thought it had squashed the project. However, the developer filed a building application with the county Department of Planning and Land Use in April; and this month, residents received notice about a community meeting to discuss the scope of the project’s environmental effects.
 
Opponents say the residential area is no place for commercial development and that the only road leading to the site, a residential street, would be inundated with traffic. PacVentures says its proposed facility is superior to other storage sites in the area and is designed to look like a gated community. In addition, the proposed site is a busy intersection only suitable for commercial development, a company consultant said.
 
Source: San Diego Union Tribune, Residents fighting self-storage facility

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Alleged Assault at Central Self Storage in California

Milpitas police officers responded to a disturbance at Central Self Storage on Dec. 10. Police said two residents, a 42-year-old man and a 53-year-old man, engaged in a verbal altercation at the business.

The older man allegedly threw a drinking cup to the ground, smashing it. A piece from the cup hit the younger man in the buttocks. The 42-year-old man decided to press charges. The case was referred to the Santa Clara County District Attorney's Office for further review.

Source:  The Mercury News,  Assault Alleged at Montague Storage Business

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Self-Storage Rate Comparison

A new online partnership with Sparefoot.com will allow EasyStorageSearch.com to provide real-time self-storage rate quotes to its visitors. People searching online for self-storage prices and reservations can now compare rates from several self-storage facilities directly on EasyStorageSearch.com, similar to the way airline and hotel rates are compared on Travelocity and Expedia.
 
Sparefoot.com is an online self-storage marketplace that generates price-quote comparison capability.
 
Easystoragesearch.com is an online, nationwide self-storage directory.

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Tarrant Self-Storage Facility Bought by Economic-Development Project

This week the board of the Tarrant, Texas, Regional Water District voted to buy a self-storage property as part of Trinity Uptown, the city’s flood-control and economic-development project. Owned by Shope and Ryan Management, a Fort Worth, Texas-based real estate investment company, the 1.8-acre property sold for $1.4 million. It was needed for right of way for a new bridge and the extension of another road.
 
Trinity Uptown, scheduled for completion in 2021, is designed to provide flood protection and encourage riverfront development. The entire local contribution for the project is expected to be $422 million, with the federal contribution reaching $487 million.
 
Source: Fort Worth Star Telegram, Water district buys storage center site for Trinity Uptown

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