Inside Self-Storage

SEP 2018

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Page 29 of 63

T he goal of any self-storage development should be financial success, and the best way to accomplish that is to carefully plan the basics: site selection, unit mix and layout. To many first-timers, the industry business model is simple: Buy land, build and make money. Once upon a time, it was almost that easy. Today, it's much more complex. Many markets are experiencing greater competition, higher land and building costs, and additional regulatory burdens. We're seeing the use of more climate-controlled and multi-story buildings, due in part to trends in consumer demand. As a result, self-storage facilities are becoming much more expensive to develop, with longer lease-to-stabilization times. Even so, they continue to be a solid investment choice. Choosing the right site and creating a well-designed unit mix and layout is critical, especially for a first-time developer. These are the fundamentals of a successful storage business, whether you're building your first or fifty-first facility. Site Selection Site selection is the most important factor in determining success. You generally want a location that's highly visible, with good access, on a major road. The site should be in a high-growth area or one that's clearly in the path of progress. In addition, you need a good combination of demographics, with higher than average household income and population growth in a three-mile trade area. Finally, the location should have minimal existing or planned self-storage competition, particularly within that first mile. If you've discovered an area that's underserved, chances are other developers have noticed it as well. Check with the local building authority to see what's headed that way before you start to develop. You don't have to let competitive forces sway your decision, but be aware of all existing and planned projects. Of course, the property must be large enough for your planned development and have access to the proper utilities, such as water, sewer and electricity. It should also be properly zoned. What's important is you understand that not all land is good for self-storage. Just because you inherited it or bought it at a bargain doesn't make it a desirable location. A good site must have the above attributes. If it doesn't, you need to keep looking for one that does. Typically, a single-story development might require 3 to 5 acres, depending on topography and shape. A multi-story site will come in at 2 acres or so. Always have an exit strategy for any site you choose, with the ability to terminate the contract if the permitting or zoning doesn't go your way. The bottom line is the ideal site gives you a high level of comfort. Unit Mix Self-storage unit mix is normally a product of population density and income levels. For example, areas of higher income will typically demand more security and climate-controlled features; apartment dwellers will want smaller units, say 5-by-10s; and suburban or commercial-oriented markets will call for more large spaces, such as 10-by-20s. It's important to note that your financial return per square foot (PSF) usually diminishes as the size of the unit increases. For example, if your market will support $70 for a 5-by-10, you're achieving a rental rate of $16.80 PSF. It's doubtful the 10-by-20 will support that same rate. This doesn't mean you should build a higher proportion of smaller units, though. A store with 50,000 net rentable square feet might have more than 500 storage units or as few as 300, depending on the market. You must build the unit mix to the market, not to skew the PSF return. Site Layout To discuss site layout, let's focus on single-story, as it would normally be easier and less costly for a first-time developer to build. During the layout process, we typically involve a professional civil engineer with experience in self-storage design, which can be invaluable. LEARN MORE Learn more in the videos "General Principles of Self-Storage Site Design and Layout," and "How to Choose a Self-Storage Site and Ensure It's Buildable," both available in on-demand and DVD formats exclusively at Creating YOUR FIRST STORE The fundamentals of development success By Jef rey B. Turnbull and Lucas J. Turnbull 28 ISS I September 2018

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