Inside Self-Storage

JAN 2019

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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A self-storage feasibility study is an industry expert's opinion on the financial viability of a property at a specific size and location, based on local research, industry standards and trends. Though it may or may not provide an estimate of what the facility might be worth once it's built and rented, a feasibility report is not an appraisal. When I designed my first storage facility as a young civil engineer in 1984, I'm pretty sure no feasibility study was done (or needed). Even in 2006, when I designed and built my first property as an owner, my study consisted of two simple questions: How much did the land cost, and how quickly could the project be built? But, alas, times have changed. There are still many great sites available—more than many in the industry would like to admit. But do you want to be the one to invest more than $5 million only to break even or perhaps run out of money because it took 48 months to lease up? Why You Need It In today's climate, there are four main reasons to perform a feasibility study for a self-storage project: • To con' rm your own initial ' ndings that a site has the required demand and other features needed for a great self-storage location • To obtain estimated construction costs, along with an income-and-expense pro forma to better understand the ' nancial scenarios and opportunity for pro' t • To better understand your competition so you can plan accordingly • To satisfy the feasibility-study requirement of many banks (especially Small Business Administration lenders) or investment partners Essentially, a good study will answer several questions and provide a wealth of information to guide planning as well as the site and building design. Here are some other things a study can do for you: Provide data. Though it's getting easier to conduct your own initial study with the aid of online tools, it's still critically important to have an expert confirm your opinion and provide supplemental material and analysis through online data and first-hand research. The information you gather may look decent, but mitigating factors can turn an initially good site into a bad investment, for example, if you miss just one project in the pipeline, fail to recognize the competition is renting 10-by-10 units for $75, or overlook certain site conditions. By the same token, a site that may not appear to have enough demand based on national standards may very well be an excellent location once details are revealed through local investigation. Offer design assistance. A good feasibility study will help determine the best design for your facility, guiding you on unit mix, climate-control considerations, and amenities the competition has or is missing to ensure you offer what customers in your area want. In addition, the construction costs, financials and rent-up period outlined in the study will help you understand equity required for the project, carrying costs, and whether you should develop the project all at once or in phases. Provide local expertise. Self-storage feasibility experts can be international, national or local. It's important to hire someone who is familiar with the area since demand (available square feet per person) can vary significantly from state to state and even between cities. Construction costs can also vary widely. ? Construction costs and market trends used to change slowly, but this isn't always the case anymore. It's important that your study provider has his finger on the pulse of the industry and is in regular contact with industry experts, developers, self-storage associations, building manufacturers and owners. Many of the best feasibility practitioners also regularly attend self-storage conferences to help them stay current. Most providers are one- or two-person outfits, so studies can take up to a month or longer. If time is of the essence, there are a couple of larger firms that can often get reports completed more quickly. A feasibility study is a complex business plan. It requires information about the local market, competition, municipality, product type and unit mixes, development or acquisition costs, and projected operating expenses. It surveys the industry and helps an investor navigate the pitfalls of an asset. It becomes an investment package or a lending document. Most important, it's the single most important tool to help you make the best possible decision. It will take time to get it right. Ask the right questions, listen carefully to the answers, and hear what isn't being said. Don't fall in love with a deal for the sake of doing a deal. Take your time and enjoy the process. Understanding the value of a feasibility study By Marc Goodin Building It Isn't Enough! Source: insideselfstorage.com, "The Right Questions to Get the Most Out of Your Self-Storage Feasibility Study," by Donald Jones Asking the Right Questions 38 ISS I January 2019 www.insideselfstorage.com

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