Inside Self-Storage

JUN 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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So, you've decided to build a self-storage facility. Congratulations! Years from now, you and your family are likely to look back on this decision with satisfaction and joy. It's life-changing—mostly in a good way. Developing a storage project can also be taxing. Where do you even start? There are many tasks you'll need to go complete on your journey. Each step is complex, so it's important you understand them before you jump in and get started. What Am I Getting Into? Developing self-storage is a roller-coaster of emotions. There's a great feeling of satisfaction as you see the facility fill up and create cash flow; but that comes after many sleepless nights and mountains of stress. For example, if you're a new owner/developer without other large assets, you might need to pledge your home as collateral. If you haven't ever developed a commercial property, you might be surprised by how much it costs and how much comes out of your pocket prior to setting up a loan. Unknowns that can run up your budget include wetlands, zoning changes, stormwater planning, architectural boards and fire codes. To gain the approvals you'll need before financing is available, you'll likely need to invest $10,000 to $50,000 in civil engineering, permit and review fees. You might also need to hire architects. The more complicated the project, the costlier it'll be. Choosing a Location Deciding where to build is one of your first and most important decisions. You need a market that's underserved. You're looking for a well-populated or growing area with a need for more storage. In a nutshell, analyze demand by comparing the population to the number of square feet of existing storage in the area. Also, look for a site that's properly zoned in a highly visible area, as close as possible to dense residential development. Consider multiple parcels, and don't be surprised if your deal falls apart or zoning prevents the project from moving forward. When you find an area where you think there's unmet need, there's often a reason. It could be the city won't allow storage or the rental rates won't support a new facility. Keep looking until you find the perfect site. Creating a 'Ballpark' Projection You're doing this to make money, so before you invest in a location, you'll need to work up a financial forecast. However, you can't expect your suppliers to give you solid prices without a plan. And working up a plan requires a significant investment in engineering services. This is where ballpark estimating comes in. Research some typical costs and rental rates to formulate cost and revenue per square foot. A conversation with a local civil engineer might help you understand what your grading and land preparation will entail as well as approximate costs. Your building supplier can give you ballpark numbers on various structure types. By now you should also be in discussions with the city engineer or zoning officials to ensure the land is correctly zoned and determine whether there are any restrictions or requirements. Some areas will require a conditional-use permit, or there could be architectural standards for new projects. It's also time to call a few lenders and determine what interest rate you can expect to pay. You likely won't get anything in writing since you don't have a plan, but you should be able to get a range. This initial conversation with your banker is probably best had by phone, not e-mail, as he may be more reluctant to put tentative items in writing. This is also true of your initial contacts with city officials and your civil engineer. You're going to get a lot more out of an in-person or phone conversation than a documented e-mail. Armed with all this data, you can begin to determine the maximum you can pay for your land and still make an acceptable return. The author's first facility, Columbus Self Storage, in Columbus, Wis., which he opened in 2014 An overview of the development journey for first-time owners/builders By Steve Hajewski What to Expect When You're Expecting (a New Facility) 14 ISS I June 2019 www.insideselfstorage.com

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