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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T he self-storage industry has been experiencing a construction boom over the past few years, with many new projects being built all over the county. The thing is, those who are new to the industry have a lot of misconceptions about the development process. LetÕs talk about what they are and what you should really expect. Misconception 1: I'll Fill It in 12 to 18 Months There are always factors to consider when calculating demand for a new storage facility, and it can be challenging to predict how many months itÕll take for the property to lease up. The 12- to 18-month timeline is almost unheard of with a facility of 50,000-plus square feet. In this case, I advise you to prepare financially for it to take three or four years to reach 85 percent occupancy. Misconception 2: I'll Build Small, So It'll Cost Less ItÕs just not as cost-effective to build a self-storage facility of less than 40,000 square feet. This is because of items such as storm-water management, property management and other fixed operating expenses. A small facility just canÕt deliver acceptable returns. One exception is if the site will be built in phases and the total buildout will eventually exceed 40,000 square feet. Another would be if itÕs a conversion of an existing building that was purchased at a reasonable cost, or if the site is in a high-rental-rate market with a low cost of acquisition. Misconception 3: I Can Build Anywhere, Because I Can Just Market It Online ItÕs a nice thought, but you still canÕt hide your property at the back of an industrial park, in a residential neighborhood or on a tertiary road. If you do, lease-up will be notably slower, regardless of marketing. Remember, thereÕs only so much you can spend on digital marketing before it becomes wasteful. One of the most powerful tools you can use to promote the business is visibility. Build along a main road with storage doors visible to everyone, not on a weak, flag-shaped site or one thatÕs obscured from the street. Large signage, no matter how catchy or attractive, wonÕt compensate for not having those storage doors visible when a potential customer drives by at 45 miles per hour. Misconception 4: I Already Own the Land, So It'll Be Cheaper Ask yourself, ÒWould I buy this parcel from somebody else to develop self-storage?Ó Just because you own a piece of land doesnÕt mean itÕll work. If thereÕs no demand in the market and it takes you five years to lease up, youÕre losing money and could potentially go bankrupt due to costs. That may be rare, but the more important thing to realize is you might be missing out on more lucrative opportunities to sell the land for another use and purchase a site to build your self-storage facility where demand warrants. Misconception 5: Housing Units Were Built Nearby, So It Makes Sense Just because a new housing development is being built doesnÕt mean that a self-storage facility is going to work. There are several reasons itÕs best to ignore that development in demand calculations. Subdivision development is historically risky, and it can take years to fill a neighborhood with homes or home buyers. Even if that development fills up quickly, for every 250 homes, thereÕs only 4,000 square feet of storage demand. Considering that most storage sites start at 50,000 square feet (to be economically sustainable), you should be cautious of including demand from housing units. Misconception 6: I've Developed XYZ, So Storage Will Be Easy Commercial real estate isnÕt all the same, and thatÕs especially true for self-storage. ItÕs unique because itÕs also an operating business. To simplify operation, you need to consider many things, such as site design. This might include gates at the end of driveways to push out snow from the drive aisles, or large windows that showcase interior units facing the main road. Even if youÕve built offices or high-density housing, you need to invest in general contractors, architects and suppliers who specialize in self-storage and have the portfolio to back it up. Misconception 7: Self-Storage Doesn't Work in Rural Areas That isnÕt necessarily true. You should cast a wider net when looking to develop outside of your area. Many storage properties are built by investors who live close by because they know the community and understand the opportunity of their personal networks. Rural areas can be successful if the site is on a heavily traveled road and has great visibility with the appropriate zoning. Many profitable facilities have been built in rural areas. Misconception 7: The More Temperature-Controlled Space, the Better Temperature-controlled is great, but though itÕs been a dominant trend in new development over the last few years, it 9 About the Development Process Get the facts before you build By Kevin D. Bledsoe 26 ISS I June 2019 www.insideselfstorage.com

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