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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Page 39 of 51

O ne of the challenges of developing a new self-storage facility is finding the right location. Ideally, the business should be highly visible, located on a busy road close to potential clients. A great price and regular parcel shape are helpful, and proper zoning is critical. In many markets, though, you'll find the only available land is at the edge of town or in areas already saturated with existing storage facilities. One way to overcome this is with a conversion project. Conversions provide the opportunity to put your business in established areas where demand exists but not vacant land. Local government may be more likely to grant building approvals if you're redeveloping a vacant or blighted property, and you'll have the advantage of starting with a structure where utilities are already present. What makes a property ideal for a self-storage conversion? I'll discuss that below, as well as what it takes to plan and build such a project. Find the Right Property A primary goal for any self-storage developer is to build where there's adequate demand. Is the existing structure in a market with sufficient population to support the project? If you're looking at an established neighborhood, it's less likely to grow significantly, so you'll want to be sure there's plenty of demand. Next, does the building have good visibility? High traffic counts and visibility from main roads promote faster lease-up. Visibility without great access can be OK if there isn't competition nearby, as customers will still find you if they need you. Luckily, most vacant retail buildings have great locations and access, while industrial buildings might not. Is the property close to residential areas? Your tenants will most likely find you by searching on the Web, many via their smartphones. Google and Siri will show them the storage options closest to them, and many will simply rent from the first place they call. Being close to homes and apartments is very important. Is enough space to be profitable? Most conversion facilities have a management office and manager, which means the site needs to generate enough income to cover that salary. Alternatively, a satellite or unmanned location can be run from a kiosk or remote office, allowing you to build smaller. As you examine properties, look to see if there's excess land where new storage buildings could be erected, or whether there are outlots that could be sold. Self-storage typically doesn't require as much parking as other businesses, so if the property has a large parking lot, it may be possible to develop additional buildings there. Building height may also enable additional space. If the structure is 18 feet or higher on the interior, it's ideal for two stories. By the way, 16 feet is the absolute minimum that can work, and only if you use swing doors on the units instead of roll-ups. Finally, think about municipal approval. Will the city allow the existing building to be converted to self-storage? New developers—not to mention real estate agents selling vacant properties—tend to underestimate the difficulty, time and cost of trying to build a location that isn't properly zoned. Spend the time to research which zoning is required for self-storage and discuss with city officials the process (and likelihood) for obtaining any necessary conditional-use permits. Estimate Expenses and Income Once you find a suitable property, it'll take a lot of work to turn it into a storage business. Will it make money? To answer that question, you'll want to work up some rough cost estimates for the building components, demolition and any major rehab. Income is easier to calculate. You can assume that about 80 percent of a single-story conversion will be rentable. Survey nearby facilities to determine local rates for climate-controlled units and generate an estimated revenue per square foot. You might discount during rent-up, but if you have a good location with an edge over nearby competitors, you'll usually be able to charge premium rates. Developers who are new to self-storage are often dismayed by the amount of money it takes to get started, even with a conversion. To get construction approvals, you'll typically need to hire professionals to draw up your plans. This money will come from your pocket, as banks won't give you a loan until you have plans approved by the city. You may also need a civil engineer to work out stormwater or traffic concerns, and you'll typically need an architect to help with the building rehabilitation and any façade changes. Formulate a relatively detailed plan before asking contractors for bids. By providing as much information as possible to suppliers and subcontractors, they'll be able to provide more accurate bids with fewer surprises later. You'll also stand a better chance of having true apples-to-apples comparisons on multiple bids if everyone is bidding from the same specs. As you create financial projections, think first in terms of cost and revenue Factors to consider, conception to completion By Steve Hajewski Planning and Building a Conversion Project 38 ISS I June 2019

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