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Chapter 11 Self Storage Construction



Chapter 11 Self Storage Construction

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Twenty-six items you want to remember during the Construction process to save you time and money.

 

  1. Research and completely specify as many items as possible. Construction allowances/change orders and extras always seem to cost a lot more than if they were in the original specifications and contracts. Even simple things like who pays for the temporary power, dumpster and temporary bathroom facility make a difference.
  1. You will need both construction and specialized self-storage insurance. For construction, you will need Builders Risk and general liability insurance.

In addition to the standard Property and Business Liability coverage, you may need insurance for Blanket Building and Contents, Customers’ Goods Legal Liability, Sale and Disposal, Legal Liability, Extended Business Income and other insurances post construction.

Once your site plans are approved you should contact an agent who specializes in Self Storage Insurance.  There are several things you need to consider in order to determine your self-storage insurance limits.

  1. It is recommended that construction contracts include a provision to hold back 10% of each payment until the work has been completed, including the final punch list items and the Town has completed its review and issued a final Certificate of Occupancy. Check with your bank to see what their required hold back is and make sure it is included in your bid package. Find out how often the bank will provide draws and how long after an inspection is request until the money is available.  Your contractors need to be aware and accept the payment schedules of your bank.
  1. Often you bid the job on preliminary plans. Prior to signing the final contracts make sure all parties confirm they have reviewed the latest plans and their bids are based upon these plans. This is especially important for the building erectors.  They will provide a price based upon similar buildings they have erected in the past.  But every manufacturer has different systems and components and construction times can vary.  Your building manufacturer should be able to email you a set of final plans for you to forward to your erector.  When construction starts check again to confirm everyone has the final set of plans.  You would be amazed how many times construction gets screwed up because outdated plans are used.  A list of all the current plans and last revision dates should be issued to all contractors when construction starts.
  1. There will be problems and questions. Make sure the contractor provides you a contact person both in the field and the office, including cell numbers.
  1. The contract should be clear that all change orders require signed approval by the Owner. Do not violate this requirement. This will not always eliminate change orders but will permit for you to confirm the cost and possible negotiate the costs or find other options.
  1. Your design team should determine what independent testing (typically paid directly by you) that is going to require, such as compaction test for the building base, driveway base and concrete strength testing. The contract should require your contractor to coordinate these tests and redo any work not meeting the specifications.
  1. If you are the general contractor expect discrepancy between where one contractor leaves off and the next starts and the condition of the work by the previous contractor. For example, if the grading for the floating slab is off by 1 inch it can easily be an extra couple of thousands of dollars or more in concrete.  For this example, it would be important to know how many cubic yards of concrete is included in the concrete contractor’s price and his contract should say he has to review and accept the foundation grading and excavation prior to placing any concrete forms.  Of course, if there is a discrepancy, the problem becomes scheduling and delays when the concrete contractor notifies you the site work is not right and either you have to pay extra or have the site contractor fix his work.  So whenever possible, check completed work in detail as soon as possible yourself or hire the appropriate engineer or surveyor to check for you.
  1. All contracts should make it clear who pays for the building permit, who is responsible for inspections, as built, and any documents or inspections the Town (or bank) may need to the issue the occupancy permit. If at all possible, it is recommended the contractor be required to hire a licensed surveyor to stake out the buildings and set proper grades. If you hire the surveyors you often have to pay for several stakeouts, as the contractor will inevitably knock out the stakeout survey stakes.  Also, if you hire the surveyor you will be responsible if there are any discrepancies or errors.
  1. Don’t forget to make sure the contracts include bringing the various required underground utility conduits and utilities for phase 2.
  1. It is a good practice to visit the construction site every day during construction. There are always plan interpretations and changes or corrections to be made. Scheduling constantly needs to be reviewed.  Often, what you told the foreman today is not relayed to the new foreman the next day.
  1. Makes sure the limits of construction are properly staked in the field prior to the start of construction. Any trees in the limits of construction or near construction you want saved should be barricaded with fencing or hay bales prior to the start of construction otherwise they are very likely to be eliminated during construction.
  1. Make sure the erosion control silt fence is securely in place prior to the start of construction. One rainstorm can make a mess if the silt fence is not properly installed.
  1. Check to confirm they are compacting the fill in 8” layers per the contract. Contractors like to save time by filling and compact a couple of feet at a time.
  1. Check that the rebar and wire mesh is installed for all the concrete per the plans. Hint: neither should be on the ground.
  1. For a single-story metal building there is typically a 1.5” lip in the concrete foundation edge to make sure no water gets in the building. This is done with the use of a 2 x 10. If the concrete under the 2 x 10 is not vibrated extremely well, and even then, sometimes, there will be air pockets under the 2 x 10 that create surface voids the size of a silver dollar and larger when the boards are removed. Let the contractor know in advance about this concern.  Insist they take off the 2 x 10’s while the finish crew is still there.  If there is a problem, it needs to be fixed while the concrete is “wet”.  If they wait until the next day to fill in the voids, it is extremely likely after a winter or two all the filled-in patches will pop out and require expensive ongoing maintenance.
  1. It is critical that the entrance gate opening and the entrance and exit keypads be staked in the field, so you can try them with your car prior to their installation. What looks good on paper often is a difficult maneuver for a car in the field and can be corrected with ease if done prior to construction.
  1. Make sure the office windows and doors sizes and locations are coordinated long before the contractors show up. Often, approximate locations and sizes are provided until a window manufacturer is chosen.
  1. Make sure the concrete is sealed the day after the concrete is poured. This will not only help the concrete cure but also just as important, keep the concrete dust down for your renters.
  1. The concrete saw cuts should be done as soon as possible after the concrete is poured, typically no later than the next day. This helps reduce the number of visual cracks.
  1. After the office concrete floor is in, draw the office floor plan, including interior walls, desk and cabinets on the concrete floor with a maker. It is easy to make a change now.
  2. Make sure your communication wires and electric wires to the gate controller are in separate conduits.
  1. Layout your perimeter fence for review before the fence installers come. There are typically conflicts and options. You will want to take time to review.
  1. Often one of the biggest problems is construction scheduling. Review the schedule in detail with all contractors, including the building manufacturer. The scheduling should be reviewed when the request for bids are submitted, again when the contracts are signed and again when construction starts.  Delays due to scheduling are one of the most stressful parts of construction.  Add some buffer time to your schedule.
  1. Your bid document should require all contactors and sub-contractors to provide proof of insurance. The bid documents should further require all contractors and sub-contractor to wear hard hats and meet all local and OSHA job site safety requirements.
  1. Often the building manufactures will require large deposits and final payment on or prior to the delivery of the buildings. These fees should be reviewed with both your contractor and your bank to insure there will not be a cash flow problem. Sometimes the size of the deposit can be negotiated but full payment upon building delivery or prior to delivery is typically required.
  1. If you build your own buildings or if you hire local guys who are building self storage buildings for the first time remember temporary bracing is required and not shown on the construction plans. Temporary bracing is required in all directions until the final construction of the entire frame. You can see some of the bracing in the photos below.

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That’s me in Caraquet, New Brunswick, Canada, and my first international project!  When you start construction, your marketing must be full speed ahead.

 

Have development questions?  We are ready to help.  Marc 860-830-6764

 

 

Chapter 10 Site Plan Regulatory Approval

Seven items you DO NOT want to forget to bring to your Wetlands Commission meetings for a faster approval.

1. A colored rendering is a Must. While many items like the building design or looks are not supposed to be a part of the wetlands commission purview, but a pretty picture goes a long way.

2. Pictorial information about your facility. Pictures of cameras, TV monitors, fencing, access gate, lighting, signage, office, mounted on a single board tells a great story about your security.

3. Know your facilities policy on prohibition of storage of hazardous materials. Provide a copy of your lease provision prohibiting hazardous materials. Provide a copy of the sign to be posted in your office prohibiting hazardous materials. Give an explanation that includes how you know your customers, i.e. a copy of every renter’s driver license, home & work phone numbers, email address, a second contact person etc. An explanation in detail how the staff is required to walk and inspect the site several times a day can help give the commission confidence there will not be a problem at the facility.

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4. If you are going to rent units for car storage (which is worth fighting for!) be prepared to explain the steps you will take to insure gasoline will not leak and cause a problem. If you can’t figure this one out email me and I will point you in the right direction. (Hint: look up the requirements for cars in public buildings like a car show in your civic center and include the 2 or 3 safety items in your lease.) Also, you should only rent for cars that are registered and insured, i.e. no problem cars.

5. While you (and your engineer) always had to be prepared to explain the storm drainage design and storm drainage detention design, now it is common to provide detailed (and expensive) storm water quality best management practices. Make sure you personally understand these site features and the required maintenance, so the commission has confidence that they not only will be built but you, as the owner, personally understand the importance of maintaining them.

6. Make sure that you and your engineer have walked the wetlands, even though your soil scientist is coming to the meeting. Your knowledge of the property could help turn the deciding vote your way.

7. Early on in the design process you should have confirmed there are no endangered species on the site. Often the Department of Environmental Protection can provide areas of know or reported endangered species. Be prepared to confirm there are no endangered or threatened species or be prepared to discuss the impact to endangered or threatened species if they exist.

Ten items you don’t want to forget to bring to your Planning and Zoning Commission meeting, which can make a difference.

1. All the items you brought to the wetlands meeting.

2. Bring all the professionals (you can afford), design engineer, landscape designer, traffic engineer, architect and attorney if customary in your town. But a single presenter can do the majority, if not the entire presentation.

3. Office hours and gate hours.

4. Samples of the building materials, including colors.

5. Light photo metrics to show the light does not impact neighbors. A manufacturer’s detail sheet for full cutoff lights is helpful. LED lights cost more to install but will pay for themselves in a short time and save you money for many years. Let them know you are a green builder and will be using energy efficient LED lighting.

6. A copy of a standard lease. You can get one from your state’s self-storage association.

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7. Knowledge of your marketing study to confirm the need for self-storage in the area. Again, this should not be part of the commission decision process, but I have had the questioned asked several times. Let them know it’s a benefit to the area as most of your customers will be the people located within 5 miles or less from your property.

8. The owner should attend all meetings and be prepared to let the commission know they are an expert on self-storage and are excited about being a part of the community. Be prepared to make concessions the night of the meeting if necessary to get an approval.

9. Be prepared to rebuff the many myths about self-storage such as; noise; drugs; low value; no taxes; people living in units; used mostly by people from out of town; ugly; self-storage does not mix with residential uses; high traffic, etc.

10. Be prepared to present a traffic study. Traffic is often a concern if there is any opposition. If the Town did not require one as part of your application, I would at least have a simple on page summary for the estimated daily and peak hour traffic generation. This can be very beneficial to show that self-storage is one of the lowest traffic generators and has less traffic than typical retail, office, businesses and even a residential subdivision.

Self-storage is a local business. The majority of your renters will be people from town. Early in the design phase you will have to determine the percentage of climate control units for your site. Often the outside of the Climate Control building will have non-climate control units with doors directly to the driveway.

What Are You Organizing?

It all about the how your organize and understand organizing for profits is swiftly changing in todays internet economy. “For a hundred years, we organized the means of production. How do we get the right people, the right machines, the right materials and get this thing built”. Seth Godin

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Self Storage Organizing 30 years ago

Once upon a time it was build it any where and they will come. It worked well and made many people rich.

Self Storage Organizing 15 years ago

Then it became build it on main street and they will come.  It worked well.

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Self Storage Organizing yesterday

Now many people believe state of the art facility on main street, have a great web site, on going marketing and they will come.  It worked well and made many people rich.

The successful developers were organizers who found the right location and the right people to get their facility built.  They organized the money.  They organized the employees and day to day operation.

Most of us still do this.  It is important and difficult work and will be required for some time to come.

Self Storage Organizing Today to double your profits.

“But now, now there’s a third kind of organization going on, one that’s even more leveraged, because it isn’t easily replaced: Organizing an audience.

How do we find the right people on the right day in a way that creates value for them and for us? How do we deliver the right service to the right audience in the right way? The rising stars of our economy are in this business now, even more than production or finance.

If you’re seeking to build awareness, consider building a community instead.

If you’re working to sell your average stuff to average people (and working overtime to make it cheaper or faster), consider an alternative: serving the most dedicated people with something remarkable“. Seth Godin

Just think about Kmart, Sears, Toys are US, and so many more.  They did not organize for their audience and now they are gone!

Time to get out of the self storage business and in the business of organizing a win win community.

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See original post on Organizing by Seth Godin  https://seths.blog/2018/09/what-are-you-organizing/

11 Frequently Asked Questions about Cost Segregation for Self-Storage Properties

Memo:

Date: April 4, 2018

To:  Self-Storage Property Owners

From: Heidi Henderson, Executive Vice President of Engineered Tax Services

Many real estate investors are unware of how the top industry professional utilize the tax code to their benefit. And most think that their tax professional is aware of every aspect of the existing code to advise them of any applicable credits or deductions they are eligible for. In reality, the tax code is complex and expecting your CPA to know every aspect of it, is like expecting your family doctor to be able to perform heart surgery!


“Surrounding yourself with the right people and education on these topics are the keys to your success!

I am a real estate investor myself and through many years in tax and accounting I have learned from the best on how to apply every aspect of the tax code to create the most tax efficient real estate portfolio, leading to continued success.

Recent tax changes under the Tax Cuts & Jobs Act expound on the benefits of real estate investing. Taxpayers can now capture immediate deductions for business related tangible property, your depreciation can be front loaded, and for energy efficient buildings the available credits and deductions were renewed in February of 2018 and assets removed during demolition can be written-off or donated for a charitable contribution on your tax return.

These are just a few of the complex tax code sections which can make the difference between a profitable business, and a losing proposition. Below is an article outlining 11 Frequently Asked Questions about Cost Segregation, which is one of the methods you can apply to your property.

We partner with business owners across the U.S. and have worked on thousands of self-storage properties nationally. Give me a call today for more information and to discuss the some of the tax strategies that might be applicable to your business or property.  I can be reached at (801) 689-0325 or via email at hhenderson@engineeredtaxservices.com

 

11 Frequently Asked Questions about Cost Segregation for Self-Storage Properties

By: Heidi Henderson, Engineered Tax Services

1.  What is Cost Segregation?

Cost Segregation is the process of identifying personal property vs. real property, and individual building components for tax purposes, rather than treating a building purchase as one large asset. This determination allows a property owner to depreciate their assets over the useful life of each asset instead of assuming that the entire purchase amount applies to one long-term (39-year) asset.

2.  Does my property qualify?

All investment properties, including self-storage properties qualify for cost segregation.  When a cost segregation study is applied, you are telling the IRS that you are simply choosing one acceptable method for depreciation (MACRS*) vs. another approved depreciation method (straight-line). Both are acceptable, however MACRS requires an analysis to identify the value of each individual asset you own, rather than looking at your property as one large asset.

3.  When does it makes sense to do a Cost Segregation study?

Cost Segregation can be applied to a newly purchased building, a newly constructed building, or a building you have owned for around 15 years or less. If the property is not fully depreciated (39 years is the length of normal depreciation), then there is an opportunity to change the method with cost segregation. Although any property can be depreciated under MACRS, the costs of performing a cost segregation study may outweigh the benefits if the property was acquired for less than approximately $300,000.

4.  What items are reclassified via Cost Segregation?

Under straight-line depreciation a property’s total cost (less an allocation for land), is depreciated evenly over 39 years. Under MACRS the assets are identified and reclassified in 5-year, 15-year, and 39-year class lives depending on the IRS determination of its actual useful life. And whether the assets are used for your business use, or the basic function of the buildings use as a structure. Examples of 39-year property include; windows, walls, doors, roof, HVAC systems, plumbing, and electrical. Examples of 15-year property include exterior improvements such as; fencing, exterior signage, asphalt, curbs, landscaping, and exterior lighting. And examples of 5-year property are; carpet, appliances, specialty lighting, woodwork, unit partitions, individual unit locks and security, and business specific heating and ventilation systems.

5. Does the type of property affect the tax savings?

Some property types will have a higher reallocation percentage than others. Interior, climate controlled self-storage properties will see a higher amount than a shed-row or boat and RV storage type. The allocations are based on actual assets and values or each of the components within the property.

6.  What information is required to do a Cost Segregation study?

Surprisingly, the information required to perform the study is limited. For a recent purchase, the closing statement or HUD is the only requirement. Blueprints are helpful but not necessary. New Construction projects require cost breakdowns and total costs for construction and development, but individual invoices are not required.

7.    How do I choose a Cost Segregation provider?

Choosing a reputable firm is a vital to ensuring that every aspect of the IRS requirements are met, and in the case of an audit the report is upheld without disallowances or associated interest and penalties. The IRS Audit Technique Guidelines dictate that a physical site visit is performed, the analysis is performed by a professional with cost-accounting or engineering expertise, and the method of determining asset value is an approved methodology. Make sure that audit defense is included in your study, and that the final report offers complete detail over every aspect of your property. Choosing a low-cost provide may be tempting, but the ultimate savings, detail and support of a reputable provider will far outweigh any additional costs. And finally, ask for references!

8.   Will I get audited if I do a Cost Segregation study?

Cost Segregation is not a “trigger” for audit. The IRS issued automatic consent for deprecation whether applying a change from straight-line to MACRS at the time of purchase or retroactive for a property you bought 10 years ago. This means that taxpayers are allowed to make this change with the approved forms offered by reputable cost segregation firms. However, in the rare case of an IRS review, rest assured that a detail report with the proper IRS approved methods and audit support will affectively defend your tax filing position.

9.  How much does a Cost Segregation study cost?

The cost is usually based upon the type and use of the building, size, and location of the property. Beware of cost segregation providers who charge a percentage of the tax savings. The tax savings is relative to the entity type, number of owners, the year of acquisition and other factors, so the actual cash benefit can vary. Most providers will offer a quote along with projected tax savings, so you and your CPA have the information necessary to make an educated decision.

10. How much will a Cost Segregation study save me?

The tax savings realized with a cost segregation can vary depending on the type of building, your total acquisition cost, and length of ownership. Self-storage properties vary in type and size and may see reclassification percentages from 15% to as high as 40%. Request a detailed benefit analysis from a qualified and experienced firm who has a history with self-storage properties.

11. What does the Tax Cuts & Jobs Act (TCJA) passed in December of 2017 mean for my tax return?

The Trump administration passed the TCJA which is the largest tax reform bill passed in over 30 years. There are significant changes that offer tax cuts for real estate investors. The largest change being the adoption of 100% bonus depreciation for tangible personal property acquired after September 27, 2017. Tangible personal property is defined as assets with a useful life of 5, 7 or 15 years. Therefore, when cost segregation is performed to identify the personal property (5, 7 15-year property) apart from real property (39-year assets), it allows the property owner to capture bonus depreciation on those reclassified property and immediately expense the entire value in the year purchased!

*MACRS: Modified Accelerated Class Recovery System

 

https://engineeredtaxservices.com/
                ENGINEERED TAX SERVICES

Interview with Storage Authority Franchise 0wner, March 2018

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Marc Goodin, President of Storage Authority LLC, 

Ed, you must be excited to have started construction on your self-storage facility?

Ed: Absolutely. We have put substantial time and research into this project and the team is excited to open Storage Authority Houston-Walters Rd.

Marc: First I want to congratulate you and your wife Jenny.  It was not that long ago we met as strangers in a Houston hotel lobby and you shared your goals with GP & I.  Now we are friends and you are well on your way to making your self-storage dreams come true.

Can you provide us a short background on yourself?

Ed: I do remember that meeting with you and GP and it has been a pleasure working with you all on this project. I have been in the transportation industry working in an executive role for many years and I have also been involved in a few technology startups, but I always have had a passion for real estate.

Marc:  I know you are all ready to starting your marketing for your grand Opening.  What is your projected construction time?

Ed: Approximately 6 months

Marc: How helpful was the Storage Authority preferred Houston Area real estate broker Richard Anderson?

Ed: Richard was both a resource and an advisor through the entire process. He has an extensive commercial real estate and development background, so his experience was invaluable.

Marc: How many acres did you buy? And How many square feet of self-storage did you get approved?

Ed: We bought four acres of land and will be building a 60,000 sq ft facility in two phases.

Marc: You and I did some conceptual early on and then once your offer was accepted we worked together with your architect & engineer to come up with the final layout for both the buildings and the individual units.  It’s a tradition civil engineers (like myself) get a little tough on Architects but other that did you feel the Storage authority process helped you understand the options and choose the right layout for you?

Ed: Yes indeed. You were involved in all reviews of the design process and we made many updates to the plans that gave us a much better final layout that I am confident is positioning us for a strong opening.

Marc: You actually had a very smooth design and approval process but what surprised you the most about the design or approval process?

Ed: Although the internal side of the design/approval was manageable, like any real estate deal I believe staying creative and alert to the details of the transaction is critical. We encountered several hurdles finalizing the deal that brought us to the close.

Marc: What advice would you offer a new franchise owner starting the design process?

Ed: Tap into Storage Authority’s experience and knowledge, while being sure to be mindful of local storage development trends. Bounce ideas off of Marc and collaborate to develop the best solution.

Marc: Obviously getting a loan is one of the very important steps of self-storage development.  How does it feel to have your first multimillion-dollar loan?

Ed: Exciting and challenging. I believe the due diligence that we performed, feasibility studies and local research were all keys to forming a solid working partnership with my lender.

Marc: Many people don’t realize there is a lot of work between the site plan design and having the final construction bid & permits the bank requires.  Sometimes inexperienced developers wait until after final site plan approval to start, the building design by the Architect and getting complete bids.  You had your Architect and Contractor on board during the site design process.  Do you agree this was critical for your project?

Ed: It was essential. I believe the site design process is essential to understanding the full scope of a deal’s feasibility. 

Marc:  What did you find the most challenging so far and why.

Ed: Keeping a detailed checklist, timeline and prioritizing all of the items was a challenge as we neared the final stages of the project. Large companies have teams that manage this process, and, in our case, it was me and the Storage Authority team.

Marc: Did Storage Authority meet your expectations? And what can Storage Authority do better to assist the next Storage Authority Owner?

Ed: Storage Authority exceeded my expectations. As for what can be improved, you all are already doing it. From enhancing your web platform to providing new operating guidelines your team is innovating to help me the other Owners be successful. 

Marc:  Thanks for share your experience and thoughts. One last question for now.  Are you excited to start your self-storage marketing and renting up your facility?

Ed: Marc, we are ready to get this one leased up, so we can get back to work with you and the team on our next project.

New Sign SA


Houston Rendering

 

Chapter 8 – 10 things to consider to find an A+ Site

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  1. Location, Location, Location. This is the single most crucial factor in the success of a self storage business. The majority of your rentals will come from drive-by traffic. Out of the way locations typically struggle to get customers compared to main street locations. The best properties are on a main road with an average daily traffic volume of at least 10,000 vehicles per day with a preferred average daily traffic volume of 20,000 plus vehicles per day or greater. These are often State roads. Of course, due consideration must be given to surrounding population and how much of the potential renters should be proportioned to existing or other planned self storage facilities nearby. Often you can get roadway traffic counts from The Department of Transportation.

Think retail. Would you put retail on a back road or behind another development? No and the same goes for new self-storage developments.

  1. Unmet Self-Storage Demand is just as important as location! For a quick first total demand review, you can use 8 square feet of self storage demand per person, in a 3-mile radius. To get the unmet demand the square footage of the existing and planned self storage facilities in the 3-mile radius will need to be deducted from the total demand. For rural areas with little competition you may draw from a larger area. For large metropolitan areas of high population, the demand area may be smaller. Higher population density is often better because it is easier to have better service and out market the competition and get more of your share of renters than find renters that do not exist.

Too many people tell me they are about to build self-storage on land they own or located because self storage is needed in the area.  And they are right about half the time. Not a good enough percentage to move forward with a multimillion dollar investment. In the end, new developers are going to need help to make the final decision. But you can rule out some properties with a bit of effort and determine which property in an area would be the best one to choose for a feasibility study.

First you need to determine the existing population.  The population can be provided by many realtors or is often provided with many property listings. There are also several on line programs that can provide the population.

The unknown is the demand of square foot of self-storage per person.  And there is not one size fits all locations correct answer since demand can and does vary from state to state and even area to area within a state. Demand in the end is not a square foot per person but rather a square foot/person where facilities reach equilibrium (90% -+ full) at acceptable rates.  In other words, demand cannot be determined in a vacuum and must be used in conjunction with a review of the existing market occupancy rates and prices.  Be careful not to assume full means there is a need for more facilities.  Full with a regular 10 x 10-unit renting for $70 is not a good sign while 10 x 10’ renting for $160 is a great sign.

For many urban areas where there are numerous self storage facilities to choose from the draw/competition area of 3-mile radius is commonly used.   And the demand of 8+_ sf per person can be used as a temporary starting point.

So, if the 3-mile population is 30,000 the total self-storage demand would be:

30,000 people x 8 sf/person = 240,000 sf of self-storage needed.

Next you need to determine the location, number and size of the existing self-storage in the 3-mile radius.  Most novices underestimate the number of nearby facilities.  You can use google earth pro or “google nearby” to help you find the 3-mile facilities. On google earth pro you can draw a 3-mile radius and visual search for the self storages.  For a given address on a google map you can enter self-storage in the nearby tab and it will show the nearby self storages. But it does not go over town lines, so it is tricky to get all the facilities. This is considerable work to make sure you get it right but can often give you a quick count.  You may be able get the existing square footages from the land records or scale from google earth pro, again a lot of work.  Or you could use a real rough estimate of 50,000 sf of self-storage for each facility with a square footage check as part two of your demand study.

So, if you had 3 existing self storages in the three-mile radius you could temporarily assume that: 3 facilities x 50,000 sf/each = 150,000 sf of the existing demand has been met.

The needed demand for this case would be:

The total demand of 240,000 sf – 150,000 sf existing = + 90,000 sf. demand needed.

You would also need to subtract the demand for any facilities under construction or in the approval process.

You can see a sample mini demand study at the Storage Authority News Room

The good news is there are programs that can quickly determine the population and the existing self storages and even the square footage of the facilities, so the existing and unmet self storage demand can be determined quickly as part of a preliminary study.

One developer who recently contacted me did his own demand calculations.  When I emailed him back our check of his findings with an online demand review he said “ Wow what you did in 10 minutes took me over 2 day to do by hand.”

Below is a screen shot of the Radius program we use to determine the existing self-storage demand & population.  It also does a ton more, from providing the existing self storage square footage, the names of your competition and the rates of your competition.

The program is available at : https://www.unionrealtime.com/radius.html

I suggest you set up a demo with James de Gorter the co founder of Union Real time. Here is a link to set up an appointment on his calendar  https://calendly.com/radiusteam/radiusdemo

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This location is a 3-mile radius review for one of the FL Kmart locations closing this year.  While it shows the existing self-storage is 7.36 sf per capitol (see bottom left hand side) the key is the fact that there is only 0.69 sf/person of climate control.  So, this is a great location to investigate further for a big box conversion to climate control self-storage.  If you want to learn more about this program or even conversions email me at marc@storageauthority.com

Of course, Storage Authority and our national brokers will help find and review your potential sites, saving you mega hours.  Better yet we will even help you determine the best areas to look for land in your neighborhood.

The occupancy of the existing facilities (and their rates) can tell you a good deal about the local market demand.  You should stop by a couple and call a couple to get their rates and see if they will tell you their occupancy even before you start looking for land.

In the end, there are many important factors in addition to demand so a feasibility study is highly recommended. For your planning purposes, each can cost $6,000 to $7,000.  If you need preliminary assistance with your initial investigations or need a recommendation for a feasibility expert email me at marc@storageAuthority.com and I would be happy to help.

  1. Dry flat usable land with no restrictions can typically support 10,000 to 15,000 square feet of 1 story self storage buildings per acre. I recommend you use 10,000 sf per acre before you have done your due diligence. I have not found many parcels without restrictions of one kind or another, so it is prudent to do significant due diligence to determine if a parcel of land is suitable for your needs and to determine a fair purchase price of the land.

The shape of the land, topography, wetlands, drainage, flood limits, neighbors, building design, and zoning requirements can have a significant impact on the final building square footage. Some towns, for example, only permit 50% impervious lot coverage for the buildings and pavement, other towns do not permit a new self storage within 3 miles of an existing facility. Regulated wetlands setbacks or wetland buffers often vary from 50 feet to 150 feet from the wetlands in many locations. On site storm drainage detention, if required can require a half acre or more land. High parking requirements in some towns can also limit the amount of buildings.  In other words, the regulations can significantly reduce the amount self storage permitted. Often self storage is not even permitted in residential zones and other zones.

  1. Typically, you will be looking for 4 to 5 acre or larger parcel of land with few constraints or unusual zoning restrictions for a 50,000 sf one story facility. Don’t overlook the importance of walking the entire property before you make an offer. Water, wetlands, watercourses, steep slopes, easements (overhead wires), abutting uses can sometimes be observed on a site walk.  If you have a civil engineer you are working with, ask him to walk the site with you. It will be well worth his fee, especially if you do not have experience with land development.
  1. Many self storage building manufacturers will provide a conceptual layout plan. This is a good preliminary start, but remember they often do not take into consideration all the land feature restrictions or zoning restrictions.
  1. Early on in the due diligence process you should have the wetlands delineated on the site. Of special concern are vernal pools, special breeding areas, that often require very large buffer areas. Endangered or threatened species should also be reviewed early on.
  1. Consider the limitations and cost of steep sloping land before making an offer. Because single story buildings are often long and because they are only 24 to 30 feet apart they require a relatively flat finish grade. Buildings can be stepped down, but only so much and this also adds to the cost. Filling or excavation on steep slopes can cost tens of thousands of dollars, sometimes more.
  1. Once you find a parcel that appears to meets your qualifications, I highly recommend you have a local engineer do a conceptual plan for you. Ask them specifically about all the utilities, including water, sewer, drainage, and storm water detention. Make sure they tell you about any zoning regulations that may be of concern.  Easy access and street views are two important items to attract more renters.

If you don’t have city sewer you will need extra land for a septic system.  If you do not have city water, you will need room for a well and significant building fire walls will be required that will add substantially to the project cost.

  1. Remember to review the local design and approval process in detail before determining the purchase option time frame. I recommend at least a 6 to 8-month option period to get your approvals, if possible. I also recommend that you include a 6-month extension clause, even if you have to pay to execute an extension.  To get the extension clause approved by the land owner you might have to agree to submit site plan application to the Town by a certain date to show you are moving swiftly forward with the project.
  1. The best sites do not always have a for sale sign on them. We are having great success finding off line parcels.  Fallen down signs, friend of a friend, word of mouth, or land record research have led to best parcels.  I knocked on doors. I called them and told them I was interested in buying their land and asked if we could meet.  If they ask the price you are willing to pay, ask if you can walk the property to help you determine the price.  It often takes two or three meetings of no’s to get to the yes. In all three cases, no one had to pay a realtor’s fee. And even better, they were purchased below market rates.

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5 acres were used on this 9-acre site.  The rest of the land was not usable.

More big box retailers closing – Think Self Storage Conversions!

Yesterday Kmart/Sears/Macy’s announced another round of store closings.

http://abc13.com/shopping/sears-store-in-houston-to-close/2863066/
If you type in kmart & sears closings into google search you will see round after round of store closings. Maybe there is one near you. In the past 5 years Sears has gone from over 2000 stores down to 12oo stores.

Here is a map of the latest round closings. The article above will give the Towns.

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While this is a sign that Amazon is killing the big box stores it is also a sign it time to consider conversions for self storage. I recent talked to one self storage developer and he only does conversions. He has done 4 and has each is doing very well. The big boxes are typically in areas of suitable, even high populations so it is a matter of confirming the available demand taking into consideration of the existing self storage.

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Conversions typically save you time because they are much easier to get approvals and takes less time to build. Grocery stores are a great conversion as well and they don’t have to be oversized. Often a 30,000 square foot self storage will have a large parking lot you can convert into another 30,000 sf of self storage.

Here is a quick web demand study on one site I randomly choose.  This is a great program everyone looking for self storage because what used to take a couple of days is provided in seconds.  send me an email at Marc@storageauthority.com to learn more about conversions or this web demand study

Kmart FL

If you look to the left you can see the existing self storage demand information. What is real interesting and what makes this site worth checking out is almost all the existing self storage is non climate control!

To More Success in 2018!

You can do it!

Marc

860-830-6764

Marc@storageauthority.com

Sample Self Storage Development Budget & Proforma

Chapter 7

Sample Development Budget & Proforma.

 You will do multiple budgets proformas for yourself along the way to a final one for your bank.  The first is one based on several assumptions and estimates so you can have some initial discussions with your banker.  The second, one after you have a site plan, so you can provide a proforma based upon your actual design plans, including the exact number and size of units to be rented to get an updated pre-approval.  And the final application with real construction cost from contractor bids and expenses from your feasibility report and other investigations, for the final loan approval.  Your loan request will include several items in addition to the proforma.  This information will help your banker make a positive decision on your application.  It will provide valuable information about yourself, your business plan and your expertise and an executive summary which help your banker quickly understand your project and find the major data they need without looking everywhere for it. It is one more item to let the bank know you are a professional day one.  Self storage is loan friendly because self storage loans have one of the lowest failure rates for real estate development. But part of loan decisions are based directly on you and how you present yourself, your project and your team.

There are no one size fits all standard construction cost, expenses or profits for self storage.  Typically, the first semi accurate development and operational cost and profits come after you have found land, obtained a conceptual plan and obtained a feasibility study by a self storage expert.  But it is important to understand the basic general magnitude of construction, operating expenses, rental rates and various financial information to determine if self-storage makes sense for you. The concept budget below is based upon assumed costs & expenses that may vary greatly.  Be cautious as it would be easy to tweak one or several factors to eliminate the profits or double them.  Many items and details are not included in this example such as carrying cost to get from empty to break even.

This is an example for educational purposes only and should not be used to make any final self-storage investments or development decisions.

 CONCEPT BUDGET & PERFORMA*

50,000 Square Foot New Single Story Construction   

TYPICAL LAND REQUIREMENTS*

Single Story Self Storage: Typically, 5 +_ usable acres when storm water detention is required and or subject to certain zoning restrictions.  Land requirements can vary on local zoning requirements and land quality.

Typical Construction Cost vary on many factors from design, amenities, locations, land quality and more and must be determined by actual construction bids.  Cost below have been assumed and will vary.

 PRELIMINARY DEVELOPMENT COST* – 50,000 SF Single Story

Land                                       $800,000 + –

Construction:                        $3,250,000 +_    $65/sf x 50,000 sf

Unusual land etc.**.                $0 if none

Unusual City regs. **              $0 if none

Soft cost                                  $400,000+_

Carrying costs                         $300,000+_

 Total                                        $4,750,000+_ Single story 1 phase

 

Phase 1 -25,000 sf                  $3,300,000+_  Note land/office/soft                                                                                                    carrying costs in phase 1

35% Bank

Loan  Equity                        $1,155,000 Phase 1 owners’ equity                                                                                              required

12.5%  SBA

Loan Equity                            $412,500 Phase 1 owners’ equity                                                                                              required

As you can see there is a vast difference in equity required between a traditional bank loan and a SBA loan.

Typically, when phase one occupancy reaches 70% it is time to get started on phase 2.  Most of the time you will use the same bank for both phases so you do not have to pay a prepayment penalty.  Often your equity in phase one will be enough for most if not all of the loan equity required for phase 2.  You should have these discussion with your bank when you apply for the phase one loan as this is not the case for every lender.

PRELIMINARY PERFORMA*

STORAGE RENTAL INCOME* FOR A 50,000 NET RENTABLE SPACE

Rental income varies upon many factors and are very dependent on location, unit mix, managers experience, marketing and several other factors.  The SSA reported the 2015 national average rental rate for Q4 2014 was $1.18/sf for a 10’ x 10’ non climate control unit and $1.51/sf for a 10’ x 10” climate control unit.  It is important to get data from your local area.

Typically, we consider 90% rented at premium rental rates full.  For this example, 90% Rented at an assumed average rate of $1.35/sf is used.

50,000 sf x .9 x $1.35/sf = $60,750 monthly income = $729,000 Annual income

 PRELIMINARY OPERATION COST*

Operation cost vary on many factors. Often, they range between $5 to $6 a sf.

Use $5.75/sf for this example.

Assume $5.75/sf x 50,000 sf = $287,500/ year or $23,958/month (Before Debt Service)

NET OPERATING INCOME* (Before Debt Service)

 $60,759 – $23,958 = $36,729/month = $441,504/Year (Before Debt Service)

 VALUE*

 Assume 5 Cap rate – $8,830,080

Assume 6% Cap Rate = $7,358,400

 DEBT SERVICE*

 Assume/use a 4,000,000 loan at 5.5%, 25-year amt. = $24,563 month (P & I)

CASH FLOW AFTER DEBT SERVICE*

 $36,729 – $24,563 = $12,166 per month = $145,992 Per year cash flow before taxes.

 Will this be your cash flow?  Of course not.  There are too many variables.  Your land could cost more or less.  You could put in more or less equity.  Your rental rates may be higher or lower. Your expenses could be more or less.  You could do more or less marketing and sales then the typical self storage.

The goal is to build a self storage that provides a six-figure income while you can still continue your career if you want to and down the road to have a retirement nest egg that many people could never even dream of.  Once you have found a property that meets your initial review and requirements you will get a 3rd party feasibility study that will not only provide you with a demand review but also all the above financial information above based upon data to your specific location and facility size.

Disclaimers:  This informational and example is for preliminary education and overview purposes only and should not be used for investment purposes.   This is an over simplified financial review.  Once a property is located a detailed feasibility study, site investigation, site designs, construction costs and regulatory investigation are required in order to determine the feasibility of a project and projected profits.

*Development cost can vary widely based upon location, zoning, standards, your experience and a variety of factors. You should consult with a local self storage expert for development cost in your area. This is an example and there is no representation these numbers will represent your development costs.  Industry rental rates, income & expense can and do vary upon many factors including, competition, local property taxes, location and owners experience.  Typical rent up periods for the industry are between 18 months and 3 years and can be longer.

 ** Unusual construction requirements such as ledge, significant cuts or fills, retaining walls, unusual zoning requirements, off-site improvements, local pricing etc. are not included and can significantly increase construction cost.

Multi story facility cost more and typically can’t be phased, so they require significantly more capitol and initial equity. This is why first time self storages developers typically build one story facilities.  Many multi story self storages will even have a higher price tag because they are often in areas of higher populations and are larger to offset the development cost per unit, to get better returns.

A word of caution, never develop a parcel of land simple because you own it or the purchase price is low.  It must have several important features including significant drive by traffic and enough unmet demand for self storage.

Now based upon your liquid assets you can start determine the best options for your needs and investigate land, design, regulatory and banking requirements in more detail.  At this point you are either ready to charge forward or realize you don’t have the capital required.  If you don’t have the capitol don’t give up.  Finding a more aggressive lender and or finding a partner with either the land equity or cash equity may be a great option.

Working with an experienced self storage development expert can also help reduce the construction cost, operational expenses and increases profits. You can look at building a smaller facility but they tend to be significantly less profitable and more of a hobby than a business.

 

If you want to learn more about how you can start your own Storage Authority self storage Franchise send me an email.  Marc@StorageAuthority.com

Need help finding land for your self storage project?

We have you covered with Morrow Hill!

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We start by understanding you, your goals and your finances.  Unfortunately  most people and brokers start by looking on Loopnet.  Big mistake, as Loopnet is where we find about 10% off our self storage sites. If thats your plan or your brokers plan it could take you several months if not longer to find the right parcel for you.

Next we provided 30 minute driving maps from your home or from the center of where the you want your facility.  This map will also show the existing self storage facilities and the area road network. An areal view will also help you understand the population density.   From this you can start to understand the existing self storage density along with changes to the population density.

srq fl

We then typically choose an existing facility and draw a 1 & 3 mile radius.  This in turn allows you to understand the general size of the compitition impact area.

As a side note many people look at the above map of Sarasota FL Area or their home town and think all the good places are gone.  I have to laugh because many great successful self storages will be built this Sarasota FL area in the next couple of years.  Until you compare the population density to the existing square footage of self storage you can not generalize.  Here is the same 30 minute driving time map for Houston TX.  See a much higher density of self storage?   We have a new Storage Authority just about to start construction in Houston and expect many many more.

houston

The next step is choosing a broker and educating them on self storage. This can take time. The Storage Authority Dynamic Ease Development Series has multiple sections to help you and your brokers find land.  And of course we are there every step of the way as well.   I hate to say it but many of our franchisees have told us they often do not even get call backs from agents for days.

To reduce the time to find land we have added Morrow Hill as our preferred national brokers.  They understand Franchisees, Storage Authority and know how to find land.

99-ESYu-Morrow Hill-Blue

If you have a great commercial land broker thats great just make sure they have the land requirements and work sheets from our Dynamic Ease Development Series and have the expertise to use all the tools required to find land fast.  One of the many questions I would ask is, excluding loopnet how would you help us land.

The second pit fall in finding land is understanding if you need 5 acres of land, that any 5 acre parcel may not meet your needs for so may reasons and takes substantial investigation.  This is because there are so many things that can reduce the usable area including wetlands, flood planes, easements, deed restrictions, utilities, zoning, stormwater detention, endangered species, topography, and even neighbors.  And of course the 3 mile population density and amount of existing self storage in 3 miles , traffic counts, visibility, access, pricing are critical in the decision making process..  As a civil engineer and site plan designer for 30 years I learned site development in the trenches and am ready to share them with you and your team.  Of course in many respects I am a part of the Morrow Hill team because we started by sharing our ideas on land and we will continue to so.

If you have questions about Storage Authority Franchising or finding land for your next self storage project give us a call.  You can also sign up for our news letter and get our white paper on finding land.

Marc Goodin  860-830-6764

Why not you? Why not now?

This is a great question?  If self storage is so good why isn’t everyone developing self storage?  If being rich (vs poor) is a good idea why isn’t every one rich?  For starters not everyone is prepared to do the work or take the risks either one would take.  And for many they simple have other goals.

why no

Here is a slide show from a recent presentation we did for a large franchise consulting group.  It is clear most individuals will not build self storage on their own for one or two reasons.  One they do not have the money required. (often $400K) or they do not know how to get past the Road Blocks and Minefields.  But now for the first time the is a path to get past the Road Blocks and Minefields.

 

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Where Else can you get help on all 4 main items it takes to get develop and operate you self storage Business?

 

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Why not you? Why not now?

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Ready to start your own Self Storage give us a call or get pre qualified by applying on line.

Marc Goodin   860-830-6764