Part 2 $85/sf Construction cost - Now What?

Part 2 By Marc Goodin

"The Path to Success is to take Massive Determined Action" Tony Robins Ten years, 5 years ago and a year ago self storage took massive determined action and it will be the same when you get started today or ten years from now.

There have always been several critical steps to building a self storage but now they are more important than ever. One of the most overlooked things is properly reviewing a property in detail as it relates to site work costs before you determine an offering price. Many buyers have no idea the land they are buying will cost $100,000 to $400,000 or more ($2 - $5 a sf for a 50,000 sf facility) more to build due to bad soils, steep topography, buying unusable (wetlands, 100-year floodplain) land, etc. Existing utilities or a lack thereof are a factor in development. In many states if there is no water you must build an unreasonable number of costly firewalls. And if there is suitable water service but it is on the other side of a major road where they make you bore under the road it can cost an extra $50,000.

All of the sudden again novices are seeing how well self storage is doing believing “Build it and they will come” is true. It is not. Location, location, location is the first step of many steps to make sure they will come and pay premium prices.

It is great to be excited but don't forget the work.

You will need a civil engineer to take the time to walk and review a property and the regulations, so you understand the “extra costs” of building on one site vs another. Some municipality regulations have severe impervious or building coverage limits or other regulations. This can mean it take 8 or 10 acres of land instead of 6 acres to build the same square feet. In other words possible an extra cost of several hundred thousand dollars.

Do you really know how to properly negotiate and re-negotiate land costs for your maximum savings on the price of the land? Are you willing to learn? Here is a link to Buying Land for Self-Storage Development: 3 Steps to a Rewarding Negotiation.

Not fully understanding the cost due to certain building and site design features can lead to a couple to several extra dollars a square foot in construction cost. Don’t assume your engineer and architect are considering all the value design options. They are not. Here are just several of many examples to consider from an end-user and COST point of view:

· No building gutters vs gutters, pavement curb vs no curb

· Building in 10-foot increments for cost efficiency.

· Layout that provides for the right phase 1 building size for your budget.

· Partial Camera to full video coverage. The last 10 percent coverage is the costliest.

· Electric heat vs gas heat, especially in some southern locations where heating is used less often. ($35,000 savings)

· Full hallway ceiling system vs an open ceiling system ($50,000 savings ceiling & sprinkler system).

· Perimeter fence vs the building as the perimeter fence. With chain link fence moving past $40 a foot and decorative steel fence easily over $100 a foot this is one important aspect of the layout.

· Storm drainage cost are dependent on many items such as roof directional pitch, building gutters, no curb and sheet flow to drainage swales when possible. The difference between a well thought out drainage design and the typical off the shelf design can be $100,000 or a couple of dollars a sf. The cost of drainage and the detention/renovation basins can skyrocket when there is not enough land and they have to be shoe horned to make them work or worse yet require retaining walls.

Poor plans and poor bidding specifications easily lead to higher construction cost over and over. The typical AIA construction contract favors the contractor. In a nutshell it simply says they will build what is on the plans. But plans and specs can leave much up to interpretation or a handshake deal which can lead to significant cost overruns.

Every AIA contract should have an addendum that list the items that are often not included, or may be overlooked by the contractor. The addendum should also include a list of items that are not included in the bid. Also, when there is a specific brand or quality requirements, they should be repeated in the contract addendum along with a note, no substitutions are permitted. The cost and quality between fencing, gates, security systems (keypads etc.), kiosk, Desk/cabinets, cameras, and the metal building, etc. can be very significant. A bid addendum will help ensure all parties are on the same page.

And I think Yahoo is way off base here. There is only one obstacle - Not enough cash flow.

Here are a couple of examples that you as an owner may believe are included in a bid but often are not. Full cleaning of walls and floors at the completion of the job.

· Providing and installing unit numbers

· 3 – 55” monitors. And many low voltage items like cable, phone & internet

· Construction stake out and survey as-builts.

· ALL climate control door to have keypads. (I have seen contract provide keypads for the entrance gate an no doors more than once)

· Signage and wiring to light ground signs required/included

· Detail low voltage items like cable, phone & internet

Also, contractors budget allowances are notoriously low. And most like security, signage, office desk/counters could be better detailed before bidding to obtain a fixed fee or a more realistic budget.

Here is a list of some of the typical owners cost often not in the contract that you must account for in the total construction cost and loan.

· Builders Risk insurance for the duration of the project

· Construction observation by Engineer/Architect /Owners team

· Material testing

· Bank fees

· Bank inspection fees

· Building Permit fees

· Municipal and other impact fees

· Temporary power

· Utility fees

· Meter & transformer fees.

· In some cases, the utility company will install (full or partial) service to the building and charge the owner.

Incomplete bids are dangerous and lead to higher prices and unexpected cost overruns. With the higher construction costs you may have less of a construction contingency budget to deal with cost overruns during construction. Change order typically cost more than if they were part of the original bid. And unfortunately, the office often gets downgraded when a project is over budget which is one of the most important parts of you project for sales, marketing, and profits. You will be amazed how things like music in the office, flooring, shelving, signage, furniture, coffee bar, premier desk, and counter, large tv monitors, etc. make a huge difference in making your facility the premier facility in the area and the price leader.

As you can see there are a lot more variables than just the price of steel or the average price of self storage. In the end having a knowledgeable team before you make an offer on your land and properly executing due diligence, design, bidding, operations and a “Premier Ritz”, sales and marketing plan is required. The most important key is understanding you are a major part of the team and that putting in the time is a must. If you’re going to wait for a realtor to find land or expect an architect to design a premier facility on his/her own or a management company to get premium rates, now is not (and may never be) the time for you to build your own self storage business. As I always tell people who ask if now is a good time to build, Five years ago was the best time but if you’re ready to learn, hustle and work hard, now is the second best time to build!

If you missed part one check it out here:

Check out FAQ’s for more details on the basics of what it takes to get started in self storage.

Marc Goodin is President of Storage Authority Franchising. He owns 3 self storages he designed, built, and manages. He has been helping others in the self storage industry for over 25 years. He can be reached at or directly at 860-830-6764 to answer your franchising, development, marketing, sales and operations questions. His best-selling self storage books are available at amazon. You get more firsthand information on owing a Storage Authority Franchise at