Self-Storage: The Development Process
August 16th, 2021
Learning about Self Storage – The Development Process
So, you're thinking about constructing a self-storage facility. To be a financial success for you and your investors, your first self-storage property must be a financial success. A potential developer should be aware of and adhere to a few fundamental principles. You must select the best location, conduct a market feasibility analysis, and decide on the best unit mix and layout for your project.
The self-storage industry got its start in the late 1960s when a few foresighted individuals recognized the growing need for residential and commercial storage. Each decade, the industry has more than doubled in size. Returns on investment have been very impressive, frequently exceeding those of other types of real estate investment.
Your Market Analysis will determine the self-storage demand for a specific location. In most cases, the time required to complete a project from acquisition to completion ranges from 5 to 24 months, with 18 being the average amount of time required to obtain conditional use permits. This timeframe is extended for projects that require a zone change; depending on the community you are developing in, a zone change can take 9-12 months.
As with any real estate-related analytical report, the markets are constantly influenced by demographics, economics, and other factors that may have a material impact on the viability of a project. It is critical to constantly monitor the market for new competitors who may enter the market so that the project can be phased if the market changes.
Self-storage, on the other hand, is a sub-sector of the commercial real estate market. This industry's growth is expected to be positive during the forecast period, owing to trends of increased urbanization and improved economic outlook across countries.
The performance of self-storage properties is primarily influenced by the rising demand for additional storage space as families accumulate more material possessions. Furthermore, as baby boomers begin to downsize, the demand for storage units is expected to rise.
Ask yourself these questions!
Is there a market for the product in the area, how is the competition faring, and who are your customers? If you intend to finance your project, it is customary for the bank to request a third-party feasibility study to back up your proposal in general, you'll need to research product demand in a 2-mile and 5-mile radius to determine the square foot per capita of total storage space in your radius. A desirable area would have a large number of renter households with incomes greater than $75,000.
Site Analysis – things to consider.
The total acreage, what is required, and the cost per square foot would be included in the site assessment data. What is the site's topography, and how does it drain? In today's communities, there are local and federal regulations dictating stormwater management requirements that can break the bank if you don't do your homework.
A self-storage complex necessitates land ranging from 1 12 acres to 5 acres. When faced with higher land costs and smaller acreage, it may be necessary to construct two or three stories to achieve the required net rentable square footage. This is great as long as everyone else in the market is doing the same thing.
If there are available 3 to 5-acre sites in the market, you can build a single storey or a combination of single and multilevel homes. It's crucial to remember that if all of the facilities in a market are single storey, it's difficult to bring in a single storey / multilevel and make it work. Where are the utilities, and are there any easements that will prevent you from building the layout you desire? The local authorities and development codes in your area determine easements and setbacks.
Is the site equipped with adequate loading and unloading for your project? Is your self-storage project compatible with the nearby commercial and residential properties?
Due Diligence – things to consider.
Because each jurisdiction is different, educate yourself on the approval process and ensure you have the proper zoning to build your project. There are different approval requirements for architecture, site, and civil engineering. Determine the landscaping, as well as the requirements, building permits, and fees.
Determine whether or not there are any HOAs associated with your project; their input can be very important as you take your project through the local jurisdiction for approval. You will frequently need to negotiate with them to achieve a win-win situation. The thoughts and opinions expressed by organized neighborhood organizations have a strong influence on local councils and commissions.
You will require a wide range of surveys for your project, including but not limited to a boundary, topographical, landscape, and plat surveys. You will also need excavation and preliminary grading plans to address drainage concerns and determine what type of mitigation, retention or detention, water quality, and stormwater permits are required. You should also be aware of local ordinances, easements, building permit information, required setbacks from property lines, traffic studies, and transportation requirements. Also, what type of signage do you want on your property, where do you want it, and what are the local signage codes and requirements?
Site planning and unit mix.
Local building codes, including utility requirements underground and overhead, will dictate the number and placement of fire hydrants, as well as whether fire control sprinkler systems are required for your storage buildings.
Determine the size and configuration of your structures on your site based on the jurisdiction's allowable percentage of coverage. Now is the time to consider your building layout, which will be based on your unit mix from market surveys, what the competition is doing, and determining demand in your area.
Studying your market's unique customer demographics and the competitive landscape is the most reliable way to predict self-storage demand. Begin with all pertinent prospective customer data for your site within the desired radius, such as age, population density, renters vs. homeowners, income level, and so on.
Check with the local building department and local government planning commissions and councils to see if there are any other storage projects in the works, under construction, being reviewed, or being developed.
Soils report and environmental…
It is preferable to spend a little money hiring an engineer to answer some questions than to buy a piece of property only to discover later that you cannot do what you want with it. Boring to determine the feasibility of your building pad sites, as well as driveway location and construction, would be included in geo-tech reporting. Coordination should exist between your civil and structural engineers. You will need an environmental phase one report at the very least to establish that there are no hidden issues with the property that would prevent the construction or increase your costs due to hazard remediation.
When determining the economic feasibility of your projects, a good rule of thumb is to create a five-year pro forma that includes the construction year and employs conservative lease-up rates. Calculate your hard and soft costs, including interest. Calculate your operating costs, including taxes. Loan information should include the loan period, interim and preferred interest rates, equity requirements, and loan origination fees. A feasibility study is required.
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