I recently was traveling looking at some sites for some self storage projects and thought it might be good to write an episode outlining what I think makes a good site.
I have made some real mistakes on this in the past.
There are four main elements that make a great self storage site for development.
A site today for us must meet all of them, not most of them.
Element #1: Visibility
We track where our new leases come from, and for every facility, “drive-by” is always number one, sometimes number two, in the source of new leases.
It’s not that someone drives by and says to themselves, “Oh, there is self storage. I think I will rent a unit.”
But if you think about it, it makes perfect sense.
Your customers, on average live within approximately four miles of your site. If you have good visibility, they will see it often in their daily movement through life, going to stores, taking kids to school and games, and so on.
Then when they need storage, or when they search online for self storage, they will think of or see your site and say, “Oh yeah, that place.”
So first and foremost, I want to be seen.
There is a valid argument that you can drive people to a site that doesn’t have as good visibility by using the internet.
Perhaps you are right. For me, there is no upside in winning that argument. At this point in the evolution of self storage, I just am not willing to bet $2-6 million dollars or more on it. I know visibility works.
So, I want a highly visible site. I do know people will make two to three turns to get to a highly visible site, but in my world, viability is more important than direct access on a main road (although that is much more preferable).
So, the visibility criteria eliminates over 90% of available options for sale because most sites that meet our visibility criteria are zoned retail and very expensive. But remember, it does not eliminate all sites. One has to burn some calories to find a highly visible site that can work for self storage and be priced in a way that makes economic sense for a product that generates between $10 and $20 per square foot income, not $100 to $200 per square foot income as many retail stores do.
Element #2: Submarket Health
I cannot over-stress this factor today.
Once I find a site, this kills many deals. I was looking at one last week, and everything was perfect, except I felt uncomfortable with the submarket.
Specifically, on that deal, the people living in that submarket had lower per capita and household income than most other parts of that overall market area. A large part of this project was going to be boat and RV parking, and yes, people will drive further to park their toys at a good safe, clean facility, but very few, if any, in the trade area have those toys themselves.
So I passed.
Specifically, today I look at:
- Square feet of self storage per capita.
- Now I don’t have an exact number I use. Houston Texas is a much higher number in my mind than Boise, Idaho, for example.
- Again, I don’t have an exact number like 50,000 people in a three-mile range like you read often. I have done very well in submarkets with less than that.
- Population Growth.
- I do want to see the trade area having some population growth. The more, the better. If the submarket is flat or going backward, it is a deal killer for me.
- Occupancy rates and rental rates of competitors.
- Be careful of just saying all my competitors are full, so it must be a great submarket. This can be very misleading sometimes. But I would much rather see them full.
- More specifically, I am looking for how many facilities are in a lease-up situation (or soon to be). They will be my main competition, and odds are I will be behind them in bringing space to the market.
- And finally, rental rates, we will discuss that in more detail below.
Element #3: Site Shape and Buildability
Site work has always been one of the larger numbers in most cases.
I know sometimes it is hard to look at a site and know if the site is good for self storage, but here are a few things to be aware of.
- Site shape and size.
- Is the site such a shape as to layout a faculty that works well with drive lanes, parking, or whatever you envision for the trade area?
- We usually have a storage fabricator do the first preliminary layout as opposed to an engineer. They do it faster, cheaper, and are usually good at maximizing the land. Often, we need to scale what they create back, but they tend to be very good at maximizing what the land can offer (remember, they are trying to sell you the system to go on it, so they want to maximize it).
- For us, usually, the more rectangular the site, the better.
- Ensure you have enough land for any required water retention, or you very well may have to store run-off water in underground holding tanks, which can add to the development cost very fast. However, we have done that in some cases and the projects worked out fine economically due to the demand and rents in the submarket.
- The only way I know is when the Geotech report (which tests soil compaction) comes in. If the seller already has one, great.
- We have never taken a site through zoning to get self storage. I usually pass on these. We often have to get Conditional Use Permit. In the very initial stages of consideration, contact an engineer who can tell us how potentially challenging a site may be to get approvals. If they appear to be cumbersome, we just move on. I only have a certain number of years to work and a certain number of calories I am willing to expend, and I will go to a market or site where fewer are required.
Ultimately, the engineers and the feasibility reports tell us if our site is good for self storage, and more specifically, self storage in that trade area or submarket.
Element #4: Economics Of The Deal
I left this for last here, but it is usually the first thing I focus on before doing anything else.
In my world, this is always the first step, and I go no further unless it appears to work. Last week, I ended up passing on the site I mentioned due to the submarket health, but before I went to look, the preliminary numbers were great. The site had great visibility, was entitled, and looked ready to go.
I would have never proceeded further if the numbers didn’t work.
I am not going to take time here to go over how I determine that because I have many times before in these episodes.
Here are a couple of links to those episodes, as well as to a course on How To Build Your First Self Storage Facility.
Link to Get Video taring series on how to Analyze:
Link To How To Build Your First Self Storage Course:
Things To Watch Out For
The two biggest mistakes I see people (including myself, having made both of them) are these:
- “I can get the land at a good price.”
- We already own the land (or building for conversion).
Let the site and location inform you it is a good deal first, then focus on price. I cannot tell you how many projects I look at that should have never been built, but they were because the initial developer’s god a good deal on the land.
Let the market and the feasibility report tell you it is a good site, then focus on price and/or terms.
Mistake number two, like the first big mistake, is to not be attached to a site just because you own it or control it. Make sure it works for self storage.
This seems easy to get here, but I know from personal experience that it is easy to get emotionally attached to an idea and a site because we already control it or get a good deal on it. We then go out and find or even create data to back up our assumptions.
It doesn’t matter what we think about the site. The only thing that matters is will the market rent space or parking there.
Period.
These are the elements we use to consider if a site is a good one for self storage.
The good news is, there are some really great sites out there, and someone who has a strategy and knows what they are looking for and where can find them.
Happy hunting.
