Until the 2020s, as a self-storage owner and developer of smaller projects (i.e., not large multi-story projects), I never used the design-build process many people apparently use to start a development project or even an expansion.
A “design-build” construction process is a project delivery method where a single contractor is responsible for a project’s design and construction phases, meaning the architect and builder work together under one contract, collaborating throughout the entire process.
Another route many smaller investors go is they start by hiring an architect and/or engineer to design their project and create the building plans.
I never did that either.
Then, after the plans and designs are complete, a general contractor is selected from the bids for the building.
I didn’t go these routes, not by design but probably by sheer ignorance.
In truth, I was just trying to keep my cost down, especially in the early, pre-construction phases, before I had my bank loan and could draw on it.
Today’s Environment
When interest rates were 4% something, and construction cost for single-story self-storage was $35 to $50, smaller investors going the design-build route or the architect/engineer design route worked.
It was easier and faster for most small owners building self-storage to get to building plans and final construction than what I was doing.
But even then, I was coming in with final numbers $10 to $20 per square foot less than people using either of the above two methods.
Then the pandemic hit.
Supply chains were interrupted.
To avoid falling into a total depression with hardly anyone working, both Trump, then Bidden paid Americans to stay home in the largest direct to the public funding schemes the federal government has ever undertaken.
There were two direct results I can see of that scheme:
- We kept from falling into a recession, or more likely, a depression.
- It was highly inflationary.
Then, after the pandemic started easing, getting Americans back to work required more pay and other benefits. For the first time in a long time, workers had an advantage because employers really needed them.
Probably still the case.
Regardless of whether you think this is a good thing or a bad thing, it is inflationary.
So, to deal with inflation, the Fed raised interest rates.
With higher interest rates, a disrupted supply chain, and inflation, construction costs have gone way up.
Now, on top of this general economic landscape, for reasons I am sure are sound, most of the banks I use started requiring me to use General Contractors to do my ground-up, expansion, and conversion self-storage construction after the pandemic.
I was using either my own team or a construction manager with the process, which I will detail to keep my construction cost down.
So, I started using the above two processes to get bids.
Boy, was I in for a shock?
The building I was previously constructing for $50 per square foot before the pandemic was coming in between $95 and $120 per square foot.
This made it almost impossible for me to continue in the business.
So, I did what most entrepreneurs do when encountering a problem. I created a company to solve my challenge.
The Process We Use
All I really did was ask my partner, who is a GC, and explained my issue and how I used to do things.
I asked him whether he believed a small construction company was a viable business model, primarily for handling my own projects and potentially taking on other people’s smaller self-storage construction endeavors.
He said he really did think so, and a company such as ours could really fill a niche in the self-storage space.
He broke down what I was doing into two phases:
- The planning, design, construction budget, and approval phase (we call it the Owners Representative phase).
- The construction phase.
Now, I repeat, I had no idea I was using an alternative system to what many others were doing. I was just trying to keep my costs down.
What I discovered was that I could rely on the fabricators to provide a lot of services in order to sell their products. Many of these services others were paying for with architects and engineers.
My process, which my construction partner has taken to another level, is the following:
- We form our architect and engineering team. We have a prominent national architectural firm in the self-storage space. We then find qualified local engineers in the location where our project is. We have established an hourly rate with our architect and are trying to do the same with the engineer.
- Sometimes, we explain our process to the engineer and get a fee for each step of the way.
- In both cases, we are not asking them to design anything in the way of plans. We want them to react to what we present.
- Next, we go to a fabricator and present the land or building we are converting and ask them to create a layout.
- I will usually tweak this based on information from a feasibility report, such as average unit size, etc.
- At this point, we give the fabricator’s layout to the engineer or architect, depending on the project, and ask them to review and modify it as needed to get approvals for the development plan.
- If possible, and we feel good about the preliminary budget, potential returns, and chances of getting the project approved at the local level, we will fund a portion of the fabricator’s deposit and ask if they will start generating engineered drawings for the project before the balance of the deposit being paid. We realize this is nonrefundable money.
- This is also when I usually begin designing a preliminary budget based on this preliminary development layout.
- We submit a plan with rendering, if necessary, to get development approval. Sometimes, on expansions, we do not need development approval, so this is skipped, and we go straight to building plans.
- We often have to adjust the plans based on feedback to get approval.
- Once development approval is granted by the local regulatory authorities, we turn the engineered drawings and layout over to the architect to generate building plans.
- We also fund the deposit balance using the self-storage system.
- We then engage the civil engineer to create the site work plans if we are doing an expansion or ground-up construction.
- Once the building plans are created, we send out bid packages to appropriate trades and sub-contractors.
This process may take a little longer, but it sure saves money, primarily in architectural and engineering costs.
If we do this process for others after building plans are generated, we give them to them, and they can get bids from as many contractors as they want. We just ask to be one of them.
Our construction fees are usually lower than most GCs, and we find being very transparent is critical. As an owner, I want to be involved in the selection of the trades and fabricators. We do the same if working with others.
Our fee will be based upon a mutually agreed budget.
Limitations
Now, this process is not for everyone or every project.
If I were building a large multi-story climate-controlled project, I would most likely use design-build.
If it is a complicated project, this process may not work.
For most of the projects I have ever been involved in, this is how we do it.
In today’s environment, every cent makes a difference. This could be an alternative and more economical process to build, expand, and convert buildings into self-storage.
It requires more work and input from self-storage owners, but the rewards can be great. I am generally bringing in projects for $20 to $40 less per square foot from the bids I was getting.
So, feel free to use this process if you are not. Modify it as you see fit.
Also, feel free to reach out to us if you think you may need some construction guidance and/or help.
You can reach us through the site below if you want. Good luck as you grow or get into the self-storage business in 2025 and beyond.
https://resolveself-storage.com/
