It has become very popular in the self-storage industry today, to do conversions as an entry point into the business, or as a way to expand your self-storage business. I like them very much and wrote an article about it for Inside Self-Storage a few months ago.
Conversions are what we are calling it when we take an existing building and convert it’s use from whatever it previously was into self-storage. The process is becoming popular for many of the reasons I listed in the article referenced above.
But, there are a few pitfalls to watch out for. Everyone is a mistake I have made along the way as I have completed conversions. Here are some of the pitfalls we had to overcome that I wish I had done differently as we did our conversions.
Pitfall Number One: Floors
Make sure your floors can hold the load and are not in too bad a shape.
I have had both issues. The first issue is not so much a problem on a one story project or on a multi story project where the floors of the building are already there. Usually the storage system for single story interior conversions are made of light gage steel and have no load bearing needs.
This will be the lightest system you will every work with. But we have had trouble with floors that were in really bad shape from a manufacturing process and just from being grubby for so many years.
Ultimately we had to paint the floors (which I hate). Once you start, you have got to keep it up over the life of the project.
The real issue to watch out for is when you are fortunate enough to be able to go up in a warehouse type building and add more floors. Usually you need a minimum of 17 feet clear height to add a second floor. We have done that a number of times.
It is a great thing to take a 40,000 square foot building and be able to get 66,000 net rentable square feet out of it by going vertical. But…make sure the concrete floor is at least 6 inches, or the engineers for the storage system fabricators wont sign off on it.
We had one building where the floor was only four inches. We discovered that during the due diligence (it would have been nice if the owner had told us he had a deal fall through before because of the same issue).
Ultimately we solved it by marking where the support columns would be and cutting the floor and putting the 6 inches there, but that was $37,000 later. Fortunately, we had the Seller split that cost with us.
Make sure you know the floor load required by the self-storage systems fabricator and hopefully you can find that out before you go under contract.
Pitfall Number Two: Weird Unit Mix
You will see some very strange unit mix sizes come back from a self-storage fabricator or engineer many times when they are designing the project. Some times it is almost unavoidable, especially if you are putting up a second floor and need support columns in the units every ten feet. In these cases, the exterior units against the outside walls are what is left, and to make sure they can get as much square feet in service, they will then come up with some strange sizes to fill the nooks and crannies.
I am all for getting as much square feet into service as possible, but I am here to tell you a 2.5 x 6 with a small roll up door or “passenger door” is a tough unit to rent.
At then end of the project, when we are 88% occupied, usually what is left are the goofy sized units that no one wants.
There are a couple of projects I wish I had been more forceful in challenging the proposed unit mix from the fabricators. Fortunately, I now have a partner who is accountable for getting it leased up, and she is more vocal than I ever was.
Work the unit mix on these conversions until you get a layout you feel comfortable you can rent. Don’t get hypnotized by so many small units which drive up the per square foot income. Make sure you end up with a unit mix the market will like, then start paying attention to the per square foot income number.
And avoid as many odd sizes as you can. You will have a few, just keep it to a minimum.
Pitfall Number Three: Not Enough Contingency In Budget
I don’t know what it will be, but there will be a curve ball thrown at you as you do your conversion.
As I mentioned, in one project it was the floors. In another project, we had to erect a $100,000 concrete block fire wall at the last minute after an inspection to separate office areas from storage areas that both the architect and engineer didn’t anticipate.
Unlike new construction, as you go into existing buildings and demo out what is already there so you can erect storage, often there are issues to deal with that were not anticipated. Regulations change and what worked before now have to be different.
I don’t know what it will be, but my suggestion is be prepared for it so you don’t go over budget and run out of money. Fortunately, we had a 15% contingency line item in it and we h=used every cent (and a little more).
If I had only had a 5% contingency in that project, we would have been in real trouble. Budget and anticipate last minute issues you will have to deal with.
Pitfall Number Four: Be Ready For Bad Drivers
I can’t explain why, but we have had so many problems from people who can’t drive very well. I can’t imagine it is only at our projects these people show up.
In one project, we felt people would feel safer if not only did we have a gate that opened when they put their code in, but to prevent tail gating in, we would have an arm come down after the car or truck went through the gate.
Surely that would enhance the feeling of being safe. No tailgating in.
I think we abounded that arm after replacing it for the fifth time. People would just drive (mostly trucks) right through it.
We have had to erect bollards in some storage places to stop trucks from repeatedly backing into our buildings.
We learned the hard way to have a way, from people driving U-hauls or box truck through our conversion projects, to make it so they never have to put the truck in reverse. If they have to back it up anywhere, they will hit something…period.
If there is a possible way for someone to hit a building or door, assume they will, and protect your building. It is much easier and less expensive to do it during construction than afterwards. Get creative in your protection. You will need it.
I wish I had known the above four potential issues as were doing our first few conversions. It would have saved a lot of time, money, and frustration.
But even if you have to deal with all of the above issues, and more, it is well worth it. For the smaller investor, there is nothing better than doing a conversion and getting in the fantastic business of self-storage. Our best performing projects in our portfolio are some of the conversions we have done.
Have fun and go for it.
