In my world of self-storage acquisition, there are two significant obstacles today. One is financing challenges, and the other is construction costs.
Now, it is true construction costs have leveled off somewhat, but they are still high.
And when these two items combine, it can be very challenging.
What I mean is if the lender has an approved list of contractors you can choose from, and you have to use a GC (general contractor), you cannot self-manage construction or use a construction manager, no matter how simple the expansion or new construction, costs can soar.
So, for this episode, I am going to segregate the construction projects into two types:
- Ground-up, multi-story, class-A construction.
- Single stories drive up in both ground up and expansions.
Ground-Up, Multi-story, Class-A Construction.
I have never done one of these, but I have worked with a lot of people who have.
I would definitely use a general contractor and a great architectural and engineering team.
In today’s world, I see hard costs (construction cost less soft cost and land) running around $130 per square foot. It could vary greatly, but I am seeing this kind of number.
I don’t have a lot of tips on how to reduce this except:
- Try to have a cost-plus contract and a mutually agreeable budget attached.
- Have the right to value engineer during the process.
- Have the right to get bids yourself and to have a say in who the subcontractors are.
Single stories drive up in both ground up and expansions.
Let me tell you how I have done expansions in the past.
Now, keep in mind that I am not a contractor. I have never built a house or even rehabbed one. But I can think like a developer.
I don’t hire a powerful engineering and architectural team like I would do on a ground-up, multi-story, class-A construction.
I find a good civil engineer who can drive the approval process (as opposed to an architect who usually does).
It is great if the engineer has self-storage experience, but more important to me is the engineer’s relationships with the people who approve projects locally.
The first place I try to save money is on the building plans.
I don’t have an engineer or architect create layouts and building plans.
I will send my site or a survey of where the buildings are going to go to storage fabricators (or building footprint if a conversion), and their engineers will do an initial layout.
I may get more than one.
I usually pay about $1000 for this layout, which is usually credited against the cost of the system if I use the same company for the storage system when I select one.
I often go over the layout with the storage fabricator, but in one or two tries, we have a general layout and unit mix I think it looks good.
Then I send that plan to the engineer to look at. They are looking at things like setbacks, truck turns, fire lanes, etc.
Often, they will tweak the plans.
I give the fabricator the tweaked plans back, then ask for a bid.
Once I get that bid, I redact (fancy word for blackout) the pricing but send that to other fabricators to give me comparable bids.
This approach does take slightly longer, but I like it because, almost always, the building plans and the concrete specs are included in the bid from the fabricator.
This way, I am not paying an engineer or architect to create building plans. Saves lots of money.
I then get the plans in paper form as well as CAD.
I send the CAD to the engineer and/or architect to drop in the rest of what is needed to get approval, such as electrical, plumbing, fire suppression, etc.
This can reduce the overall cost a lot. I have sent engineering and architectural costs as high as $120,000 or more for drive-up projects under 40,000 square feet.
I usually average around $50,000 or $60,000 for engineering and architectural, depending on the project size.
The only plans my civil engineer generates are the site plans for the site work contractors to bid on after they receive the layout from the fabricator.
Now, if you have zero construction experience, hire a GC. But ask them if they will go with this process.
I hired the subs in the past, especially on projects located in my hometown or close by.
The excellent news about self-storage is that there are not many different trades. In most projects, it is:
- Site work.
- I get bids after the site work drawings are completed by engineer. I usually get some of the site-work contractors who bid from the engineer as well.
- Storage system.
- I select a fabricator based on price and delivery time.
- Storage assembly.
- Often this can be included in the bid from the storage fabricator.
- I just usually contract directly with the erectors.
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- Included in the building plans from the fabricators are the concrete specs, which are approved by my engineer.
- I usually use local concrete companies, although there have been times when relationships I have with subs in this trade will travel and are still less than local concrete sub-contractors.
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- Get bids after plans are received from fabricator.
- However, I can get initial estimates based on initial layouts from fabricators.
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- Get bids after plans are received from fabricator.
- However, I can get initial estimates based on initial layouts from fabricators.
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- Usually, local companies and we can get bids off initial layouts from fabricators.
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- Get bids after plans are received from fabricator.
- However, I can get initial estimates based on initial layouts from fabricators.
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- Usually use local, except for gate access. I use an approved SSA or ISS vendor, and they will recommend local sb-contractor for installation.
- I get bids after plans are received from fabricator.
- However, I can get initial estimates based on initial layouts from fabricators.
What is missing here could be an office or retail area. I get a local contractor to give me a bid.
This will account for 90 plus percent of the work needed for ground-up construction.
Yes, there can be other things to deal with in some projects, like mixed-use projects. But overall, these are the items I deal with and how I deal with them.
If I am out of town and can’t be there daily during construction, I will use the same process but hire a construction manager. They are usually about half the cost of a GC. I make most of the decisions, but the construction manager can organize the trades, be there daily or close to that, and recommend some local subs to bid.
I will pay them a percentage of a mutually agreed-upon construction budget.
Today, banks often require general contractors.
This has thrown a wrench in my process, so I brought a very experienced GC inhouse and created a company where I have some ownership. I am paying more than a construction manager but less than a normal GC.
We are doing our first expansion together using the process described above, and our goal is to be approved soon by some of the larger SBA lenders.
Given today’s current environment, this is the way I chose to address the challenges. If you do a lot of construction, I may suggest looking at this or some version of this option.
If you would like this new construction company I am involved with to look at your project, reach out here and schedule a call, or just email me at mark@helmproperties.com, and I can have our team explore and bid so you have a comparison.
These are some of the Strategies we are utilizing for cost-effective self-storage construction today.
| Address the challenge of high construction costs in the self-storage industry. |
| Share innovative and cost-effective construction methods. |
| Provide tips on negotiating with contractors, managing budgets, and optimizing the construction process. |
