By H. Edward Goldberg

Self-storage projects began cropping up along rural and suburban roadsides in the late 1970s and early 1980s. These were typically the single-story variety, spread out over large tracts of land with appropriate zoning. Rarely were owners bothered by conflicts with neighbors or regulators. Times have changed.

Today, self-storage is moving into more readily accessible and buildable sites amid industrial parks as well as business, commercial and residential districts; though that often means facilities are built on smaller tracts. Smaller footprints mean taller structures. These parcels also require compromises to satisfy local organizations, regulators and municipalities.

The two greatest impediments facing self-storage developers are finding a suitable site and securing approval from local government entities. Though every project and site is unique, these challenges are common to all ventures.

When I began in the industry, development sites were widely available, and relatively few groups were concerned about the appearance of the structures. Today, there are few easy-to-develop sites, and those that do exist may be in areas with major restrictive covenants.

In this development climate, before you proceed with construction documentation, you need to assemble a project-approval team. This should comprise a capable civil engineer, an architect with self-storage design experience, and an attorney with comprehensive knowledge of the local real estate laws and covenants.

I recently designed two large multi-story self-storage projects, one in a suburban center and the other in a major city. I present them here as examples of the approval process. Both were difficult to actualize because of requirements and restrictions by the local governments. I had to jump through many hoops, frequently redesigning and seeking solutions, while every change created a ripple effect throughout the entire project. Following are brief summaries of the problems we faced and how we obtained final approval.

The Commerce Center Self Storage

This facility in Largo, Md., a suburb of Washington, D.C., sits on the only 2 acres of virgin land in a large development area called the Largo Town Center. Before beginning the design phase, I consulted with the owner’s attorney and civil engineer. The lawyer checked to see if self-storage was allowed in the district and what community-approval meetings would be necessary, while the engineer checked to see if sufficient utilities such as water and electricity were available to support the building.

I researched any community standards that needed to be addressed. The Largo Town Center Development District Standards, which were available online, stated, “The development district standards contain regulations that impact the design and character of the Largo Town Center. The purpose of these standards is to shape high-quality public spaces with buildings and other physical features to create a strong sense of place for the Largo Town Center area consistent with the land use and urban design recommendations of the preliminary sector plan.”

From this, I learned the building-height limit (six stories), the allowed windows-to-wall ratio, the requirements for exterior surfaces, and awning and sign dimensions. I created a matrix that answered all these requirements and built an initial design. Then I could project the cost. Originally, I wanted to use split-face block for the first floor, but that was rejected by the community, so I substituted a white tile. I’ve found it’s a lot easier to work within a community’s design requirements than to fight them if the requests are reasonable.

The standards required that site-plan submittals include architectural elevations in full color, street and streetscape sections, build-to lines, and a parking schedule and plan. In presentations to community leaders, who tend to have difficulty reading architectural plans, I created clear graphs and three-dimensional visualizations that are much more effective than two-dimensional elevations. The process necessitated a series of follow-up meetings, but with good communication skills and a calm demeanor, I was able to achieve my goals.

It was the lawyer’s role to tie everything together and secure approval for the design. I then created the construction documents, met all the local and national codes, and satisfied the plan reviewers and the fire marshal.

This project, which is now under construction, took more than a year from the first step to ground-breaking. Once complete, it’ll comprise 140,000 square feet of storage and 5,000 square feet of commercial space. It’ll be managed by CubeSmart and branded under its name.

Florida Avenue Self-Storage

This project at 72 Florida Ave. in Washington, D.C, is a great a case study in difficult projects. In the center of the city, the parcel lies between two existing buildings, accessed from two streets on either side. The site was problematic. It’s long, with a “dog leg” at one end and a grade change on another section by an elevation of 20 feet. Trying to satisfy the requirements of the client and authorities was challenging and frustrating, at best.

According to city codes, we needed a specific ratio of parking and loading zones to buildable square footage. The lawyer calculated the formula. The 166,000 square feet of leasable storage space required by the owner to make the project viable required three truck-loading zones and 27 parking spaces. I made several design proposals, which the lawyer critiqued.

At first, I decided to build seven stories. I divided the required parking between the front, near the office, and the rear, near the main loading area. But because I needed to preserve a 25-foot setback from two of the property lines that couldn’t contain parking, I was unable to make that scheme work.

I countered by putting 10 parking spaces inside the rear of the building and moving the stairs, but I still didn’t have enough to meet the square-footage requirement. The lawyer then used another allowable method that reduced the gross square footage by calculating how much of the building was less than 4 feet above grade. Satisfied with this solution, we ran a cost estimate. When the numbers came in, the cost was prohibitive, due primarily to the fact that 30 percent of the first two floors were totally buried in the site.

As a solution, I shortened the first two floors so they wouldn’t have to be excavated. This scheme worked from a cost standpoint, but I lost 20,000 square feet of storage capacity. To regain the lost space, I added another floor. The lawyer said I could add a floor, but it had to have a 1:1 setback on certain elevations by city zoning code. In addition, my roof stairs and elevator shafts had to meet similar setback requirements in relationship to the new setback roof. Because in this iteration, none of the building was below grade, I couldn’t take advantage of the parking exclusions for gross square feet less than 4 feet above grade.

Again, I didn’t have enough room for the number of parking spaces required. I redesigned my stair and elevator locations, which gave me two more spaces inside the building. I was still short, but the civil engineer came to my aid by using compact-car spaces.

By building up, I had once again accommodated the 166,000 square feet my client requested. However, the lawyer reminded me we still needed three truck-loading spaces. Thankfully, the civil engineer found just enough space for a third loading space. The pieces of the puzzle finally fell into place, and we had an acceptable site plan and project.

No one person can answer all the questions or solve all the problems that may arise during the self-storage zoning and design approval process. The best formula for success is to harness the combined efforts of a competent and committed professional team.

H. Edward Goldberg is a registered architect and president of HEGRA Architects Inc. in Baltimore. He’s designed self-storage projects in Connecticut, Delaware, Maryland, New Jersey, the Virginias, and Washington, D.C. For more information, call 443.690.0403; e-mail [email protected]; visit www.hegra.org.

Property owners Matthew and Danielle Mauldin recently received town-council approval to develop a self-storage facility in Richfield, N.C. The project along U.S. Highway 52 will comprise 18,000 square feet in 100 units. The council is hopeful the facility will spark other development in the area, according to the source.

The property owners successfully subdivided the lot into three sections earlier this year in preparation for their self-storage proposal, the source reported. The storage structures will each be 300 feet long and built on a 2.2-acre lot. It will be across from a Veterans of Foreign Wars building.

Improvements to North Carolina Highway 49 between Richfield and Mount Pleasant, N.C., and a widening of the highway near Asheboro, N.C., have the council hopeful the self-storage project will spur further development. “Maybe we’ll see something else soon,” councilmember Jim Misenheimer said during the meeting.

Richfield is a small town between Charlotte and Greensboro, N.C. Its population totaled 613 in 2010, according to U.S. Census figures.

Prime Group Holdings, a New York-based real estate group that owns self-storage and other real estate interests, has acquired a storage facility from Madison Development LLC in the Canarsie neighborhood of Brooklyn, N.Y., for $53 million. The 82,862-square-foot property at 1084-1098 Rockaway Ave. had been managed by real estate investment trust and third-party management firm CubeSmart but has been rebranded under the Prime Storage Group name, according to a source.

The Rockaway asset is Prime Group’s first location in New York City. The company will fund the purchase through a $42 million loan from Arbor Realty Trust Inc., a source reported. It has acquired 1.36 million square feet of self-storage this year, according to its website.

Madison acquired the Rockaway site as a vacant property in 2014 for $7 million. The storage facility wasn’t listed for sale. “If you develop good assets, people want to buy them, and that’s what happened to us,” Adam Gordon, managing partner for Madison, told a source. “We were very happy holding, but we got a good offer, so we took it.”

Madison owns 600,000 square feet of self-storage in New York City, according to a source.

Headquartered in Saratoga Springs, N.Y., Prime Group owns and manages 170 self-storage facilities in 23 states. Its operating portfolio comprises more than 9.6 million rentable square feet.

RealtyeVest LLC, an online marketplace designed to connect real estate owners and developers with investors, recently launched a crowdfunding platform that allows property owners and operators to automate capital-raising campaigns and quicken the execution of transactions. The company has had one “national self-storage operator” sign up for the service, along with residential developers, a real estate investment fund, an international hotel developer and others, according to a press release.

Platform features include a custom-branded campaign landing page, dashboards to access investment and fund data, and CRM (customer-relationship management) tools, such as chat and e-mail. It pushes e-mails to a list of more than 15,000 investors and allows real estate owners to track results in real time. In addition, campaign sponsors can use RealtyeVest’s 506(c) exemption, which allows investors to register and make a placeholding pledge prior to accreditation. The marketplace also allows investors to go through the accreditation process, including digital execution of documents, the release stated.

"We're receiving traction as a result of a void in the marketplace for raising capital," said CEO Dan Summers. "Crowdfunding has gotten a lot of publicity recently, and there are many larger, well-established companies that want in but don't know exactly how; nor do they want to wait. The bigger companies realize the value in monetizing a deal quickly, and as a result, increasing deal flow and cutting back on their workforce and overhead."

Based in Jacksonville, Fla., RealtyeVest specializes in crowdfunding exclusive real estate investments. Members can browse and research offers to make informed decisions on deals. The company doesn’t ask for any percentage of eventual capital raised, according to the release.

Chad Francis, owner of Atlantic Landscape Construction Inc., has purchased the site of the former NewLand Nursery and Landscaping Center in Ellsworth, Maine, with plans to develop a mixed-use property that will include self-storage and residential duplexes. The city’s planning board will review the application on Nov. 1, according to the source.

Plans for the 9.5-acre site at 124 Bangor Road include building five self-storage structures containing 300 units, some of which will be climate-controlled, and eight residential units. The new storage buildings would be close to Bangor Road where NewLand stored mulch and other materials, while an existing building would be used as the facility management office. Several small edifices on the back side of the property, near Gilpatrick Stream, would be torn down to make room for the four duplexes, the source reported.

The site is already connected to the city’s water and sewer lines. The entrance, however, would likely need to be reconfigured for better traffic flow and sight distance.

The property is “convenient to the core population” for living and storage, according to Steve Salsbury, the surveyor who’s representing Francis in the application process. The site also has room for future development, he said.

NewLand Owner Steve Elliott relocated his company to Washington Junction Road in Hancock last year.

Founded in 1975 by Chad Francis’ parents, husband-and-wife team Tim and Sam Francis, Atlantic provides landscaping services for large and small residential, commercial and institutional projects.

The value of your self-storage property is like your blood pressure; it’s not something you need to track daily, but you should check it every few months to ensure the numbers are moving in the right direction. Unlike your blood pressure, however, you want to see your property value increase over time.

If you haven’t reviewed your facility’s value in several years, there’s a good chance you’ll be very pleased. Low mortgage rates for commercial properties and high demand for self-storage investments have driven up the price buyers are willing to pay. If you’ve considered selling your facility in the last few years or plan to exit soon, now’s an ideal time to find out how much your property is worth.

Since a storage facility is an investment for most buyers, property value is determined using net operating income (NOI) and capitalization (cap) rates. NOI is the money you have left after paying operating expenses, but before loan payments, income taxes and/or depreciation. Let’s look at each component.

Expenses

For the purposes of determining NOI, most investors and bankers will insist you treat expenses the way an absentee owner would. In other words, though you may handle some tasks on your own, such as management and landscaping, the typical investor/owner pays to outsource them. With that in mind, below is a list of standard operating expenses that need to be considered when calculating NOI:

• Property taxes
• Insurance
• Payroll
• Third-party management fee
• Utilities
• Advertising/marketing
• Office expenses
• Lawn maintenance
• Snow removal
• General building maintenance
• Bank charges
• Retail inventory

To calculate NOI, subtract these operating expenses from revenue, which comes from various sources, including but not limited to:

• Standard storage rent
• Late fees
• Administration fees
• Tenant-insurance sales
• Outdoor vehicle storage
• Retail sales
• Truck rentals
• Retail/office/apartment rent
• Cell-tower leases

Cap Rate

Once you know your NOI, you can determine an appropriate cap rate for your property. An easy way to understand the cap rate is to think of it as the return on investment a buyer would receive in the first year if he paid all cash for the property. Assuming the NOI remains the same in each of the following scenarios, you can see that the lower the cap rate, the higher the price. Conversely, the higher the cap rate, the lower the price. For example:

• NOI of $250,000 / 9 percent cap rate = $2,777,777
• NOI of $250,000 / 7 percent cap rate = $3,571,428

The problem is determining the cap rate is as much an art as a science, since it depends on location, property condition and investment-market factors. Let’s examine each to understand their impact.

Location

Location is the first maxim of real estate. If your facility is in a heavily populated area, it’s going to command a lower cap rate than a small-town location. Why? Because cities have many primary employers supporting the community. A small town, on the other hand, may have only two or three major employers bolstering its economy. If one closes, that town might dry up.

A key aspect of location is visibility from the road. Generally, 50 percent of customers will come from drive-by traffic. A property along a major highway is much more desirable to buyers than one on a back road, simply because it’s more visible to potential customers.

Property Condition

The condition of your property also plays heavily into value. For example, if the roof leaks, the next buyer will have to repair it. Naturally, he’ll discount the value of your facility by the cost of replacement. To pay for future capital expenditures, he’ll reduce the purchase offer, effectively raising the cap rate.

Investment-Market Factors

Market conditions play a significant role in determining the cap rate a buyer will be willing to pay. Right now, demand for self-storage investments is very high, and cap rates have been driven down by the influx of buyers. With Small Business Administration (SBA) loans available with as little as 10 percent down (in contrast to the typical 25 percent for commercial mortgages), buyers can afford more expensive properties.

In addition, interest rates have dropped in recent years. Since buyers are saving money on interest paid to the bank, they’re able to pay higher prices for properties and still hit their desired return on investment. Keep in mind, though, interest rates are beginning to climb, which is creating a reduction in values and an increase in cap rates.

The Trifecta

Location, property condition and market factors work together to indicate an appropriate cap rate for a property. The cap rate is typically determined by finding comparable sales of self-storage properties, determining the cap rates used to purchase them, and weighing the combined rates to come to an average.

Establishing the right cap rate is crucial because it has significant impact on the final value of your property. It’s usually best to enlist the opinion of a professional self-storage real estate broker. To find the rate on your own, you’ll need to collect data on half a dozen similar properties that have sold within the last two years. You also need to consider several market trends. Understanding how all this works in concert will help you calculate a rough estimate for your property. To confirm the value, though, you’ll need to seek professional advice.

Isaac Rothermel is a broker advisor at Investment Real Estate LLC, which has provided brokerage, construction, management and development services to self-storage owners and investors since 1998. For more information, call 717.779.0804; e-mail [email protected]; visit www.irellc.com.

StoreLocal, a cooperative created by independent self-storage operators to offer member benefits with economies of scale, has launched a new Web platform designed to enhance engagement between consumers and members via mobile devices. The platform is intended to make unit rentals fast and intuitive for customers “with aesthetically pleasing visual elements and features” and “without the need to interact with an attendant,” according to a press release.

The platform includes tools that allow tenants to determine the right size unit for their needs before reserving or renting. It will dynamically build contracts for unit rentals, tenant insurance, addendums and military waivers. It also enables the sale of retail supplies. “In effect, we have made every mobile device a kiosk that allows anyone to fully transact with [member operators] from anywhere, at any time,” said CEO Lance Watkins.

Other features include blog and tip portals, call tracking and recording, coupons, e-mail and short message service (SMS) engagement, and video content for upselling.

“We’re using the power of storytelling to enhance the customer experience,” Watkins said. “We are going beyond a transactional tool to offer a unique experience that educates consumers by answering their questions and [inspires] them with engaging human-centric content along their journey, all the while informing and building the self-storage facility owner’s brand and product.”

StoreLocal leverages the combined strength of its membership for services such as customer acquisition, financing, marketing and technology. The coop also owns online self-storage directories StorageFront.com and SelfStorageHounds.com. Its total membership includes more than 700 self-storage facilities through 21 founding-member companies.

Inside Self-Storage (ISS) has released a new installment to its Sounds of Storage podcast series titled, “Extra Space Executive Noah Springer Shares Efficiency Tips for Smaller Operators.” The seven-minute interview with the senior vice president of business development and strategic relations for Extra Space Storage Inc. discusses where independent operators tend to struggle and which management areas are important to streamline. Springer, who’s company operates as a real estate investment trust (REIT) and provides third-party management services, discusses ways for owners and managers to identify and correct their own weaknesses, the most glaring inefficiency the company encounters when assuming management of a facility, and the role data plays in operational improvement.

This audio and others in the series can be accessed by visiting the ISS podcasts page.

Springer joined Extra Space in 2006 and heads its third-party management platform, Management Plus, which he helped create. The REIT manages about 450 self-storage facilities nationwide. Springer oversees more than 280 properties and is in charge of all non-storage income for the company, including commercial leases, cell towers and billboards. He also manages all property transitions onto the Extra Space platform.

For more than 26 years, ISS has provided informational resources for the self-storage industry. Its educational offerings include ISS magazine, the annual ISS World Expo, an extensive website, the ISS Store, and Self-Storage Talk, the industry’s largest online community.

A self-storage facility is being considered for the corner of Savoy Drive and Village Center Blvd. in Carolina Forest, an unincorporated community in Horry County, S.C. If approved, the three-story building would be the tallest in the area, according to the source.

The plan calls for 96,000 square feet of storage space in 668 climate-controlled units, said David Schwerd, deputy director for the county’s planning and zoning department. “It’s not going to be taller than the trees that are there, so it’s not going to be distracting in that sense,” Schwerd said, adding that the area needs another self-storage facility because most Homeowners’ Associations don’t allow storage sheds or accessory buildings on resident property.

Some community members oppose the project. “I don’t find any point to that structure being there,” said Kathryn Stillman, who’d like to see a retail business, such as a CVS Pharmacy, developed on the property.

The site is currently zoned for self-storage, so a public-comment period isn’t necessary for project approval. “Within Horry County, as long as you meet all the required rules and regulations for development, and you’re zoned appropriately, then you do not have to go through any public-hearing process,” Schwerd said.

The developer has already submitted a site plan and applied for storm-water permits. Schwerd expects both will be approved soon, and then construction will commence.

Another self-storage facility is under development off South Carolina Highway 544 at Leisure Lane and Pine Hollow. Comprising 30,000 square feet, the property would be about a third of the size of the Carolina Forest project, the source reported.