Inside Self-Storage (ISS), the producer of a monthly trade magazine and bi-annual tradeshows for the self-storage industry, has announced the dates for its next Las Vegas Expo. The event will take place Jan. 26-28, 2009, at The Venetian Hotel Resort Casino and Sands Expo & Convention Center.

This year's event, also at the Venetian, Feb. 5-8, boasted more than 4,000 attendees and exhibits by more than 300 industry suppliers. It included four days of educational and networking events.

The ISS Vegas Expo is the self-storage industry's largest international conference and tradeshow. It is sponsored by Inside Self-Storage magazine, a monthly publication that has been dedicated to the needs of storage owners, operators, managers, investors, developers and suppliers for more than 17 years. For information, visit www.insideselfstorage.com.  

Inside Self-Storage has officially launched Self-Storage Talk, an online forum for the industry community. Located at www.selfstoragetalk.com, this free forum allows users to share information, ask questions and interact with other community members.

Participation involves a simple registration process in which new members create a username and password and provide a valid e-mail address. Once registered, they can create new or respond to existing threads on numerous self-storage topics, including day-to-day management, legal issues, insurance, financing, construction, development and more. They can also post photos of self-storage projects, highlight facility employees, share tenant horror stories and exchange info on educational resources.

The Self-Storage Talk site also includes state-specific forums in which users can communicate about issues and developments within their local areas. For more information, visit www.selfstoragetalk.com.

Investor interest in self-storage assets continues to intensify as strong fundamentals and solid returns lure buyers who traditionally sought other property types. The self-storage market has also demonstrated resilience in times of fiscal decline, while posting solid gains throughout economic resurgence.

Short-term concerns have arisen, however, stemming from the weakness in the housing market, the slowing economy and significant increases in new supply. Nonetheless, the long-term outlook remains positive, as favorable demographic trends are expected to provide a spark in the demand for storage space in the years to come.

Supply-and-Demand Factors

A slowdown in the national economy has caused some weakness in self-storage demand over the past year. Employment growth, the credit crunch and housing woes continue to weigh on the economy and, when combined with the slowdown in the housing market, have resulted in a slowdown in demand for rentals. A reduction in migration-generated demand due to weakness in the housing market is expected to limit improvement in occupancy levels in all but the strongest job markets. This trend could be partially offset by homeowners facing foreclosure in some previously overheated, high-priced markets.

Over the long term, further demand for storage space will be driven by baby boomers downsizing and the growing population of people over age 65, which may instigate migration to retirement locales. The 65-and-older population is expected to increase by 2.2 percent in 2008, the highest growth rate in seven years. In addition, this age cohort is expected to expand by an additional 12.6 percent in the next five years.

Occupancy Rates

Overall occupancy levels and rental rates for self-storage fell moderately last year. While cooling economic conditions have played a vital role in the change of fundamentals, so has the increase in completions. Developers bumped up inventory by 17 percent in 2006 and an additional 8 percent in 2007, resulting in increased competition.

The national average occupancy of self-storage properties dropped 110 basis points to 79.6 percent in 2007. Losses, however, varied by location. Industrial and commercial/retail areas recorded the largest adjustment in occupancy, dropping 150 basis points to 79.1 percent between 2006 and 2007. Conversely, in urban, downtown and residential areas, occupancy rates for the same time period remained relatively unchanged at 84 percent and 85 percent, respectively.

Despite the modest drop in occupancies, a significant positive trend has emerged for the self-storage market: The average rental period has increased across nearly all users. The average rental period in 2007 was up approximately 11 percent for both commercial (25.2 months) and residential (13.4 months) users. The rental period for military users was up almost 10 percent, and students, who have had the largest share increase in tenant mix, were the only users that had a decline in rental period, to 4.6 months.

Rental Rates

As a result of the overall slowdown in demand, average rents on a national basis declined slightly over the past year. Rent decreases varied from the size of the units, but the declines were between 1 percent and 3 percent on average. The North- Central region experienced the biggest decline last year as rents dropped between 5 percent and 17 percent. The western states remain strong, however, with rent increases between 3.5 and 8.4 percent, depending on unit size.

The Investment Market

Over the past five years, the median price per square foot for self-storage has gone up 39 percent to $68.30. While the increase lags other major property types, self-storage offers above-average cap rates. At 7.6 percent, the average cap rate is 30 to 120 basis points above those registered for other property types. Higher cap rates, combined with the probable long-term health of the industry, should continue to lure investors away from the other assets.

Despite solid fundamentals and strong returns, transaction and sales velocity were down as of the third quarter of 2007. Financing and economic worries dampened investment activity across all core product types, save office assets. Self-storage transaction activity dropped 7.5 percent year-over-year during the third quarter; however, this is significantly less than the decreases registered in apartment, retail and general industrial property sectors. Activity is expected to pick up this year.

Asset focus will vary among buyer types. Larger, cashheavy buyers are expected to favor in-fill class-A space where construction costs make additions to supply difficult. Specific attention will be paid to properties that offer amenities focused at frequent users and those in areas that do not rely on relocation-generated demand. Smaller buyers, on the other hand, will target value-add opportunities priced well below replacement costs.

The trend of developers trading properties in rent-up at certificate of occupancy has subsided. Lending requirements and closer investor scrutiny of financials have all but ceased the trading of assets on pro forma numbers. Developers may be faced with waiting until breakeven points to sell for the foreseeable future.

Looking forward, modest employment growth and continued economic expansion, albeit at a slower pace, are expected to support commercial real estate assets across property types. As underwriting standards become more stringent, investors may choose to seek out self-storage assets, drawn by elevated cap rates. Moreover, investors and lenders have shown a preference for top-tier assets in prime locations, a trend that could open opportunities in many secondary and tertiary markets. With fundamentals in the self-storage market being hindered by the housing slowdown, cap rates are expected to stabilize in their current ranges. 

Steve Ekovich is the national director of the National Self- Storage Group at Marcus & Millichap Real Estate Investment Services, based in Tampa, Fla. He can be reached at 813.387.4700 or [email protected]. 

Real estate investing can be unpredictable. Especially in todays turbulent market, attaining stability is about as probable as nailing gelatin to a wall. Whats an investor to do?

When market trends are stable, pro forma is achieved and forecasts are met, enabling investors to feel comfortable with their assets and investments. When stability is shaken, investing significantly slows; operators and investors scramble to identify new market drivers to improve an assets performance. The volatility of capital markets and the overall economy dominates todays headlines, leaving investors and owners uncertain about the future of the real estate market.

One thing is certain: The real estate market is exiting an era of cap-rate compression, resulting in higher capital costs and increasing cap rates. No one knows how long this will last. Chances are we are entering a new cycle, characterized by higher debt capital costs, scrutinized credit and underwriting standards.

In many situations, new developments or properties in lease-up take longer to reach stabilization, due to weakening demographic and economic markets. How will these changes affect lending and investing so operators can remain aggressive?

A Little History

Looking back, its easy to see why cap rates compressed in the storage sector: because significantly low-cost equity, by historical standards, was readily available to self-storage REITs and private investors. A flood of new lenders created significant demand for real estate debt, and they became eager to compete for business by providing increasingly aggressive/ attractive debt terms.

Lenders captured business by lowering margins, increasing leverage made available to borrowers and reducing underwriting standards, such as lowering the required debt-service coverage ratios. Lending and investing in traditional real estate asset classes became extremely competitive, with what seemed to be a significant amount of capital chasing not enough deals. As a result, more lenders and investors turned to self-storage, an asset class recognized for its lower default rates when compared to other commercial real estate products (see Figure 1).

Buyer demand for properties and self-storage development acquisitions remained strong. The reduced pricing in the capital markets introduced new, competitive buyers. Most had little to no experience but competed for self-storage acquisitions, which created more demand, increased prices and forced cap rates to compress significantly.

Todays Landscape

Following the sub-prime debacle, were seeing a return to rational underwriting and investing standards. In addition, in what is now known as the credit-crunch, interest-rate spreads have increased significantly as risk is now being re-priced.

For example, consider a stabilized A-quality storage facility in a top-tier market. At the beginning of 2007, a 10-year, permanent, fixed-rate, non-recourse loan with a 30-year amortization schedule would have priced about 120 basis points over the 10-year U.S. Treasury yield (about 4.6 percent at the time), or about 5.8 percent for debt at 80 percent loan-to-value (LTV) with a minimum 1.2 debt-coverage ratio.

Today, that same loan would be about 75 percent LTV, and the interest-rate spread would be closer to 250 to 275 basis points above the 10-year U.S. Treasury (3.9 percent as of Dec. 1, 2007). As this article is being written, loan interest rates are close to 6.65 percent, approximately 1 percent higher than a year ago. The wildcard, however, is that spreads are volatile and shifting by as much as 20 basis points on any given day.

Much of the increased interest-rate spread has been favorably offset by a steep decline in the 10-year Treasury. Due to the lack of investor confidence in capital markets (from losses sustained from asset-backed securities), investors are steering clear of these assets, resulting in a drastically illiquid market and bleak economic outlook. Investors have been buying U.S. Treasuries in a flight to quality reaction, increasing demand, reducing overall yield and offering relief from sharp increase spreads.

Shifting Standards

In addition to interest-rate factors, lenders are pickier about underwriting criteria. In the past, they determined loan proceeds on as little as three months of net operating income (NOI); today, they place much greater emphasis on the trailing 12 months NOI. The same standards hold true for lenders evaluation of occupancies.

Lenders are placing heavy emphasis on asset quality, demographic outlook and cash equity in the deal. This means a property in lease-up may not be able to rely on recent occupancy and NOI increases alone to maximize loan proceeds.

Furthermore, when completing risk assessments, lenders are discriminating quality of projects as well as the competitive landscape. Lesser assets, or those within dubious markets, are likely to be perceived as risky, making it challenging to find financing. Debt for these assets will be more expensive and will lead to higher cap rates.

With the departure of aggressive debt capital from todays markets, the greatest cap rate pressures will be felt in weaker assets and those in secondary and tertiary markets. Lenders are increasing under-writing standards and lending less, putting upward pressure on cap rates in these markets.

Impact on Investor Criteria

Equity investors are also taking notice of the increasing cap-rate market when under-writing possible investments in self-storage and general real estate. An uncertain economy and employment growth is causing investors to re-evaluate criteria regarding rent and NOI growth, terminal cap rates, debt pricing and demographic trends. Simply put, conservative under-writing and higher borrowing costs will lead to lower investment returns.

The accompanying Year in Review is an example of how a self-storage investment may have performed in 2007. As seen, a $5 million self-storage investment made at the beginning of the year using 80 percent leverage at the then-current interest rate, assuming 4 percent NOI growth, yields an internal rate of return (IRR) of 21 percent. Assuming realistic investment standards, the IRR above 20 percent could easily generate interest from an equity investor.

Lets evaluate a similar investment in todays market using very realistic assumptions. With todays available debt capital, a reduction of NOI growth to 3 percent, and an increase in the terminal cap rate to 7.5 percent based on the slowing economy, this investment only generates a return of 9 percent. This wouldnt generate much interest from an equity investor or even a potential buyer.

Future Investing

Market uncertainty has negatively influenced the lending landscape. Aggressive lenders that were previously winning deals are scaling back or no longer providing loans. Many are finding that the illiquid securitized market is playing havoc on originations and they cant appropriately price debt. This has caused many lenders to take a backseat while others have entered the market and competed for new debt business. Lenders still competing for debt business know they can command premium pricing for products and services.

Equity investors seeking diversified portfolios are still drawn to self-storage. Many believe prices will begin to stabilize and cap rates will rise because sellers will need to reduce sales-price expectation to close a deal.

Navigating the Storm

In a volatile capital market thats more unpredictable than usual, investors and operators are longing for a calm in the capital-market storm. In time, comfort in real estate investing will be restored. This relief may mean decreased values based on higher cap rates as a result of higher capital costs.

Theres no doubt that navigating through the current capital markets is choppy, given that the illiquidity in these markets has caused drastic changes in lending and investing criteria. Portfolio lenders, who have basically sat on the sidelines during the past few years of high leverage and aggressive pricing, are now capitalizing on the opportunity to bid on debt and equity opportunities. Due to current volatility and substantial losses on current portfolios, many lenders have been advised to hold off on quoting deals, except for existing clients or operators with a proven track record.

Its hard to say just how long the transition will last. During a turbulent market, investors and operators are wise to seek the guidance of an experienced advisor who can help steer toward smoother sailing. Hopefully better weather is just on the horizon. 

Scott Sweeney is vice president and Joseph Maehler is a capital market specialist of Buchanan Storage Capital (BSC), a subsidiary of Buchanan Street Partners, which provides capital, advisory and investment sales services to self-storage owners nationwide. The company offers competitive capital through proprietary products along with structured finance and equity solutions through its advisory services. BSC has provided more than $3 billion of products and services to customers through its offices in Atlanta, Chicago, Los Angeles, Newport Beach, Calif., San Francisco and Washington, D.C. For more information, call 800.675.1902; visit www.buchananstoragecapital.com. 

As many of you know, David Letterman presents a nightly top-10 list on his show. Im always a bit in the dark when Dave does his countdown because Im so uninformed about pop culture. It occurred to me some people might feel the same way about real estate terminology, and it might be helpful to readers to have a top-10 list of common terms.

Many self-storage owners and buyers may be unfamiliar with the language real estate professionals use frequently throughout the process of buying and selling properties. Brokers sometimes forget to explain the terms they use on a daily basis. Below youll find a list of frequently used phrases to help you understand the lingo of real estate transactions. Learn them, and you might even impress a broker or two. Drum roll, please!

10. Cap Rate

The cap rate is the rate of return an investor is willing to accept on an income-producing real estate asset. Because different types and classes of investments can be difficult to compare, a cap rate provides a basis for evaluating the rates of return of unique properties.

Many factors play into the cap rate, most especially interest rate. Some of the other factors are a propertys location, market conditions, quality of construction and historical income, just to name a few.

You can calculate the cap rate by dividing the net operating income (see No. 9) by the purchase price. Or, to calculate a purchase price or value for a facility, you can divide the net operating income rate by the return an investor is seeking.

There are other methods of arriving at a value, such as replacement cost and surveying the market, but cap rates are the gold standard for valuing self-storage. The cap rate is largely a function of the general real estate market and somewhat dependent on the qualities of the facility.

9. Net Operating Income

The net operating income (NOI) is the income from a property or business after operating expenses have been deducted, but before deducting taxes, depreciation and debt service (interest and principal). I believe 90 percent or more of a storage facilitys value is directly related to NOI.

NOI is used to calculate the value of the property by applying a market cap rate or rate of return an investor is looking to achieve to a value or purchase price.

8. Loan to Value

Loan-to-value (LTV) is the relationship of the loan balance to the appraised value of the property. For example, if the appraised value of a property is $1 million and the loan balance is $750,000, the property then has an LTV of 75 percent.

This is not always the true market value or what you feel the value may be, but simply the loan amount divided by the appraised amount. LTV is typically used in the underweighting analysis when you refinance or place a loan on a property. Lenders historically have had limits in the range of 70 percent to 80 percent of the loan to appraised value.

7. 1031 Exchange

Named after its place in the U.S. tax code, a 1031 Exchange (sometimes known as like kind exchange) allows for the capital-gains taxes on a transaction to be deferred if the proceeds from the sale are reinvested in a similar or like kind asset. These exchanges are typically used in real estate, but people can also apply them to some other big-ticket assets.

The key thing to remember is you are only deferring the taxes, not avoiding them. There are lots of details to consider, so be sure to call your accountant first when considering this type of transaction.

6. Special-Purpose Property

A special-purpose property is a building or property that has limited uses, such as self-storage, churches, theaters and schools. Self-storage is sometimes considered a special-purpose property, meaning the building or property would need major remodeling, rezoning or demolition to be used for an alternate use and, thus, may impede financing with some institutions.

5. Debt-Service Ratio

The ratio between NOI and your annual debt service is known as the debt-service ratio. This is typically the way a lender monitors an assets performance.

Lenders generally require a debt-service ratio in the range of 1.1 to 1.5. In some situations, a lender may require a minimum debt-service ratio to be maintained for the life of the loan. For example, if your annual NOI is $100,000 and your annual debt service is $70,000, the debt-service ratio is 1.42.

4. Reverse Leverage

Reverse leverage is when the interest rate on funds borrowed to purchase an asset exceeds the return on investment a buyer will receive. For example, if a cap rate or investors targeted return on an investment is 7 percent and the interest rate on the funds borrowed to purchase the investment is 8 percent, this would be considered reverse leverage.

Typically, reverse leverage will deteriorate an investors return on equity and is sometimes a deal killer! A period of reverse leverage conditions in the market reduces values in general and has a negative impact on the ability to sell a property.

3. Real Estate Investment Trust

Real estate investment trusts (REITs) are generally publicly traded companies that own, develop or operate commercial properties. They are required by law to distribute 95 percent of the NOI that allows them to avoid paying corporate tax (but you get the taxes). Some well-known self-storage REITs are Public Storage and Extra Space.

2. Defeasance Clause

If you really need to know this term, call a professional. If youre just curious, read on. Defeasance occurs when you want to terminate a loan early that is not prepayable. It is required that you substitute other collateral (usually a form of U.S. government securities) for the property securing the loan.

The amount of the securities required to be posted must be enough to pay off the principal, interest and fees of the loan. This occurs most often in the event of sale. You still must pay back the loan. Many times, this means posting much more security than the remaining loan balance.

1. Forbearance

Forbearance is a lenders decision to delay taking legal action on a delinquent loan at the request of a borrower. In other words, the lender may give you some time to comply with your loan documents before it starts the foreclosure process. This can only take place at the lenders absolute discretion and is determined on a case-by-case basis.

These definitions are brief and only address the common understanding of the terms, but there are many nuances that may affect the meaning based on the context in which they are used. Its always best to consult a real estate professional if you have any questions about the terms or details of a transaction. 

Ben Vestal is the executive vice president of the Argus Self Storage Sales Network, a real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for industry owners. For more information, call 800.55.STORE.

Who do you turn to when looking to sell a self-storage facility? The market is very fragmented, and ownership is still mostly held by private investors, small ownership/ management companies as well as the big boys. So what do you do when you want to find a buyer? Who do you call? How do you get started?

To do it right, youll need to find a broker, but its not as easy as it sounds. You need someone with self-storage experience and national exposure; someone who understands market valuation; someone who can give buyers a professional presentation of your facility in a clean, straightforward package so they know the details in an easy-to-understand summary. Its a tall order, but it can be done.

A broker will review why the facility is for sale, determine the exit strategy, present a strong income-analysis evaluation, consider the markets demographics, review the selling process, explain expectations and, most important, close the deal.

Realizing Maximum Value

Naturally, a broker should represent your interests in the best way possible and try to maximize your return. But this is only the beginning of the process. He should also minimize your financial risk in the transaction, assist in recommendations regarding your goals and objectives on the sale, and ensure a smooth exit and transition in the closing process.

A professional broker will assist you in qualifying the buyer and make sure you are dealing with a qualified prospect: someone with experience in the market and in management, and someone who has financial ability to make the purchase. Several confidential issues must also be reviewed with a buyer.

The buyer will want to know why you are selling. Is it because of retirement, health issues, burnout, personal diversification, wealth protection, death, divorce, partnership disagreements, loss of market share? The broker can determine how best to present your property to the prospect so he will understand your motivation.

Valuation

The sale is not a wish list based on some magical number. It has to make sense for a buyer to purchase your property. He needs to cover his debt service and have the ability to increase cash flow through expansion, increased occupancy or rents. One or all of these will increase his net operating income and the overall value of the property. The buyer is generally reasonably informed and needs to find a value that works.

An appraiser would use comparative sales value, cost-recovery value including ground and depreciation, and the income value and capitalization rate to arrive at a value summary, heavily weighing the income value. A broker will primarily determine the income value of the property by finding the net operating income and the resultant cap rate price the market will bear.

The successful broker will share with the buyer the profit-and-loss statements for several years, a report indicating economic occupancy for the total property and each unit size, as well as demographics of the trade area and a summary of the competition in your market. He will need to show a buyer a five-year projected return on investment.

Your broker of choice will provide you with comparable sales in the region to determine earnings, real estate value, marketability factor and future growth in the area. Keep in mind you are trying to get the highest price for the property or the lowest cap rate, and the buyer is trying to purchase the property at the lowest price or the highest cap rate. A professional with integrity, confidentiality and experience will assist in finding a compromise price between the buyer and seller to put the deal together.

Moving Forward

A broker will act as the go-between and handle negotiations in a non-emotional focus to keep the process moving forward. He will:

• Maintain confidentiality.
• Coordinate the key participants.
• Interface with professionals including attorneys, accountants, lenders, appraisers, etc.
• Keep the players focused.
• Maintain momentum.
• Assist with deal structure/buyer financing.
• Calm buyer and/or seller frustration.
• Find the pool of strong credit with national and local qualified buyers.
• Enhance the value by creating a bidding process between a local and national buyer.
• Help locate a lender, title company and environmental company, if requested.

Finally, the broker will put together the closing package, collecting a purchase offer and closing documents to meet the real estate laws of the state. This is critical to a successful transaction. Included in this package is the letter of intent to purchase, the purchase contract, due diligence procedure, deal structure, financing needs and closing information. He must also file the paperwork with the correct state agencies. Its one thing to find a qualified buyer, but the right broker is your coordinator to get the sale closed. In summary, make sure you find someone with:

• National and local self-storage advertising exposure and expertise for your property.
• Years of experience working with national buyers and sellers in self-storage.
• Honesty and integrity.
• Willingness to go that extra mile for you.

A professional broker should help make the sale and closing process a good and profitable experience for you, the seller. Find the right one, and youre one step closer to nailing a great deal on the sale of your self-storage facility. 

Harold Kolbe is the Georgia affiliate of Self Storage Brokers of America, and is founder and president of Southeastern Business Intermediaries, which provides client consulting services on business valuation, financing, and disposition and acquisition of businesses and real estate. With more than 20 years experience in management, finance and business ownership, he offers valuable insight into business valuation and real estate brokerage. For more information, call 800.556.9892; visit www.selfstoragebrokersofamerica.com. 

Inexperienced developers often think a sites success is a sure bet if all competing self-storage facilities in a market are renting at or near capacity. Others think that if there are no climate-controlled facilities in a market, theyll strike gold by building one. Potentially worst of all are those who have land they dont know what to do with, and having heard self-storage is a cash cow, enter the industry hungrily.

Its not a secret to even the casual observer of the self-storage industry that our business has matured and become increasingly competitive. The Self Storage Association recently reported approximately 2 billion square feet of self-storage existing in the United States. In addition, while it took roughly 23 years to develop the first billion square feet, the second billion popped up within the past seven years.

In light of statistics, we can no longer afford to assume unmet demand in a given market will last. Yet, our industry still offers incredible opportunities to enjoy one of the best businesses anywhere. The key is to choose your next development site with great care and research.

Site selection is the process of determining which markets will produce the greatest opportunity for profit and success, and than handpicking sites within a specific area. By having a superior location within a given submarket, a storage operator will be less prone to suffering competitive pressure.

Market Characteristics

Quality locations also produce large dividends when it comes time to sell a facility. Your site should be superior to those of the competition, highly visible and accessible. Most institutional investors favor businesses on major or arterial roads, knowing potential customers will drive by frequently. Find a site least vulnerable to future competition; seek out markets with limited land supply and stringent zoning codes to assure restricted development. Also, the presence of credit-rated or national retailers in the immediate market is highly desirable.

Investors pay premium prices for facilities in superior locations. The better the site and competitive position, the less risk for an investor. Moreover, the risk is directly related to the ability of a location to compete in the present and future.

Buyers of investment properties base their offering price on market capitalization rates or cap rates. A cap rate calculates the value of real estate based on the expected or desired annual rate of return, expressed as a percentage of expected income over purchase price. Market cap rates can be determined from comparable sales of recently sold properties. If a property produces $400,000 in net operating income (NOI) and sells for $5 million, it generates in an 8 percent return on investment ($400,000 divided by .08 = $5,000,000).

Consider two different facilities with the same physical characteristics and annual operating income of $400,000. One is built in a good location, the other is not. Lets say facilities in the good market have been selling at a cap rate of 8 percent, as in our example above, while facilities in the bad market have sold at a cap rate of 10 percent. The sale price for the former would be $5 million; the sale price for the latter would be $4 million.

The disparity in value between the two facilities is attributable to differences in the quality of the site. That pricing differential would be even more extreme if the inferior location did not perform as well and produced a lesser NOI. What were seeing in capitalized self-storage value today is the spread between institutional-quality and inferior locations is widening, bringing even greater rewards to well-located facilities.

Site Characteristics

After finding a market with suitable sites based on competition, traffic patterns, population growth and barriers to entry, the developer must evaluate site-specific attributes of potential locations. Critical site-selection elements relate to zoning and land-use controls (imposed by local authorities), topography and site configuration.

Development expenditures go far beyond the cost of the dirt when all these elements are factored. Thus, a less expensive site may not be cheaper in the long run. For example, if a property needs additional fill or extension of utilities, the costs increase proportionately. The final bill for needy properties can be significantly higher then a site that already has some or all the critical elements necessary for development.

Better Shop Around

When shopping for a site, examine local zoning ordinances specific to the locations you have in mind. Are the properties suitable for self-storage or will they require a use variance? What are the required setbacks and site-coverage requirements? These zoning requirements determine the amount and type of development that can be supported on the site.

Often, developers discover that regulations wont allow enough of a building footprint on ground level to meet the design theyd planned for a specific site. In such cases, designs are often redrawn with multi-story structures to accommodate more square footage. This resolves the space issue, but not all markets support multi-story building. Zoning may prevent it, or tenants may not like the inconvenience of having to navigate hallways and elevators.

In other words, each market is different and must be evaluated individually. Words of wisdom: Things are not always as they seem. Shopping for a self-storage site is no exception. Consider working with an experienced industry consultant, who can conduct a feasibility study or market assessment to assist you in landing the best spot for your new self-storage venture. 

Jeffrey Supnick is president of Supnick Real Estate Co. and is a 25- year veteran of the self-storage industry. He has formerly served as a real estate officer for Public Storage Inc. and Storage USA. During his career, he has been responsible for the development of more than 30 self-storage sites. Supnick Real Estate is a full-service firm devoted exclusively to self-storage brokerage, consulting and property management services. For more information, call 856.722.1414; e-mail [email protected]; visit www.supnickre.com.