By Caesar Wright

With increasing land costs and escalating city and county building requirements, self-storage developers are getting more creative at sites on which to build. This article outlines considerations for acquiring a parcel for self-storage.

The highly competitive self-storage market requires a level of sophistication when choosing a location and developing a project for maximum profit. As with all real estate ventures, the old adage, location, location, location still applies. To maximize profitability and reduce liability, its critical to understand the current storage saturation levels in your proposed area and the types of storage that are most in demand in your target market.

Understand the Market for Self-Storage In Your Area

When developing a self-storage facility, first consider the needs of the market. In rural areas, for instance, the market may need bigger storage units and drive-up access to store large farm equipment. If your facility will be near a college, the market will demand smaller, less expensive units.

Also consider the types of storage currently not offered in your market. Many self-storage developers have built facilities that cater to a specific niches, such as high-end cars, RVs, boats, wine, online product fulfillment, etc. These operators attract tenants from well outside their geographic areas due to the very specific offerings they build into their sites.

Determine Supply and Demand

Theres always the possibility that storage supply in certain areas may be surpassing the demand from customers. Higher monthly turnover, more short-term tenants, increased vacancy rates and move-in discounts are signals that there may be over building in a given area.

In an area where theres a lot of construction of new housing and businesses, this market saturation could be temporary. Once the neighborhood matures, demand could eventually "catch up" to the supply. On the other hand, over building in an area plagued by vacant buildings and declining neighborhoods may be a permanent problem.

To avoid building in a market that has already surpassed its demand, conduct a feasibility study or hire someone to do it for you. You can use census material to obtain information about the one-, three- and five-mile radius surrounding the proposed site. This data should include current population, anticipated growth, population mix (renter/owner, multi/single family) and average income. Most of this valuable information can be found at your local planning department.

You should also know your current and potential competition. Both existing and planned competitors should be plotted on your map. Its also a good idea to conduct onsite visits to all the competition. Have a conversation with facility managers to determine the unit mix, rental rate and occupancy level, which will help you assess market saturation and calculate income potential.

Following your onsite visits, determine the total number of square footage as well as the actual number of units for the existing self-storage in the area. Traditionally, a market has been thought to be saturated when two to four square feet of rentable space exists per person, depending on the neighborhood population, housing and commercial mix. But because the amount of storage per capita can vary wildly from one market to another, theres no formal answer to the question of market saturation in self-storage. Some markets can support eight to 10 square feet per capita. The Sunbelt states, for example, where people tend to own more leisure and recreational equipment, can generally absorb larger amounts of storage.

The type of housing also affects how much storage a market can accommodate. For instance, if youre planning to build in an area where the majority of homes have basements, enclosed garages and large closets, your target market may not need as much storage as one that has a high density of condominium and apartment complexes or no-frills single-family homes that are often found on military bases. The age of the population, mobility rate, employment status and income are other important measures.

Site-Selection Considerations

Once you've determined the target market has sufficient demand for more storage, you'll want to consider the availability of land. When investigating specific parcels, keep the following in mind:

• Appropriate zoning
• Commuter traffic patterns
• Visibility from the road
• Ease of access
• Proximity and density of potential customers
• Current storage saturation level (competition)
• Expected growth for the area

A growth area will generally enable you to get to your desired occupancy quickly. High numbers of multi-family residences create a demand for smaller units, and these generally pay a higher return on the dollar invested. A location near the center of a dense urban area, preferably on a major artery, is also ideal for fast rent-up. A freeway location is also desirable but less so than a major artery that passes through the neighborhood the facility will serve.

What Should You Pay for the Land?

The price developers pay for land is a much-debated question. The current rule of thumb is approximately 25 percent to 30 percent of total development cost. At $1.25 per gross square foot and assuming 40 percent coverage, net cost for land is $3.13 per rentable foot of building. In many markets, land use is maximized by developing multi-story self-storage with two, three or even four stories.

Ultimately, the rental rates in the market drive the cost a developer should pay for the land. Often the most common cost/operating ratio of self-storage is in line with apartment rental rates. Depending on the location, self-storage projects can generate the same income per square foot as medium-priced apartment properties in the same area. And they can achieve this income at roughly one half the construction and operating costs.

The most common state-of-the-art facility will be about 60,000 to 80,000 net rentable square feet, cost $45 to $65 per square foot to construct (outside of existing land costs), and have break-even operating expenses in the 40 percent to 60 percent range (not including debt service) of total stabilized income. A well-designed and located facility will successfully operate in the 83 percent to 93 percent occupancy range, though there are some successful self-storage facilities with occupancy rates as low as 70 percent.

It often takes 18 to 24 months for many self-storage facilities to realize full income potential in a competitive market. Large self-storage operations could take longer, up to 36 or more months for 100,000-square-foot size facilities to achieve stabilization.

Before buying land, a self-storage developer needs to consider a number of factors including storage demand, the location of the parcel and overall building costs. Giving careful thought to these elements ensures a new project will have long-term success.

Caesar Wright is president of Carlsbad, Calif.-based Mako Steel Inc., which designs, supplies and installs steel buildings for the self-storage industry nationwide. For more information, call 800.383.4932l; visit www.makosteel.com .

When Christopher Zupsic of Portland-Pacific LCC, a private real estate investment firm, decided to turn an empty building in downtown San Francisco into a self-storage facility, he turned to Janus International for help in designing some very creative spaces. StoragePro of Brannon Street features a variety of unit sizes in some non-traditional ways. The facility has units as small as 3 by 3 feet and as large as 18 by 25 feet, all secured with roll-up doors.

A basic storage space was used to create an inviting office location. What a great way to show a unit in action!

 
Space was used even under the staircase. The back of the stairs was concealed, which adds more privacy to the under-stairs units. Wire mesh above the units offers security, light and airflow.

Galvalume offers an effective boundary for a kitchen area, with a swing door as its opening.

These units actually have a step-down access, a unique way to use space.

 
Lockers were installed at the end of an aisle to maximize space where a unit would not work. A large storage unit was placed near the facility entrance to attract greater attention and provide easy access.

The facility employs every square inch possible, including vertical space. Here's a closet-size unit with a door that's 1 foot, 9 inches wide by 7 feet, 3 inches high.

It's unorthodox perhaps, but even a restroom can be encased in steel door partition, saving costly construction costs. Dont forget to add a door ... that locks!

An Access Self Storage facility in Londons northwest borough of Harrow has compiled a list of the top 10 strangest items tenants wanted to store during the past year. Some of the items topping the list include live fish, hundreds of frozen turkeys and 1,000 right-foot shoes. Other items included stuffed animals, an 18-foot statue, bags of mown grass, and a single vacuum cleaner from a tenant who lives 45 miles away.

Over the past year, we have seen an increase in the number of odd requests that we are getting from people looking for extra space, said Somaya Serraj, store manager. For some, such as the Hoover (vacuum) or the shoes, we are able to create space, but for others, it is just not practical.

Someone wanted to store the frozen turkeys during the Christmas holiday season, for example, but the units at Access Self Storage are not freezers.

Access Self Storage operates more than 50 facilities in the United Kingdom, with a large concentration in Greater London.

Executives from self-storage real estate investment trusts (REITs) CubeSmart, Extra Space Storage Inc., Public Storage Inc. and Sovran Self Storage Inc. will be presenting at REITWeek 2013, the investor forum for the National Association of Real Estate Investment Trusts (NAREIT). REITWeek runs June 5-7 at the Chicago Hilton Hotel in Chicago.

Executives from the self-storage REITs will join management teams from nearly 120 industry REITs as they outline their companies strategies in formal investor presentations. REITWeek draws approximately 2,000 investment managers, analysts, bankers and other industry professionals, according to NAREIT.

Extra Space CEO Spencer Kirk will be the first of three self-storage representatives to present on June 5. Kirk is scheduled to appear from 9:30-10 a.m. ET. David Rogers, CEO of Sovran, which operates under the Uncle Bobs Self Storage brand, is scheduled to present from 2:15-2:45 p.m. ET. Ronald L. Havner, chairman and CEO of Public Storage, will speak from 3-3:30 p.m. ET.

CubeSmart President Christopher Marr will present on June 6 from 8:45-9:15 a.m. ET.

This years conference will be preceded on June 4 by the REIT Research Conference, a one-day event hosted by NAREIT and the American Real Estate and Urban Economics Association, which will feature presentations of the latest academic research on the REIT market.

NAREIT describes itself, as the worldwide representative voice for REITs and publicly traded real estate companies with an interest in U.S. real estate and capital markets. REITWeek is designed to bring a large concentration of REIT management teams into one location, enabling them to share insights and their latest company developments. More information can be found at REIT.com.

Two proposed development projects, including a self-storage facility, have drawn the ire of subdivision residents near Cedar Park, Texas. Residents have collected more than 600 signatures on a petition designed to stop two separate developers from building a gas station and a storage facility on a 10-acre site that is part of the citys extraterritorial jurisdiction. The designation means city officials cannot dictate zoning on the property.

Developer Brian Birdwell wants to build Dies Ranch Storage on 7.5 acres of the lot, which he purchased last year. The facility would comprise 90,000 square feet and 700 storage units. It would be surrounded by masonry walls and landscaping.

The property lies between two Cedar Park subdivisionsBella Vista and Twin Creeks. The resident petition calls both projects inconsistent with the character of the surrounding master-planned communities.

Those types of communities generally have a need for storage because residents arent able to store as many things on their property to comply with covenants of the community, Birdwell said. Beyond that, I looked around and saw what the market demand was and thought there was a good opportunity.

Birdwell also said he is willing to work with residents on landscaping and building aesthetics that would help blend the facility into the area.

This week Westy Self Storage placed the final steel beam on the expansion to the companys White Plains, N.Y., facility. The steel work was topped off five months after breaking ground. The 600 tons of structural steel will add nearly 70,000 square feet to the existing building and accommodate 600 more storage units.

The facility at 179 Westmoreland Ave. opened in November 2011, but Westy purchased an additional 0.57 acre last year to increase the lot size to 1.56 acres and enable the building expansion. Precast wall-panel cladding will follow the steel work. The company expects to complete the project by the end of summer. When finished, it will comprise more than 186,000 square feet.

I am very pleased to see that Westy is expanding their building. I have seen a significant increase in the cleanliness of the area ever since Westy came to the neighborhood, said Maria Escobar, a White Plains resident.

We are very pleased to have the opportunity to expand our current location, said Edward Arredondo, director of development at Westy. The city of White Plains, as well as this particular location being so close to Scarsdale, has proven to be an excellent location for us. It is a privilege to have a Westy building in White Plains.

Founded in 1990, Westy Self Storage is headquartered in Stamford, Conn. The company's portfolio of facilities spans the tri-state area of Connecticut, New Jersey and New York.

San Diego Self Storage (SDSS) is partnering with Recycle San Diego (RSD) to host an electronic-waste (e-waste) recycling campaign at its facility in National City, Calif., May 19-25. The free recycling event is open to the public at National/54 Self Storage, 132 West 33rd St. The facility is open seven days a week from 10 a.m. to 5 p.m.

The following items will be accepted: computers, monitors, televisions, small printers, laptops, cell phones, copiers, fax machines and other electronic products. A full list of accepted items is available at http://recyclesandiego.org/services/electronics-recycling.

It is illegal in California to dispose of e-waste in the refuse because electronic devices contain hazardous and toxic substances that pose serious risks to the environment and consumer health.

"Were partnering with RSD to make it convenient for residents and businesses in National City to drop off their electronic equipment for recycling. For example, heavy metals can leach into landfill soil and then into our underground water supply, causing severe and even life-threatening illnesses," said SSDS Managing Member J. Terry Aston. "TVs and computer monitors use cathode ray tubes (CRTs), which contain a significant amount of lead, a highly toxic heavy metal. Printed circuit boards contain plastic and copper, and most have small amounts of chromium, lead solder, nickel and zinc. RSDs primary goal is to re-use and re-purpose components before recycling; therefore, were offering our facility as a drop-off location to assist in their efforts, which in turn benefits all San Diegans.

Founded in 1972, SSDS has a network of 18 self-storage facilities in San Diego County, and additional facilities in Los Angeles and Orange counties. The company is locally owned and operated.

Founded in 2006, RSD provides waste-collection systems. The company recycles more than 100 items and provides drop-off locations at its San Diego headquarters and various community sites as well as the option to schedule a pickup from a business office.

Storage Post Self Storage has made some organizational changes that it says will strengthen the company for long-term success. They include the appointment of real estate executive Marvin Banks to the position of chief operating officer and the creation of a business unit dedicated to facility development, which will be led by Storage Post veteran Jack Chaney.

"As we stage Storage Post for further growth, we are investing in key competencies required to support the company in the future," said Bruce Roch , CEO. "Our investors and executive team believe we have entered a market ripe for growth in the self-storage segment. We are seeing unprecedented levels of both acquisition and new development opportunities and need to ensure we have the right leadership and operational structure in place to fully maximize both of those."

Banks, who has more than 25 years of real estate experience, will work closely with Roch, overseeing the operation of all Storage Post facilities as well the company's third-party management division. He recently served as president and chief financial officer of Cortland Partners, where he remains a corporate advisor. He previously spent more than 10 years in executive leadership positions at Gables Residential, Trammell Crow Residential and Ernst & Whinney (now Ernst & Young). Banks also serves as director for Private Bank of Buckhead and as a member of the Finance Committee for the Children's Museum of Atlanta.

Chaney has more than 20 years of experience in the self-storage industry, with a particular expertise in facility development. He has served as Storage Post's chief operating officer since 2010. During his time with the company, he has deployed more than $435 million of aggregated institutional capital and built more than 70 new self-storage properties. He previously served as chief development officer for Safeguard Self Storage.

"Adding Marvin to our executive leadership team ... allows Jack Chaney to focus on his passion for developing new properties, which is central to our growth strategy," said Roch. "Jack and I have been business partners in the self storage industry for 20 years, and I trust no one more than Jack when it comes to creating a world-class real estate development business."

Headquartered in Atlanta, Storage Post has locations along the East Coast and throughout the South, and is pursuing self-storage acquisitions.