The Self Storage Association (SSA) has launched a four-step initiative to support relief efforts following Hurricane Katrina. First, the association will donate $5,000 to the American Red Cross. It will also donate an additional $25 for every Emergency Preparedness Manual it sells between now and Sept. 10. Third, the SSA has entered an agreement with the Red Cross to exhibit a booth for donations at its upcoming conference and tradeshow, Sept. 7-10, in Las Vegas. Attendees will be encouraged to make contributions. Finally, SSA Chairman Charles Broomfield has declared December as Self-Storage Disaster Relief Month. He will encourage association members to dedicate one months worth of their facilities administrative fees to the aid efforts. For more information, visit www.selfstorage.org.

There are many ingredients that go into developing a successful self-storage project. Some of the more important ones are a suitable site, a proper feasibility study, a professional design team and the right contractor.

How do you choose your contractor? Its important to hire someone you can trust, who has your best interests at heart, who will prevent you from making mistakes. There are other factors that are equally essential, such as the contractors experience, attitude, knowledge, reputation and dependability.

Experience

Your contractors level of experience is critical. You wouldnt go to a doctor who just got out of medical school for a heart surgery. Likewise, you shouldnt hire a contractor who has never built self-storage to construct your facility.

When it comes to building an office or restaurant, an architect, engineer or design team prepares the drawings that outline how the project is to be constructed, and then a contractor is hired to build what is on the plans. In self-storage, however, it is becoming increasingly common for the contractor to participate in the design process, assisting in the prevention of costly mistakes and ensuring the projects constructability.

Self-storage presents many distinct issues that are not present in other types of development. Its much less expensive to fix problems on paper than in the field, but if a contractor has no self-storage experience, it will be difficult or impossible for him to foresee potential pitfalls. Sometimes mistakes will occur even when the contractor is building the project exactly to plan. Without experience, hell never recognize errors made by others in the design phase.

Attitude

In self-storage, your contractor is more like a development-service provider than just a builder. Its important that he be flexible, not intent on pushing a personal agenda or limiting the scope of the project to his personal abilities.

Your contractor should work as part of your construction team, and his attitude should reflect a team mentality. Ideally, he should view himself as an extension of the ownership entity. The owner identifies the goals of the project; the architect helps interpret and design those goals; the engineer ensures the goals are realistic; and the contractor works cooperatively with all professionals to produce the desired result.

When it comes to the written contract for your business arrangement, make sure the agreement is very clear so everyone knows the role they play in the project. This will facilitate the overall process and move the plan to completion in a timely manner.

Knowledge

While the builder of a restaurant may not need to know about food service, the self-storage contractor must have in-depth knowledge of the business. Some of his clients will be first-time owners or developers, so he needs to know the effect even a minor decision can make on a projects bottom line. He can also be a vital source of information, providing input on small but critical issues such as turning radiuses for trucks on the property and office setup. The list of items for which new owners need guidance is almost endless. If a contractor has been in the industry for a while, he will have a pool of knowledge from which his clients can readily draw.

Reputation

The next item to examine is the contractors past performance. Is he able to bring projects in on time and on budget? Do not be disillusionedevery contractor occasionally has a bad job. The question is how good is his overall track record?

Check references. Talk to people for whom the contractor has built, recently and in the past. Get a sense for his overall performance.You cant make an informed decision based on one facility, good or bad.

Its also important to look at the types of projects your contractor has built. If your site calls for a state-of-the-art, four-story building, you dont want to hire someone who has only worked on simple, single-story facilities. Some of the multistory projects being built today include complex designs, building codes and fire regulations.

Dependability

Finally, your contractor should be reliable. The true test of any professional is what he is willing to do to solve problems when they arise, for example, warranty-related issues. Any experienced owner will tell you what a headache it is to have a contractor who refuses to come back for warranty work. You want absolute assurance that you can count on your contractor when you need him. This is the kind of thing you can find out when you contact his references.

Other Factors

Once youve examined your candidates based on experience, attitude, knowledge, reputation and dependability, you may allow other factors to affect your decision. For example, you may feel you need to hire someone local or a contractor youve used in the past. Don t rule out an experienced self-storage builder because he isnt based in your area. Contractors who work nationwide are accustomed to travel. They also know how to effectively compete with local companies based on their expertise.

You might also be tempted to act as your own contractor. If you have the skills and time, this may be an option; but dont base the decision on money. Some owners undertake the building of a project on their own because they think it will be cheaper. Most find it takes them longer to finish the project and they have spent more than the contractors fee in the form of mistakes, repairs and delays.

One final note: Most states have laws that require contractors to be licensed, so make sure your contractor is in good standing with the licensing board. Also be aware this prerequisite may extend to you if you choose to act as your own contractor. The conditions for licensure can range from relatively easy to extremely difficult and take several months to fulfill.

Find a contractor with whom you think you can really work. You should have a good feeling about this member of your team, knowing that he is looking out for you and has the integrity, knowledge and experience to see you through this exciting, challenging development.

Charles Plunkett is president of Artistic Builders Inc. of San Antonio. The firm has specialized in self-storage construction for more than 10 years, completing many millions of square feet in self-storage projects nationwide. Services include value engineering, predevelopment consulting and site analysis, design assistance, and full construction. For more information, call 210.479.3450; e-mail [email protected]; visit www.artisticbuilders.com.

Smaller means more compact and convenient. The theory is if an item is easier to manage, more people will use it. The same theory could hold true for self-storage. For your next venture, consider the advantages of starting small.

Why Start Small?

A smaller facility may better serve the market.

Fast-food restaurants, self-serve gas stations and convenience stores have adopted a philosophy of convenience for decades. Convenience storagesmaller, self-serve storage facilitiesare more readily accessible for sparsely populated areas or infill locations in densely populated metropolitan markets.

A smaller facility may be easier to manage.

While some self-storage facilities are managed by an owner/operator, most are run by an employee or management company. In either case, its becoming increasingly difficult to find a great manager. To add to your troubles, you now compete with restaurants and retail stores for the best employees. While the average self-storage manager makes around $22,000 to $30,000 per year, a department-store manager in the Cincinnati market earns about $32,000 to $37,000 (see www.salary.com).

To effectively manage a facility to its highest potential, you need a person with all the necessary traits and skills. Todays self-storage manager is a marketer, salesperson, janitor, collector and bookkeeper. This is a tall order, and most people are stronger in one area or another. By starting with a small facility that is managed remotely rather than using onsite staff, you can outsource key skills, such as sales and customer service, while having a low-level hire perform routine janitorial and maintenance duties.

A smaller, remotely managed site also capitalizes on the publics perception that all storage facilities are the same. Since most customers will call before renting a space and most sales are handled via the phone, onsite staff becomes immaterial. The important thing is that when people call, they are greeted with a friendly, professional counselor who can solve their problem immediately. The remote manager can rent the space over the phone and assign a gate code that gives the customer access to the site.

Small, remotely managed facilities also enjoy other benefits. First, they are never put in dire straights by a manager who is sick or otherwise absent. Because there are no face-to-face cash transactions, employee dishonesty is rarely a concern. In fact, with all payments handled by technology, customers enjoy greater convenience and owners have a more thorough audit trail.

Finally, even if a smaller site is not remotely managed, the owner can maximize productivity by using a part-time manager in lieu of a full-time employee. A good full-time manager can operate 500 to 700 units. What if the site has 300 or fewer spaces? The owner can economize by having a part-time manager who is available on a flexible schedule.

A smaller facility requires a smaller parcel of land.

As self-storage development increases, the task of finding properly zoned land becomes difficult and costly. Rezoning a larger parcel of 4 to 6 acres is not always feasible; however, rezoning a 1-acre lot may be more palatable to the zoning board. Smaller sites tend to be more readily available, and because they cost less, you can invest more in finding a better location.

A smaller facility requires a smaller investment.

Assuming construction costs of $26 per square foot, land costs of $100,000 per acre, and startup capital of $10,000 per month, a 60,000-square-foot facility would require a cash outlay of $790,000. This is more than the entire development cost of a 20,000-square-foot facility. In addition, by eliminating the rental office, a 20,000- square-foot site would cost less than $26 per square foot to build, saving even more money at startup.

A smaller facility rents up faster, requires less startup capital, and achieves quicker stabilization.

The payoff on a 20,000-square-foot facility is only 12 months away vs. a typical 20- to 30- month payoff on a new 40,000- to 60,000-square-foot facility.

A smaller facility yields a smaller return.

This one is not necessarily true. A smaller, remotely managed site reduces overall expenses because you dont have to:

• Build a rental office or apartment.
• Stock an office with supplies.
• Maintain a computer or software (if you use a management company).
• Provide manager training.
• Provide ongoing supervision or handle the many responsibilities associated with having multiple employees.

In the accompanying chart, which compares the finances of a 60,000-, 40,000- and 20,000-square-foot facility, youll see that a small, remotely managed site can yield the same cash-on-cash return as a larger onewithout the large debt and risk. The return is even higher if you project the actual construction cost without a rental office.

Yes, sometimes bigger is better. However, all real estate investments are a risk. In a smaller venture, you can test the waters. Until recently, operators of small sites relied solely on their own sweat and tears for success because it was not economically feasible to hire a manager to run the business. Resources such as call centers, kiosks and remote-management companies not only improve operations and reduce costs, they allow the operator of a small facility to think big.

Melissa Hermes is the owner of Crown Property Consultants Inc., a self-storage management and consulting firm in Wilder, Ky. She specializes in providing remote-management services and turnaround services for underperforming facilities. For more information, call 859.547.5409; e-mail [email protected].

To build or not to build is the biggest question facing todays self-storage developer. When considering a plan, he has to examine a number of critical issues to ensure a viable and profitable project. Some considerations are whether the area can support more storage, how to find the best location, and what to pay for land.

Market Saturation

In todays self-storage market, its more important than ever to conduct thorough research before building . You have to do preliminary work to see how well competitors in the proposed market are faring . Your best bet is to hire a professional to evaluate the areas untapped potential. It will cost you, but it will be to your advantage.

If you discover that existing self-storage projectseven older sitesare running with more than 90 percent occupancy, you may have uncovered a viable market. On the other hand, if you find that high-quality sites older than two years are still sitting at 70 percent occupancy, the area may be saturated.

Site Location and Zoning

Once you find a good market, you need to accomplish the most difficult task of all: finding a visible site on which the city will allow you to build. Visibility is extremely important. Customers often choose a self-storage facility after driving by rather than searching through the Yellow Pages. Therefore, its essential to have a site on a well-traveled road. If youre stuck with a less noticeable location, youll need to compensate by offering better amenities such as high-tech security and climate control.

The permitting and approvals process is always a challenge. To begin, find out what land is available with the proper zoning. You can purchase a zoning book for the county, which lists the status of every parcel. Many great sites have been found using this method, even when they were not originally for sale.

If you approach the local authorities with plans for the correctly zoned land, you greatly increase your chances of getting support. If you find yourself in a situation where you need to secure a zone change, youll need to do a lot of work. A zone change is a scary, lengthy process with no guarantee of a successful outcome. If you pursue it, consider hiring a local professional who specializes in getting plans through the city. If you make no headway after the first few official meetings, you may need to move on to another location.

Land Cost

How much you should pay for land is a difficult question to answer, as it involves many factors. The first is what youll be able to charge for rental rates. Second, consider how many netrentable square feet you will have. This is where you have to determine if youre going to offer all drive-up access or go multistory. Third, determine how much it will cost to build the project. A basic facility might only cost $20 to $25 per square foot to build, while an upscale site could cost as much as $45 per square foot. Finally, think about how you will run the property. Will you have resident managers? Will you hire a property-management company?

Take a look at the following Investment Calculator. It uses a simple formula that helps determine whether a potential project will be profitable. By plugging in items like land cost, rental rate, development cost and management expenses, you can estimate potential income and a breakeven point. The calculator subtracts annual debt service and total operating expenses from total gross income to determine annual cash flow. Obviously, gross income changes as occupancy rates change.

Note: To determine the average rental rate, first establish the going rate on a 10-by-10. For our example, Ive assumed a 10-by-10 will rent for $75, or 75 cents per square foot per month. Multiply that by 12, and you get an average rental rate of $9 per square foot per year.

The investment calculator helps determine if a projects land cost is within limits. It also provides a guideline for how much you can spend per square foot to build a project and still make a profit. A breakeven point at 60 percent occupancy or lower indicates a viable project.

Its best to build a single-story project with as many drive-up units as possible. However, its sometimes necessary to build a multistory project on a smaller parcel. The cost to build a multilevel site is usually higher because of the necessity for elevators, stairs, interior corridors, etc. These projects are also more difficult to market, as some customers are averse to hauling their goods to upper floors. For these reasons, you must be extremely confident in the sites viability before committing to a project. Evaluating the components of a successful self-storage site isnt easy. I hope these guidelines help you make the critical decision of whether to build.

Jamie Lindau is the sales manager of Trachte Building Systems, one of the largest national suppliers of self-storage buildings. He oversees 10 regional managers who sell buildings throughout the United States and abroad. Over the past 20 years, Lindau has worked with more than 700 self-storage owners with the acquisition, layout, feasibility, building design and purchase of their sites. He is also the joint owner of an 850-unit, 95,000-square-feet facility in Lauderhill, Fla. For more information, visit www.trachte.com.

On a per-square-foot basis, retail sales can be a significant portion of a facilitys income, so when it comes to developing and building a new self-storage site, include retail space in your plans. Whether youre building from the ground up or remodeling an older facility, take time to consider your reception area. Instead of thinking of it as an office, think of it as a store. This will help you envision the possibilities.

First, visit one or more self-storage sites and evaluate their stores. Is the service desk positioned to give staff a clear view of the door and merchandise? Is the lighting bright without being blinding? Is the flooring clean and easy to maintain? Are the colors cheerful and warm? Use your critique as a basis for planning a store that includes all the elements you like.

Next, consider the merchandise you want to display. If you already own a self-storage business, this is your chance to allot additional space for all the goods you couldnt previously accommodate. Consult your supplier catalogs to choose logical line extensions. If you carry shipping supplies, consider special cartons, tape, protective materials, and even decorative boxes and mailers for shipping gifts. For moving supplies, consider tarps, bungee cords, bubblewrap, labels, tape, packing peanuts, etc. The list of items people will buy is almost endless.

If youre not sure what to carry, a plan-o-gram simplifies the decision-making process. Every experienced supplier offers plan-o-grams based on real-world sales experience to ensure that what you stock is what consumers will buy. Moreover, he understands that merchandising should include permanent displays that make it simple to restock and order your faster moving items.

Determine the footprint (dimensions) of the displays youll need and add them to your office layout. If this task seems too time-consuming, ask your supplier to assemble a floor plan for you. Then you can fine-tune it and add it to your preparations.

Finally, when you have decided what to sell, its time to choose your merchandising program. Your chosen supplier of products and displays should also offer signs, posters and other materials that remind customers what they need while adding color and interest to your store. These will make your store look friendly and professional.

There you have it: With a little thought and some help from your retail supplier, you can use your own construction and development to create a good-looking, high-earning retail business.

Roy Katz is president of Supply Side, which distributes packaging, moving and storage supplies and more. The company has developed merchandising programs for many leading companies such as Storage USA, the U.S. Postal Service, Kinkos, Mail Boxes Etc. and The UPS Stores. For more information, visit www.suplyside.com.

More and more self-storage operators are considering the addition of records storage as a value-added service to their existing business. The most important ingredient is planning the space to accommodate the new venture. There are four options:

Option 1: Adapt Existing Space

The most common option is to adapt space you already have, increasing the value of existing property. Records storage is a natural fit because it is easily added with very little capital. Take a look at your unit mix. Is there a particular size that is under-rented? Consider converting unused units for records storage.

Records storage works best in 10-by-10 or larger units with 8-foot or higher ceilings. Units smaller than 10-by-10 should only be used if you can combine adjacent units by removing interior partition walls. Use of contiguous units is always better than random placement throughout the facility; it generally adds 10 percent to 20 percent of revenue to the space.

Because records storage is based on cubic rather than square footage, the higher the ceiling the better. If you have access to a row of 20 10-by-10s with 8-foot ceilings, you have 16,000 cubic feet of space to accommodate approximately 8,000 box positions, which is an excellent starting point. Another great option is to convert unused boat and RV storage units, which tend to have higher ceilings than regular storage.

Option 2: New Space and RS Lite

The developer of a new project has an ideal opportunity to add records storage to his business plan from the very beginning. If youre not sure records storage is for you, explore the possibility of records-storage (RS) lite, which operates out of standard units. The space can then be used for self-storage if you decide against storing records. (For more information on RS lite, read my past columns in the archive at www.insideselfstorage.com.)

Start with pads designed for adjacent 10-by-10 or larger units, simply leaving out the interior partitions. As your records business grows, you can move boxes to a larger facility and retrofit these units to standard storage space. Adapt the property based on your success so you only use the space you need.

Option 3: New Space and Traditional RS

The fundamental difference between RS lite and traditional records management are simply this: a dedicated building and salesperson. The optimum records-storage building is 10,000 square feet with a 30-foot ceiling. This will yield an average effective volume of 135,000 billable box positions after about three years of sales, assuming you use a full-time sales representative.

In actuality, you can use RS lite and traditional records management at the same facility. Some developers begin by using RS lite to accommodate walk-in clients and move toward the traditional method as their volume increases to 30,000 billable boxes.

Option 4: Multiple Storefronts in a Single Market

This model is designed for you adventurers out there. It provides the highest yield potential in records storage, but presumes you have three ingredients:

• Multiple self-storage facilities within a 25-mile marketplace. The more sites you have the better, but five or more is best.
• Small-business packages designed to capture 10 percent to 20 percent of walk-in traffic.
• A trained office staff that is generously compensated for their sales efforts.

Initially, storage can be handled using converted units at each individual site with management handled from a single office. As volume surpasses 35,000 billable boxes, all records storage is transferred to a dedicated building in a central location.

No matter which option you choose, planning for records storage from the beginning of your project will help ensure maximize revenue from this amazing ancillary opportunity.

Cary F. McGovern is the principal of FileMan Records Management, which offers full-service assistance for commercial records-storage startups and sales training in commercial records-management operations. For help with feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail [email protected]; visit www.fileman.com.

The lien sale is a necessary evil of self-storage operation. Eventually, every owner is faced with the task of evicting a tenant for failure to pay rent and reclaiming the storage space. The most common way to do this is to place a lien against the tenants property and hold an auction.

A lien sale can be a minefield of liability. While most states give storage operators leverage against delinquent tenants, if lien-law procedures are not followed to the letterif there is an error in any step of the sale-and-disposal processan operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it isnt uncommon for an unhappy tenant to file a claim charging negligence.

Storage owners put themselves at risk by being uninformed about their states lien laws. With the exception of Alaska, the District of Columbia, Montana, Nevada and West Virginia, all states have laws detailing the rights of tenant and owner. But even those familiar with state statues canand domake mistakes, says Jeffrey Greenberger of Katz, Greenberger & Norton LLP in Cincinnati. If youre not a lawyer, its hard to read some of these statutes, he says. Theyre not long, theyre not complicated, but they all have hyper-technical issues. Its not really complex, but its hard enough that people can mess it up.

The Letter of the Law

Many lawsuits are the result of minor errors, such as transposing the numbers on an address or storage unit. Most statutes require that multiple letters of notification be mailed to tenants with delinquent accounts, and that the storage operator publish legal notice in a general-circulation newspaper in the judicial district where the sale will be held. These protocols vary from state to state and must be followed precisely.

The good news is litigation can usually be avoided. Greenberger recommends consulting with an attorney familiar with self-storage law and having him prepare a written procedure that outlines the steps for disposing of tenants goods. Read and follow all state laws to the letter. Always check and double-check names and addresses; and dont make any changes to information on the rental agreementeven if there appear to be obvious misspellingsunless you get a signed change-of-address card.

Eye Witness

Document every step of the inventory and auction process in photographs and writing. Greenberger strongly advises that these steps be carried out in the presence of witnesses. If youre not the sole facility owner, there are steps you should not take alone, he says.

The cutting of the lock and videotaping of the contents should be done by two people. Maybe bring in the individual who handles your public sales. You can have him cut the locks for you or watch you cut the locks while he runs the video camera. This way you have an independent, nonaffiliated person to say, I was there, and this is what I saw in the unit.

Insurance Coverage

In the event of a lawsuit relating to the disposal of tenant goods, youll have to prove the process conformed to state statutes. If theres any reason to question the validity of an auction, do not proceed. Many owners prefer to let tenants retrieve their property at no charge rather than face potential liability.

In any case, make sure you have adequate insurance. Sale-and-disposal legal liability is an essential coverage for all storage owners. It provides protection against conversion, the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the diversity of stored goods and the wide range of property values, the penalty for conversion can be extremely high. Specialty coverage pays the defense costs of any lawsuit brought against a facility for the sale or disposal of property. In addition, if a court finds the facility liable, insurance will pay the claim.

Sale-and-disposal legal liability is not generally available through regular business-insurance carriers and cannot be added to a standard business policy. However, it can be secured through insurers that specialize in self-storage.

In the event that a lien suit is brought against you, notify your insurance carrier as soon as possible. It needs to be involved to settle the issue promptlywaiting could result in a lapse in coverage. After all, you have insurance so the carrier can handle claims on your behalf, and you can continue day-to-day facility operation.

John Roark is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, a free copy of your states lien laws, or a quick, no-obligation quote, call 800.844.2101; e-mail [email protected]; visit www.universalinsuranceltd.com.

Hispanic Marketplace is dedicated to educating self-storage professionals about the possibilities of the burgeoning Latino market. The U.S. Hispanic population-and its buying power-is growing at an astounding rate, making it an attractive target for businesses that appreciate Latinos loyalty to brands and reliance on word-of-mouth for making purchasing decisions.

Youve decided to advertise in Spanish. After all, in the five largest states (California, Florida, Illinois, New Jersey and Texas), if youre not marketing to Hispanics, youre missing 25 percent of the population. But whats the first step?

Chances are youll turn to a Spanish speakeror worse, some software-based language robot-to translate your advertising campaign. Oops! Youve just made your first mistake in marketing to this audience. Advertising intended for Hispanic consumers should be written in Spanish, not translated to Spanish from English.

Theres more to understanding a culture than what an online language translator has to offer. Its tempting to simply translate, but also potentially disastrous when you consider the subtleties in language. For example, the Spanish words for embarrassed and pregnant share the same root.

Another common error businesses make when advertising to Spanish speakers is using incorrect language or situations for a specific culture. For example, references to Cinco de Mayo, a popular Mexican holiday, have no significance for a Cuban or Guatemalan. Other cultural cognates have no relevance in the Hispanic world at all. For example, allusions to popular American songs, TV shows or movies, or traditions like Monday Night Football.

Word choicesand accentsdo matter. For example, Ahorita means right now or a little later, depending on whether youre speaking to a Mexican or a Puerto Rican. And dont choose radio or TV talent with a Brazilian accent when youre trying to reach a Mexican audience. Consider this frame of reference: Consumers from Atlanta wouldnt readily warm up to someone with a Brooklyn accent trying to sell them healthcare or banking services.

These errors may seem innocent, but to Hispanics theyre about as subtle as a sledgehammer. They act as assaults on the ear, sending a clear message: You truly dont understand your audience. By their culture and tradition, Hispanics are polite and accommodating. They will never call attention to your language mistakes so as not to embarrass you. Even when directly asked for feedback, they will try to intuit the answer you want to hear.

The net result? Your message will never hit the target, and youll never understand why. Think about it: In a world where a blonde is a guera in Mexico, a rubia in Cuba, a catira in Venezuela and a mona in Colombia, it pays to make the effort so your audience is responding to your ad, not wincing at your errors.

Is It Necessary?

An important question to ask yourself is whether you need to advertise in Spanish. Shouldnt you be seeking the bilingual consumer who speaks English? Consider this: 89 percent of U.S. Hispanics learn Spanish as their first language. It remains an active part of their upbringing and home life. If you advertise in Spanish, youll speak the language of the home, and your message will be better suited to win the hearts of consumers whose purchasing power has surged to nearly $700 billion.

Hispanics are enthusiastic shoppers, motivated by many of the same factors as the mainstream population. However, their language and values make them distinct. Trust plays a critical role in where they choose to shop and what they buy. Being treated with respect and warmth is especially important. So do you need to advertise in Spanish? You decide.

Myrna Sonora is the director of Hispanic business for The Michaels/Wilder Group, a specialized advertising agency incorporating three divisions: Yellow Pages, Internet, and Recruitment Advertising. Based in Phoenix, the award-winning firm is celebrating its 15th year of business thanks to a loyal client base that includes hundreds of self-storage owners and managers. For more information, call 800.423.6468;visit www.michaelswilder.com.

After a developer has worked with his real estate consultant and market analyst to find the right parcel in the right location at the right price (with good market conditions), the architect and design team are brought into the picture. The next step of the development process begins with a few key questions:

1. Are the government land-use approvals possible?

2. Will the development code or zoning ordinance allow intense use of the land?

3. Can the building and fire-code requirements for construction, safety exiting and emergency access be met?

4. Can a functional design with the necessary amount of building area be achieved?

Although these critical questions are closely related, a closer look reveals a reliable methodology that can be used to achieve success in site planning and building design.

Land-Use Approvals

The land-use approval process is different in each jurisdiction and is based on whether a project is acceptable to a community from the perspective of land use. The process can be highly political and is a complete subject matter onto itself. In this article, Ill focus on the nonpolitical issues that guide the physical form and function of multistory development, with the assumption that land-use approvals are obtained or obtainable.

Development-Code Requirements

Every jurisdiction has restrictions that guide property development. These guidelines can be in the form of a zoning ordinance or general development code. The purpose of these rules is to give the city or county some sort of control over property development, hopefully resulting in an orderly or consistent appearance in the communitys physical environment. The specifics of these codes dictate a buildings size, mass and form. They primarily address floor-area ratio, lot coverage, building height, building setbacks and parking requirements.

Floor-Area Ratio.

The maximum allowable floor-area ratio (FAR) is the most important factor determining what can be built on a site. FAR is the relationship between a buildings total square footage, including all levels, divided by the size of the parcel. For example, a 40,000-square-foot building on an 80,000-square-foot lot has a FAR of 0.5. In most urban areas, a typical limit may be 1.0 to 1.5, possibly more. A 1.5 FAR would allow a 65,340 square-foot-building on a 1-acre lot or a 130,680-square-foot building on a 2- acre lot, both of which provide an acceptable level of site utilization.

Although some jurisdictions dont limit the FAR, most do. FAR restrictions are generally rooted in a communitys general plan. Because theyre intended to control the density of the built environment, its often difficult to obtain a FAR that exceeds stated allowable limits.

Lot Coverage.

Similarly, most jurisdictions limit how much of a site can be covered by a building. This is known as maximum lot coverage, the relationship between the building footprint and the size of the site. The footprint is the first-floor area of a building in square feet. Lot coverage does not limit FAR, meaning the firstfloor footprint can vertically extend through one or more stories of construction.

The most common lot-coverage restriction falls in the range of 50 percent to 75 percent, allowing fairly intense site utilization. For example, an 80,000 square foot parcel with a 50 percent maximum lot coverage allows a building with a 40,000-square-foot footprint.

Building Height.

Another restriction on development is maximum building height, how high the building can extend above ground. Urban areas generally allow tall buildings, so this component is not much of an obstacle in those markets. Typical building height might be 50 to 75 feet where restricted, and much higher where high-rise development is common. There are several examples of 10-story self-storage buildings in downtown city areas.

Building Setbacks.

Setbacks limit how close a building can be placed to a parcels property lines. Specific setbacks are designated for the front yard, which faces the street, and the side and rear yards, which make up the parcels other sides. Urban areas generally have nominal requirements, especially where large buildings are close together and to the street. Nevertheless, this restriction must be carefully assessed, as even setbacks of just 5 or 10 feet can use up a large portion of a small parcel.

Parking Requirements.

Most government agencies in urban communities understand the nature of the self-storage business and that it requires minimal parking. However, some development codes still group self-storage with more intense commercial or industrial land uses. This results in parking requirements that greatly exceed the need, as well as an inefficient site design and smaller building footprints. The developer or architect must have a firm grasp of the actual parking and loading requirements of self-storage. A parking variance may be necessary to bring the requirement down to a reasonable level.

Building and Fire-Code Requirements

In addition to meeting development-code requirements, a building must satisfy the demands of local building and fire codes. Although most of these are technical in nature and beyond the scope of this article, its helpful to understand their intent.

Building Areas.

Building areas are limited based on types of construction and distance to property lines. Generally speaking, the more fire-resistant a building is, the larger it can be. Similarly, the more room there is on a site, the more relaxed the rules become. Large buildings may require fire-separation walls, which compartmentalize a building for the purpose of slowing or stopping the spread of fire.

Fire Exits.

The building code tightly monitors requirements for the safe exiting of tenants during a fire. There must be stairs to safely guide occupants to the ground in an emergency. A minimum of two sets of stairs is required per floor, spaced reasonably far apart. Elevators cannot be used as fire exits.

Fire Sprinklers.

Sprinkler systems are universally required on large multistory buildings, along with extensive smoke-detection and fire-alarm systems.

Emergency Site Access.

Fire departments require access to a siteor an adjacent sitefor fire-fighting purposes. Fire lanes, generally a minimum of 20 feet wide, are required to allow truck access, as well as the appropriate turning radiuses. Taller buildings may need wider lanes to accommodate ladder angles.

Space and Operational Requirements

After meeting the requirements of development, building and fire codes, the design team is ready to begin site planning. The next challenges are site and building access and the overall floor plan.

Site Access.

The sites driveway locations must accommodate large vans and trucks typically used by self-storage tenants. Access should be visibly clear for all drivers. New customers should be able to quickly and easily locate the parking area and office without disturbing other tenants who may be loading or unloading goods. Some accommodation should be made for parking large vehicles outside the gate-secured area. Established tenants should be able to enter the facility without delay.

Building Access.

Elevator placement is the most important component of building access in a multistory project. Unlike their drive-up counterparts, multistory projects lack the luxury of widely dispersed units. To keep tenants from getting in one anothers way, elevator areas should be easily accessible. Larger projects definitely require more than one elevator to eliminate crowded conditions and reduce the travel distance to all units.

Building access will also involve security. Some multistory facilities may not have gates due to lack of space. In those cases, the line of security is the building itself, so special consideration must be given to code access on first-floor hallways and elevators.

Floor-Plan Design.

Once site and building access are addressed, the building has taken its final form. An efficient floor-by-floor design should follow, meeting the unit-mix target as efficiently as possible. General floor-plan considerations include:

• Elevator and stair placement.
• Hallway layout (to facilitate access to all units).
• Placement of large units (close to elevators) and small units (at the extremities).
• Office placement (to allow security monitoring and tenant assistance).
• Office design (to convey security and facilitate financial transactions).
• Placement of fire-rated components.

While the basics of intense site utilization may be challenging, there is a method for achieving success. Self-storage developers have been rewarded with great returns from their multistory projects. This makes the challenge worthwhile.

Ariel Valli is the president of Aliso Viejo, Calif.- based Valli Architectural Group, which provides architectural-design services for self-storage and land-use entitlements. The company also offers construction documents for self-storage development in the Western United States. For more information, call 949.349.1777; e-mail [email protected].

The two most useful tools in a self-storage developers repertoire are a rational, critical feasibility analysis (RCFA) and luck. While Lady Luck is immensely helpful, her presence is highly unpredictable. Though there are rumors that she tends to hang out with good feasibility analyses, the sightings of RCFAs are so rare, the relationship remains statistically obscure.

This article takes a critical look at what should be included in an RCFA as it relates to projected demand and pricing. This is not to say cost and timing are not important, but they are generally less subjective. Errors in estimating project costs also tend to be less frequent and life-threatening as missing the market entirely.

The Past Is Past

In the early days of self-storage, demand for the product was so deep it was like the Field of Dreams: Build it, and they will come. But things have changed. Now, some 40,000 facilities dot our fair land, and competition is fiercer than ever.

According to an annual investor survey conducted by Chris Sonne of Self Storage Economics, the No. 1 concern of self-storage investors is the building of too many new facilities. Ray Wilson of Self Storage Data Services Inc. has also opined in several industry forums that the unabsorbed demand for storage has taken root in most parts of the country. By Wilsons calculations, theres one storage unit for every 10 households in America. It appears the new tag line for self-storage is Build it, and where will they come from?

Thus, an RCFA has become a critical tool for the developer considering a self-storage project. The emphasis has switched from properly papering the loan application to finding out if the property will really work and assessing the downside risk. Please note my carefully chosen wordingit is intended to differentiate the nature of feasibility studies.

But I Got the Money!

Sadly, there are many developers who equate getting the money with having proved the feasibility of a project. They suffer from two very serious misconceptions: 1) lenders know something about self-storage; and 2) lenders are doing you a favor by lending you cash. Only in the rarest circumstance is the first true, and the second is never truelenders love to rent money! The fact that you got financed doesnt mean your project is viable. It may just mean your banker is a good salesperson. Remember, lenders on new projects arent as particular because they have recourse to your other assets.

Whats the Right Answer?

First and foremost, a feasibility analysis should be unbiased. Being businesspeople (and simply human), many who conduct feasibility studies want to please their clients. Consequently, their reports often reflect the customers prejudices, not the actual market or the projects ability to compete in it.

When shopping for an analyst, the first thing you should do is ask how many of his last 10 studies were negative. Im not sure what the right answer should be, but more than two or three should indicate his credibility. In my past life as a developer of office buildings, I would offer analysts a 15 percent bonus for a negative report. In feasibility studies, there are two equally right answers: yes and no. Maybe is also a no!

A Word About Numbers

There are many self-storage statistics floating around out there. Several organizations publish numbers for nearly every facet of the industry. The problem is these studies are based on mail surveys of facilities that volunteer the information. Since the sample sizes are relatively small, the information is applicable to only very broad market characteristics. Also, because the sources are voluntary, the sample may not meet the standards of randomness generally necessary in this type of study.

While the numbers look precise, they are often manufactured. For example, one source quotes total national square footage of storage as 1.46 billion. That number is the average size of the surveyed facilities (37,590 square feet) multiplied by the number of facilities listed in a purchased database (38,817). While the formula is mathematically correct and the average size appears reasonable for an urban area, I suspect rural properties are underrepresented. Therefore, total square footage may be significantly overestimated in the survey. No one knows for certain, but its certainly food for thought.

If total square footage is overstated, national square footage of demand per person (4.94 square feet, according to our source) could also be exaggerated. Thus, if youre expecting to rent almost 5 square feet of storage per capita, you may be way off your mark. Ive recently reviewed some feasibility studies in which national per-capita numbers were used as a basis to gauge local storage demand. If your feasibility report does this, youd better find our pal Lady Luck, because youre going to need her.

Another problem with industry statistics is theyre only marginally useful when looking at a small trade area. The variability of local market characteristics such as population density, income levels, percentage of renters vs. homeowners, prevalence of basements, etc., render comparisons to national or state information unreliable.

What Should an RCFA Contain?

Self-storage is a local business and, barring unusual circumstances, the trade area usually falls within a 3- to 4-mile radius. The demographic attributes that define a neighborhood will also define demand. Some analysts use sophisticated regression analyses to estimate demand. For example, they look at several similar markets and use mathematical algorithms to determine the variables that most affect actual absorption and in what proportion. Not surprisingly, studies show that population, number of renters and income levels are key indicators.

However, a regression analysis is a lot of work and requires expert judgments to define the market. Is this level of sophistication worthwhile? In the past it wasnt because demand was overwhelming. Now its foolish not to use the best tools at hand. The task of balancing supply and demand is too treacherous.

Are the statistics created by these mathematical methods correct? Theyre the same techniques used by the pollsters to predict elections. Your odds of getting the numbers right are about the same for a correct prediction, except your time frames are longer, which introduces more risk. Modern methods of calculating demand require complex math but are proven to better your odds, regardless of all the variables. They always require an element of experience, professionalism, intelligence and judgment.

How to Buy a Feasibility Study

When it comes to purchasing a feasibility study, many people bid out the process. If you want the cheapest price, this is the way to go. However, its not a good idea for two reasons. First, good RCFAs usually dont cost much more than bad ones. Sometimes they even cost less, though their value is significantly higher. Second, youre basing a huge investment on this information, so you want to be comfortable with and certain of the analysts abilities.

The price of a good feasibility report is minimal compared to the overall cost of the project, and it can make a huge difference. When you commission an RCFA, get recommendations from people who have used the analyst and completed their projects. Ask about their overall experiences. You should also interview your candidate analysts. What they say should be detailed and make sense. Finally, request blacked out sample reports. Review them to see if they are valuable or present a lot of off the Internet information. Some analysts try to dazzle you with volume, so look for quality, not quantity of data.

The Back Stop

After youve purchased a great RCFA and have the report in hand, theres another important thing to do: Verify it. Take the report to the building and planning departments and confirm that all competing projects with permits or pending plans are noted.

Next, visit each of the competitors in the area and compare your proposed project in terms of visibility, location, traffic, amenities, pricing and occupancy. If you find the information you collect is different from that contained in the report, thats a red flag. Things to pay particular attention to are rents and occupancy. Does the report suggest you should collect higher rents than your competitors? Have rents been declining or concessions increasing? Have occupancies been declining, or are average occupancies below 85 percent? If you encounter problems in these areas, its time to take a deep breath and rethink the project.

A Peek at the Downside

Self-storage projects are very sensitive to changes in revenue. Another critical step in the review of a feasibility report is the sensitivity analysis, which is easily done by rerunning the income pro forma and reducing the rent and occupancy by 7 percent. (Your analyst should be happy to provide this information.) Watch what happens to your net operating income and cash flow after debt service when you recalculate the amount of debt the project will carry. My guess is the change will cut projected cash flow by 50 percent to 60 percent.

What you are trying to learn with this test is how much error in the estimate of demand and pricing you can tolerate and still find the project risk acceptable. You may want to try other variations after youve seen results of the first test. Theres usually a lot of leverage in a self-storage project, both operating and financial, and it cuts both ways. At the end of the day, you must be satisfied that your projectionsand their relative reliabilitycorrespond with the margin of risk you are willing to take.

Only you can judge your level of comfort with a proposed project. Good RCFAs are never perfect, and even the best rely largely on the analysts judgment. Lady Luck will still play a large role in your success, but a good feasibility report will encourage her to be on your side. Remember that no is sometimes a better answer than yes.

Michael L. McCune has been actively involved in commercial real estate throughout the United States for more than 20 years. Since 1984, he has been owner and president of Argus Real Estate Inc., a real estate consulting, brokerage and development company based in Denver. In 1994, he created the Argus Self Storage Real Estate Network, now the nations largest network of independent commercial real estate brokers dedicated to buying and selling self-storage facilities. For more information, call 800.55.STORE or visit www.self-storage.com.