Part 1: Self Storage Feasibility Study
One of the biggest concerns we hear about from self storage facility owners is a competitor breaking ground in their market. It’s easy to panic when you’ve toughed out the last five years and another facility has opened – soon they’ll be taking your customers! If you have to bid against them for customers by engaging in a price war, you’ll both be eating into your profit margins, and your occupancy could drop.
Now imagine being on the other side of the table – you’re contemplating building a self storage facility or expanding your current facility, and need to determine whether it’s wise to pursue that option. After all, the costs involved with developing a facility are immense: from permits to earnest money deposits, you can spend a lot of money in development before you make a single dollar. Of course you can do preliminary work evaluating the market. But before you sink any significant funds into your project, it makes sense to have a self storage feasibility study completed on your proposed site as step one. After all, with our comprehensive feasibility study, you will avoid lost time and money, while gaining insight into what your market needs.
So, what does our self storage feasibility study include?
This is the part everyone wants to see first in a self storage feasibility study. This shows whether or not your proposed facility makes financial sense to build. The executive summary is a synopsis of the rest of the document.
Site Examination & Recommendations
With nearly 40 years of experience in construction, including 10 years building only self storage facilities, we know what land is suitable for building facilities, and how best to approach the construction of your facility.
Demographics Report & Analysis
We complete and include a full, proprietary analysis of your market, which not only confirms or denies the need for expansion, but also gives insight into how to best reach and serve your market.
We have completed more than 400 self storage transactions since 1998, so we understand the key metrics in the evaluation of a facility in a way that few people can. As part of your feasibility study, we complete a profile on each competitor, including size, occupancy, operations, security and traffic information. We also mystery shop all of your competitors, and show what you could reasonably charge for your proposed units.
Full Municipality Review
In addition to analyzing existing competitors, we must also be aware of any new projects that are on the horizon in your specific area, as they could have a major impact on the competitive market and specifically on the overall feasibility of your project. Not only are we looking for newly approved projects, but also ones that are in the approval process at the various municipalities.
To seek out this information, we typically call each municipality and in many instances visit the municipality offices. Obtaining accurate information is a difficult task, as many of the municipality employees are not familiar with all projects. To eliminate this uncertainty, we seek out the specific person(s) handling these types of projects within each municipality.
“I was glad that I had Investment Real Estate look at my sites. They’ve done three studies for me and gave me the go-ahead for two. I appreciated their forthrightness in pointing out the problems I would have had with the one site, and since we found out early in the process, they saved me a lot of money in the long run.”
– Hutch Haines, Developer, Avon, CT
Supply & Demand Analysis
The Supply and Demand Analyses are conducted to determine the presence of excess self storage demand within the subject property market. More specifically, is there sufficient demand within the subject market to absorb the contemplated project and any other new projects or expansions that may be in the early stages of development? When you hold our proprietary analysis in your hand, you’ll be able to tell in one glance how much square footage the market can absorb, and show that bottom line to partners and financiers.
Because we’ve been involved in the construction, management and brokerage of so many facilities, we have a strong understanding of what the cost of building your facility in your market will be.
7 Year Month-By-Month Cash Flow
Our Development Pro Forma is the heart of the feasibility study. This data is compiled in a bound presentation of over 70 pages. It is also available in an electronic format for your convenience in forwarding to investors, partners and bankers. We base this data on our experience in developing millions of square feet of self storage, managing over 70 facilities in eight states, and brokering over 400 self storage sales transactions. We incorporate rental rates, operating expenses, development costs, phasing recommendations and capital reserves with realistic lease-up assumptions to determine your multi-year investment returns. This pro forma is the blueprint for measuring the future success of your project.
Future Value Analysis
This section goes hand-in-hand with the cash flow projection. Since the purchase price of a self storage facility is based on the net operating income times the capitalization rate (the return on investment that a purchaser would earn if they didn’t leverage their investment funds through bank financing), the cash flow that you see in future years will determine the selling price for your property. We can use your cash flow projection, in conjunction with our estimate of where the cap rate for your market will be in future years, in order to estimate the future value of your property. This is an art and a science, since it requires both the analysis of current information and projection from over 20 years in the industry.
Self Storage Industry Overview
In this overview you get a summary of the market, including typical facility construction, keys to success in self storage, the history of self storage, the residential market for self storage (including our breakdown of demand by housing type) and the commercial market for self storage.
Obviously, all the information you receive when you work with us to evaluate your property will help you make your decision, but it also provides further credibility when you go to your spouse, your partners or your lenders. In fact, most bank financing requires a third-party analysis or self storage feasibility study of a proposed development.