So you’ve decided to get into the self-storage business by developing your own Self Storage Facility. Well the first step should be to locate a viable parcel of ground to develop. However, many investors find that determining an adequate site is a little more difficult than they imagined, and perhaps, should be done with the aid of an independent third party.
Why? Because a feasibility study, conducted by a professional, will provide an in-depth analysis of the location to determine if it is viable for Self-Storage.
Typically, a quality feasibility study will cost from $700 for a cursory review of the site, all the way up to $8,000 for a full blown site study. So What do you get for this investment? There are six major areas covered in the study. The following are broad definitions of each area to give you an overview for starters.
Competitive Analysis – This will identify the competitors in your target trade area. It will also touch on whether your competition is successful, what you can expect rental and occupancy rates to be once your facility is built and stabilized (around 85% occupancy), and what type of amenities the competition is offering.
Demographic Study – This is typically in the form of a breakdown of who lives and works in your market. It will point to housing density, commercial clients, and predict the demand within a 1, 3, and 5 -mile radius of your site. Remember, self-storage is a local retail business. The majority of your tenants will come from the site’s own ZIP code.
Financial Pro Forma – This will include expected revenues, expenses, development cost, relative to the financing terms. Remember, Pro Forma is a future estimate and even the best consultant can only come so close to predicting the actual performance of the facility and the timeframe it will take until stabilization nor the break even point.
Site Layout – The consultant will typically assist in ways to develop the site to ensure it is being used effectively and efficiently. This process involves the placement of buildings on the site to get the best building to land ratio. A well-planned site layout translates to more square footage available for rental and more profit for the owner.
Cost Analysis – An examination of all projected costs connected to the construction of the facility will be provided by the consultant to determine a budget and overall cost to develop the facility. This is critical information, without which the potential investor would be just estimating costs at best.
Site Viability – So is it a thumbs up or thumbs down? This is the summary portion of the study where the consultant gathers all the information at hand and advises the client as to whether they should move forward or abandon the site. Either way, whether the answer is yes or no, it is money well spent to get to this juncture. And if the answer is yes, an independent feasibility study will give the project more credibility with lenders and potential investors.
Conduct Your Own Study?
Some investors choose to do their own feasibility study. Certainly if you’re an owner developing another facility in another location, you may have learned the process with your first facility and feel comfortable doing it yourself. However, this is the exception not the rule. For those individuals with no experience, no aptitude, or knowledge of the process, it is the recommendation of this author that a professional should be contracted to perform the study.
By Robert Holiday