Marc Goodin, President of Storage Authority LLC,
Ed, you must be excited to have started construction on your self-storage facility?
Ed: Absolutely. We have put substantial time and research into this project and the team is excited to open Storage Authority Houston-Walters Rd.
Marc: First I want to congratulate you and your wife Jenny. It was not that long ago we met as strangers in a Houston hotel lobby and you shared your goals with GP & I. Now we are friends and you are well on your way to making your self-storage dreams come true.
Can you provide us a short background on yourself?
Ed: I do remember that meeting with you and GP and it has been a pleasure working with you all on this project. I have been in the transportation industry working in an executive role for many years and I have also been involved in a few technology startups, but I always have had a passion for real estate.
Marc: I know you are all ready to starting your marketing for your grand Opening. What is your projected construction time?
Ed: Approximately 6 months
Marc: How helpful was the Storage Authority preferred Houston Area real estate broker Richard Anderson?
Ed: Richard was both a resource and an advisor through the entire process. He has an extensive commercial real estate and development background, so his experience was invaluable.
Marc: How many acres did you buy? And How many square feet of self-storage did you get approved?
Ed: We bought four acres of land and will be building a 60,000 sq ft facility in two phases.
Marc: You and I did some conceptual early on and then once your offer was accepted we worked together with your architect & engineer to come up with the final layout for both the buildings and the individual units. It’s a tradition civil engineers (like myself) get a little tough on Architects but other that did you feel the Storage authority process helped you understand the options and choose the right layout for you?
Ed: Yes indeed. You were involved in all reviews of the design process and we made many updates to the plans that gave us a much better final layout that I am confident is positioning us for a strong opening.
Marc: You actually had a very smooth design and approval process but what surprised you the most about the design or approval process?
Ed: Although the internal side of the design/approval was manageable, like any real estate deal I believe staying creative and alert to the details of the transaction is critical. We encountered several hurdles finalizing the deal that brought us to the close.
Marc: What advice would you offer a new franchise owner starting the design process?
Ed: Tap into Storage Authority’s experience and knowledge, while being sure to be mindful of local storage development trends. Bounce ideas off of Marc and collaborate to develop the best solution.
Marc: Obviously getting a loan is one of the very important steps of self-storage development. How does it feel to have your first multimillion-dollar loan?
Ed: Exciting and challenging. I believe the due diligence that we performed, feasibility studies and local research were all keys to forming a solid working partnership with my lender.
Marc: Many people don’t realize there is a lot of work between the site plan design and having the final construction bid & permits the bank requires. Sometimes inexperienced developers wait until after final site plan approval to start, the building design by the Architect and getting complete bids. You had your Architect and Contractor on board during the site design process. Do you agree this was critical for your project?
Ed: It was essential. I believe the site design process is essential to understanding the full scope of a deal’s feasibility.
Marc: What did you find the most challenging so far and why.
Ed: Keeping a detailed checklist, timeline and prioritizing all of the items was a challenge as we neared the final stages of the project. Large companies have teams that manage this process, and, in our case, it was me and the Storage Authority team.
Marc: Did Storage Authority meet your expectations? And what can Storage Authority do better to assist the next Storage Authority Owner?
Ed: Storage Authority exceeded my expectations. As for what can be improved, you all are already doing it. From enhancing your web platform to providing new operating guidelines your team is innovating to help me the other Owners be successful.
Marc: Thanks for share your experience and thoughts. One last question for now. Are you excited to start your self-storage marketing and renting up your facility?
Ed: Marc, we are ready to get this one leased up, so we can get back to work with you and the team on our next project.
Why don’t most self storage implement a marketing plans? Simple it takes a lot of self storage marketing experience, time and money just to develop a marketing and even harder to get your staff to implement. This is great news for Storage Authority Franchise owners because not only do we know what works, you will have your sales and marketing plan ready day one but even more important is we have the secret sauce of how to implement a successful marketing plan.
We Bring the Ritz Carlton Experience to the Self-Storage Industry!
Simply put Storage Authority Platforms & Systems makes for happy customers and allows Storage Authority Franchise owners to charge premium rates for higher profits. Storage Authority Franchises are the market price leaders, often renting up much faster at rental rates higher than their competition.
Sales and Marketing is 50% the environment and 50% people driven. Storage Authority Franchise owners start with the next generation facilities designs and the platforms, systems, tools, training, manuals and a detailed facility-specific marketing plan. The Storage Authority Manager driven system is backed up by both the franchise owner and Storage Authority experts available 24/7. Storage Authority has replaced the losing one-month free marketing strategy (which costs a facility over $50,000/yr. in profits) with “it just feels right” feeling, sales and marketing.
The Storage Authority over the top sales, marketing and customer service philosophy is shared in detail with every potential franchise to confirm they believe in our marketing strategies and plans and are ready to embrace them before they are approved.
Manager Training & Marketing:
Managers are hired for their friendly personality, and sales and marketing abilities and are taught the Storage Authority sales and marketing. Some examples items managers learn starting day one:
Storage Authority managers have detailed scripts they must learn and adhere to including the following scripts:
Storage Authority managers have a list of daily, weekly & monthly marketing duties they must adhere to that is completed because they are completed regular they become a habit. Examples:
Special Marketing projects and new marketing projects.
Storage Authority New Generation Facilities
Storage Authority Mulbury FL
Storage Authority New Generation Service:
Storage Authority provides:
Storage Authority New Generation Marketing
Storage Authority -Target Marketing Partners:
Co-operative marketing and referral partnerships opportunities
Great for cross-marketing
For their move-in Packages – Self Storage Rack Cards with a coupon for move in packets, helps leasing consultants overcome an objection of downsizing to an apartment.
Do they do move in Packages? Resource Center?
Auto/Boat/RV – (their clients may need a place to store these) Homeowners – Buying/Selling – they call their insurance provider – may need temp storage or downsizing.
What marketing opportunities with local school to participate in.
Families need quick storage to clear out the house for sale, time to grieve and then go through stuff and decide to keep or give away.
Think retail. Would you put retail on a back road or behind another development? No and the same goes for new self-storage developments.
Too many people tell me they are about to build self-storage on land they own or located because self storage is needed in the area. And they are right about half the time. Not a good enough percentage to move forward with a multimillion dollar investment. In the end, new developers are going to need help to make the final decision. But you can rule out some properties with a bit of effort and determine which property in an area would be the best one to choose for a feasibility study.
First you need to determine the existing population. The population can be provided by many realtors or is often provided with many property listings. There are also several on line programs that can provide the population.
The unknown is the demand of square foot of self-storage per person. And there is not one size fits all locations correct answer since demand can and does vary from state to state and even area to area within a state. Demand in the end is not a square foot per person but rather a square foot/person where facilities reach equilibrium (90% -+ full) at acceptable rates. In other words, demand cannot be determined in a vacuum and must be used in conjunction with a review of the existing market occupancy rates and prices. Be careful not to assume full means there is a need for more facilities. Full with a regular 10 x 10-unit renting for $70 is not a good sign while 10 x 10’ renting for $160 is a great sign.
For many urban areas where there are numerous self storage facilities to choose from the draw/competition area of 3-mile radius is commonly used. And the demand of 8+_ sf per person can be used as a temporary starting point.
So, if the 3-mile population is 30,000 the total self-storage demand would be:
30,000 people x 8 sf/person = 240,000 sf of self-storage needed.
Next you need to determine the location, number and size of the existing self-storage in the 3-mile radius. Most novices underestimate the number of nearby facilities. You can use google earth pro or “google nearby” to help you find the 3-mile facilities. On google earth pro you can draw a 3-mile radius and visual search for the self storages. For a given address on a google map you can enter self-storage in the nearby tab and it will show the nearby self storages. But it does not go over town lines, so it is tricky to get all the facilities. This is considerable work to make sure you get it right but can often give you a quick count. You may be able get the existing square footages from the land records or scale from google earth pro, again a lot of work. Or you could use a real rough estimate of 50,000 sf of self-storage for each facility with a square footage check as part two of your demand study.
So, if you had 3 existing self storages in the three-mile radius you could temporarily assume that: 3 facilities x 50,000 sf/each = 150,000 sf of the existing demand has been met.
The needed demand for this case would be:
The total demand of 240,000 sf – 150,000 sf existing = + 90,000 sf. demand needed.
You would also need to subtract the demand for any facilities under construction or in the approval process.
You can see a sample mini demand study at the Storage Authority News Room
The good news is there are programs that can quickly determine the population and the existing self storages and even the square footage of the facilities, so the existing and unmet self storage demand can be determined quickly as part of a preliminary study.
One developer who recently contacted me did his own demand calculations. When I emailed him back our check of his findings with an online demand review he said “ Wow what you did in 10 minutes took me over 2 day to do by hand.”
Below is a screen shot of the Radius program we use to determine the existing self-storage demand & population. It also does a ton more, from providing the existing self storage square footage, the names of your competition and the rates of your competition.
The program is available at : https://www.unionrealtime.com/radius.html
I suggest you set up a demo with James de Gorter the co founder of Union Real time. Here is a link to set up an appointment on his calendar https://calendly.com/radiusteam/radiusdemo
This location is a 3-mile radius review for one of the FL Kmart locations closing this year. While it shows the existing self-storage is 7.36 sf per capitol (see bottom left hand side) the key is the fact that there is only 0.69 sf/person of climate control. So, this is a great location to investigate further for a big box conversion to climate control self-storage. If you want to learn more about this program or even conversions email me at firstname.lastname@example.org
Of course, Storage Authority and our national brokers will help find and review your potential sites, saving you mega hours. Better yet we will even help you determine the best areas to look for land in your neighborhood.
The occupancy of the existing facilities (and their rates) can tell you a good deal about the local market demand. You should stop by a couple and call a couple to get their rates and see if they will tell you their occupancy even before you start looking for land.
In the end, there are many important factors in addition to demand so a feasibility study is highly recommended. For your planning purposes, each can cost $6,000 to $7,000. If you need preliminary assistance with your initial investigations or need a recommendation for a feasibility expert email me at marc@storageAuthority.com and I would be happy to help.
The shape of the land, topography, wetlands, drainage, flood limits, neighbors, building design, and zoning requirements can have a significant impact on the final building square footage. Some towns, for example, only permit 50% impervious lot coverage for the buildings and pavement, other towns do not permit a new self storage within 3 miles of an existing facility. Regulated wetlands setbacks or wetland buffers often vary from 50 feet to 150 feet from the wetlands in many locations. On site storm drainage detention, if required can require a half acre or more land. High parking requirements in some towns can also limit the amount of buildings. In other words, the regulations can significantly reduce the amount self storage permitted. Often self storage is not even permitted in residential zones and other zones.
If you don’t have city sewer you will need extra land for a septic system. If you do not have city water, you will need room for a well and significant building fire walls will be required that will add substantially to the project cost.
5 acres were used on this 9-acre site. The rest of the land was not usable.
There is an art and a science to presenting auto-pay to the self-storage customer but there is a tremendous value for both the customer and the self-storage facility.
The presentation of auto-pay is everything, how you say it, how you deliver it and the sub-conscious triggers the customer reads all work as a synergy to optimize your auto-pay program. With Storage Authority Franchising we have the system in place for you to maximize your revenue and streamline the process.
We love customers on auto pay because they save us time (for marketing) Typically only the few who put themselves on auto pay get on auto pay. Even if asked if they want to go on auto pay say no because most yes or no questions naturally end up with as a no. This one is a no-brainer. It just takes learning the script and techniques mandatory and one hour of training and the proper lease. Because people stay 2 extra months if they are on auto pay an extra 10 auto pays a month is worth $30,000 a year.
When presenting the hard copy lease, Storage Authority may be the only one who has this option on the front page of a lease making it easy to present and get a yes at just the right time. And no extra paperwork like every other facility. Of course, we had to pay a self-storage attorney to set it up to make sure we met the law, but well worth the investment.
As self-storage evolves, and we make the paperless transition the very wording on how you start the lease presentation will be critical to your success, ” All I need is your ID and the debit card you would like to keep on file.” As you swipe the debit card (debit cards carry less merchant service fees than credit cards) into the software you remind the customer their card will be debited on whichever date their move-in date every month and we will send an email confirmation. You automatically put them on auto-pay by just assuming they want the value of the program. Remember they are also reading your late fee schedule that is on your counter (*See Below example) as your working through the lease presentation. It’s expensive to be late in self-storage there is an immense value to the customer to automate their payment process.
For self-storage owners & operators, auto-pay is, undoubtedly, their best source for obtaining on-time payments. It helps lighten many of the biggest hassles that go along with operating a storage facility—namely delinquent payments, collection calls and lien sales. In addition, too, customers on auto-pay generally don’t think about paying that bill every month or scrutinize the dollar amount they’re paying too closely. Because it becomes just part of their monthly budget many will also stay an additional two months or more as noted earlier. Adding a rental increase also becomes streamlined and more acceptable for tenants enrolled in an automatic-payment system.
Take advantage of the “no late-fee guarantee” program use your tool on the counter to help educate the customer if there is any hesitation. Tell the customer how convenient it is to enroll. Also, be sure to ease their fears about any risks of keeping the card on file by letting them know your software program meets Payment Card Industry Data Security Standards (PCI DSS) and compliance. Customers cards are stored on an encrypted level where managers can only see the last four of the card.
Ultimately, the service should reduce your collection calls and lien sales, as customers on auto-pay will always make their payments on time. Plus, it’s another great service and valuable convenience you can offer your tenants.
Auto Pay Program + Late Fee Schedule
These should be outlined on a single laminated sheet and displayed on the counter or positioned in a plexiglass 8×11 frame very visible on the counter for the customer to read. Many self-storage operators fail to realize how valuable this is. Too often we forget to tell customers about our late fee schedule, or how they are guaranteed no late fees by enrolling in our simple, automatic, debit/credit-card payment plan.
How much of a collections issue would you have if most of your customers were on auto-pay? Quit asking new tenants if they want to sign up for it. Instead, make it part of the lease and sales presentation. For example, you can say, “Our customers love the convenience of our auto-pay program. All I need is your ID and debit card to get started?” More auto-pay customers mean fewer past-due customers and more streamlined revenue for the facility.
Money in the bank following the Storage Authority Franchising system.
Yesterday Kmart/Sears/Macy’s announced another round of store closings.
If you type in kmart & sears closings into google search you will see round after round of store closings. Maybe there is one near you. In the past 5 years Sears has gone from over 2000 stores down to 12oo stores.
Here is a map of the latest round closings. The article above will give the Towns.
While this is a sign that Amazon is killing the big box stores it is also a sign it time to consider conversions for self storage. I recent talked to one self storage developer and he only does conversions. He has done 4 and has each is doing very well. The big boxes are typically in areas of suitable, even high populations so it is a matter of confirming the available demand taking into consideration of the existing self storage.
Conversions typically save you time because they are much easier to get approvals and takes less time to build. Grocery stores are a great conversion as well and they don’t have to be oversized. Often a 30,000 square foot self storage will have a large parking lot you can convert into another 30,000 sf of self storage.
Here is a quick web demand study on one site I randomly choose. This is a great program everyone looking for self storage because what used to take a couple of days is provided in seconds. send me an email at Marc@storageauthority.com to learn more about conversions or this web demand study
If you look to the left you can see the existing self storage demand information. What is real interesting and what makes this site worth checking out is almost all the existing self storage is non climate control!
To More Success in 2018!
You can do it!
Sample Development Budget & Proforma.
You will do multiple budgets proformas for yourself along the way to a final one for your bank. The first is one based on several assumptions and estimates so you can have some initial discussions with your banker. The second, one after you have a site plan, so you can provide a proforma based upon your actual design plans, including the exact number and size of units to be rented to get an updated pre-approval. And the final application with real construction cost from contractor bids and expenses from your feasibility report and other investigations, for the final loan approval. Your loan request will include several items in addition to the proforma. This information will help your banker make a positive decision on your application. It will provide valuable information about yourself, your business plan and your expertise and an executive summary which help your banker quickly understand your project and find the major data they need without looking everywhere for it. It is one more item to let the bank know you are a professional day one. Self storage is loan friendly because self storage loans have one of the lowest failure rates for real estate development. But part of loan decisions are based directly on you and how you present yourself, your project and your team.
There are no one size fits all standard construction cost, expenses or profits for self storage. Typically, the first semi accurate development and operational cost and profits come after you have found land, obtained a conceptual plan and obtained a feasibility study by a self storage expert. But it is important to understand the basic general magnitude of construction, operating expenses, rental rates and various financial information to determine if self-storage makes sense for you. The concept budget below is based upon assumed costs & expenses that may vary greatly. Be cautious as it would be easy to tweak one or several factors to eliminate the profits or double them. Many items and details are not included in this example such as carrying cost to get from empty to break even.
This is an example for educational purposes only and should not be used to make any final self-storage investments or development decisions.
CONCEPT BUDGET & PERFORMA*
50,000 Square Foot New Single Story Construction
TYPICAL LAND REQUIREMENTS*
Single Story Self Storage: Typically, 5 +_ usable acres when storm water detention is required and or subject to certain zoning restrictions. Land requirements can vary on local zoning requirements and land quality.
Typical Construction Cost vary on many factors from design, amenities, locations, land quality and more and must be determined by actual construction bids. Cost below have been assumed and will vary.
PRELIMINARY DEVELOPMENT COST* – 50,000 SF Single Story
Land $800,000 + –
Construction: $3,250,000 +_ $65/sf x 50,000 sf
Unusual land etc.**. $0 if none
Unusual City regs. ** $0 if none
Soft cost $400,000+_
Carrying costs $300,000+_
Total $4,750,000+_ Single story 1 phase
Phase 1 -25,000 sf $3,300,000+_ Note land/office/soft carrying costs in phase 1
Loan Equity $1,155,000 Phase 1 owners’ equity required
Loan Equity $412,500 Phase 1 owners’ equity required
As you can see there is a vast difference in equity required between a traditional bank loan and a SBA loan.
Typically, when phase one occupancy reaches 70% it is time to get started on phase 2. Most of the time you will use the same bank for both phases so you do not have to pay a prepayment penalty. Often your equity in phase one will be enough for most if not all of the loan equity required for phase 2. You should have these discussion with your bank when you apply for the phase one loan as this is not the case for every lender.
STORAGE RENTAL INCOME* FOR A 50,000 NET RENTABLE SPACE
Rental income varies upon many factors and are very dependent on location, unit mix, managers experience, marketing and several other factors. The SSA reported the 2015 national average rental rate for Q4 2014 was $1.18/sf for a 10’ x 10’ non climate control unit and $1.51/sf for a 10’ x 10” climate control unit. It is important to get data from your local area.
Typically, we consider 90% rented at premium rental rates full. For this example, 90% Rented at an assumed average rate of $1.35/sf is used.
50,000 sf x .9 x $1.35/sf = $60,750 monthly income = $729,000 Annual income
PRELIMINARY OPERATION COST*
Operation cost vary on many factors. Often, they range between $5 to $6 a sf.
Use $5.75/sf for this example.
Assume $5.75/sf x 50,000 sf = $287,500/ year or $23,958/month (Before Debt Service)
NET OPERATING INCOME* (Before Debt Service)
$60,759 – $23,958 = $36,729/month = $441,504/Year (Before Debt Service)
Assume 5 Cap rate – $8,830,080
Assume 6% Cap Rate = $7,358,400
Assume/use a 4,000,000 loan at 5.5%, 25-year amt. = $24,563 month (P & I)
CASH FLOW AFTER DEBT SERVICE*
$36,729 – $24,563 = $12,166 per month = $145,992 Per year cash flow before taxes.
Will this be your cash flow? Of course not. There are too many variables. Your land could cost more or less. You could put in more or less equity. Your rental rates may be higher or lower. Your expenses could be more or less. You could do more or less marketing and sales then the typical self storage.
The goal is to build a self storage that provides a six-figure income while you can still continue your career if you want to and down the road to have a retirement nest egg that many people could never even dream of. Once you have found a property that meets your initial review and requirements you will get a 3rd party feasibility study that will not only provide you with a demand review but also all the above financial information above based upon data to your specific location and facility size.
Disclaimers: This informational and example is for preliminary education and overview purposes only and should not be used for investment purposes. This is an over simplified financial review. Once a property is located a detailed feasibility study, site investigation, site designs, construction costs and regulatory investigation are required in order to determine the feasibility of a project and projected profits.
*Development cost can vary widely based upon location, zoning, standards, your experience and a variety of factors. You should consult with a local self storage expert for development cost in your area. This is an example and there is no representation these numbers will represent your development costs. Industry rental rates, income & expense can and do vary upon many factors including, competition, local property taxes, location and owners experience. Typical rent up periods for the industry are between 18 months and 3 years and can be longer.
** Unusual construction requirements such as ledge, significant cuts or fills, retaining walls, unusual zoning requirements, off-site improvements, local pricing etc. are not included and can significantly increase construction cost.
Multi story facility cost more and typically can’t be phased, so they require significantly more capitol and initial equity. This is why first time self storages developers typically build one story facilities. Many multi story self storages will even have a higher price tag because they are often in areas of higher populations and are larger to offset the development cost per unit, to get better returns.
A word of caution, never develop a parcel of land simple because you own it or the purchase price is low. It must have several important features including significant drive by traffic and enough unmet demand for self storage.
Now based upon your liquid assets you can start determine the best options for your needs and investigate land, design, regulatory and banking requirements in more detail. At this point you are either ready to charge forward or realize you don’t have the capital required. If you don’t have the capitol don’t give up. Finding a more aggressive lender and or finding a partner with either the land equity or cash equity may be a great option.
Working with an experienced self storage development expert can also help reduce the construction cost, operational expenses and increases profits. You can look at building a smaller facility but they tend to be significantly less profitable and more of a hobby than a business.
If you want to learn more about how you can start your own Storage Authority self storage Franchise send me an email. Marc@StorageAuthority.com