LOCATION, LOCATION, LOCATION!!!! We have all heard how important it is to have the right location, but how do you find the “killer” site? Let’s review some proven tips and tricks for finding the best site.
Purchasing the right site is as much trial and error as it is good luck and science. Do not be discouraged if you burn through five or six (or ten or twelve) sites before you “land” the deal. Be patient AND persistent. If you work long and hard enough, you will eventually close on a property. Detours that you may encounter:
Changes in Credit Markets
Sellers That Change Their Minds
PLAY GOLF. NETWORK, NETWORK, NETWORK. – I honestly believe that some of the best self storage sites in the country today are being found on the 7th green, or in the golf cart on the way back to the clubhouse. Your attorney, CPA, clergy, neighbor and therapist may be a “friend of a friend, who knows a guy, whose uncle has a piece of land…” In other words, use your list of contacts influential to spread the word you are serious about self-storage. Prepare yourself with a concept package. Once the investor is intrigued, be prepared to follow up with a concrete business plan. Include graphics, spreadsheets, and demonstrate that you have a team of experts to get the deal through the 18th hole. Show them that once you have a site identified, that you are prepared to move quickly to execute your plan.
TRAVEL TO NEW AND EXCITING PLACES – One of the largest mistakes first time real estate investors make is they select a market area that is geographically convenient, not economically viable for self-storage. Know that when you limit yourself to one or two markets, you have greatly increased the time it may take to find the best site. In fact, you may have chosen an area that is not ready for self-storage growth, and you may be forcing your project into a crowed market. Check saturation levels, competitive environment and the economic climate of many areas that are acceptable to you and broaden your horizons.
BEGIN WITH THE END IN MIND – Think first about the end. What is your exit strategy? Is this a short term play to springboard into larger ventures? If so, then build your store at a location which meets “Institutional Grade Criteria”. The most important of which are:
Metropolitan Area Population
Primary Market Area Population Density
Primary and Secondary Median Incomes
If your strategy is a long term hold, remember to “never say never”. As soon as you proclaim you will “never” sell your store, Murphy’s Law or your children who want cash, not a bunch of garage doors, may create a need to exit a property. You will want to make certain that you have covered all the bases, and not have created a store with extended marketing times. Be careful of building:
In small towns
In an inferior, less expensive location
Because you already own the land
A store of less than 50,000 square feet (net rentable)
Behind your competitors (both identified and yet to be identified possible)
Two or more Floors in a single story market
Life has a habit of taking strange turns. If you believe that one door opens when another closes, you may not want to be encumbered by a self-storage property that does not allow an efficient exit.
FOLLOW THE MONEY – Be prepared to play with the big boys, where they have invested lots of money. There is much to be said for being “where the action is”. If you are an experienced operator (or hire an expert management company), and build the right product in the right location, you should have no trouble competing with even the largest of operators. In fact, this may give you a distinct advantage. Consider:
Large operators have the resources to conduct thorough market research and have the ability to spend lots of money to analyze markets. I would be very cautious of building in a market that is absent of institutional players. Piggy back off of their market research.
Large operators tend to be rate leaders. I do not know of any major player in self storage with a “lowest price” strategy. Typically, institutions require strong rates of return on an investment, and are not prepared to win customers on price points. What better competition to have than one who is always raising prices. Learn from this, and follow suit accordingly, or be a little braver, and YOU take the initiative and lead the market with the highest pricing. I can almost assure you the big boys will follow suit and move their pricing up as occupancy grows or stabilizes.
Large operators like the efficiencies of multiple stores. This means you may be a good acquisition candidate when you (or your children) are ready to sell. Make it easy on them and yourself to sell the store. If they are in a market, chances are they believe in the market and that makes the purchase of your store much easier.
Be very careful of a market where the big guys are selling their stores. There must be compelling reason for a self-storage investor to get out of a market. This is an indication that the market may be soft, or rates are weak.
GET PROFESSIONAL HELP – There are two sources to look to when finding and evaluating sites. The first are brokers and the second are consultants. Keep in mind that brokers (and boy will I get some hate mail form this statement) may not have your best interest in mind. They ONLY get paid when your money is spent. This motivates them to get the deal to closing, but does not ensure that they are really concerned with what is in YOUR best interest. Here is the second statement that will make every broker hate me…”Make them work for their money”. Nothing irks me more than a lazy broker. Too many brokers believe their role in life is to pass along a name. Most brokers have the ability to “make a deal happen”. This two edged sword can be used to your advantage. Make sure that your broker has been given the right tools to find you a piece of property. Inform them of the following:
There are several broker strategies. One is to use an experienced self-storage broker that knows the business (they are an owner or develop of self-storage properties, not just a broker). This may help to eliminate a number of sites as you are not chasing dead end deals. One caution: this broker is often a competitor, or becomes one. Make certain that you have a non-compete clause with the broker whom may operate self-storage properties (contractually specify distance and time-frame). The challenge with this type of broker is they may already be wired into an institutional or seasoned developer which means you may be looking at leftovers. If you have several seasoned self-storage developers in your area, and a site is visibly for sale, there may be something wrong with the site. The second strategy is to hire an aggressive broker that you may have to educate or be patient with in having them find you a site. Once the broker brings you a site, make sure your broker provides you with:
Current demographic data
Parcel specific zoning data
A site plan or survey
Recent land sale comparables
Self-storage facility sale comparables
Be equally careful choosing a consultant. Make certain they have a plan and are following it. Make sure they have the resources to carry the ball across the finish line. If they are helping you find a site, have the consultant give you a written strategy to find you the right site. Make them commit that they communicate with you often, and you monitor their performance. If the consultant is strictly helping you with feasibility, make certain that they have informed you up front of what they see as the strong points of site selection, and that you concur as to what the project should achieve. This will save you lots of time and money in evaluating sites.
EXERCISE YOUR CREATIVE GENIUS – Get creative in digging up sites. Consider sites that are too large, and what other types of uses may be compatible with self-storage at that location. Do not be afraid to negotiate. Think about ways to reduce your land cost…
Tax parcel splits
Pad site spin-offs
Think about joint land uses:
Fast Food Restaurants
Flex Space or incubator space
Record and documents storage
RV and Boat storage
Limited service hotels
Use creative financing to leverage properties:
All in all, life is short and play hard. Be bold, and follow your dreams. If you believe in the industry, and dedicate the necessary resources, you will succeed. While you are looking, educate yourself. Attend conferences, trade shows and seminars. Be diligent. Read trade magazines and absorb as much information as possible about self-storage. But most important maintain a high energy level, do not be discouraged, and if you do not succeed, try, try again!