Self storage development - kicked tires long enough - trying to jump in

[Zack Gill]

Been around for quite some time and have made runs trying to acquire a SS facility and also considered developing in the past but now feel like its time. Will just flat out raise my hand and say I'm new... but have been studying for years on SS (have done residential flips/rentals), now or never to actually s or get off the pot haha. Learn with me, help me, will try and update this post as I go, hopefully to not the end that so many do (including myself) of falling off never actually building or buying. 

I've identified hopefully like mr Henry says, start small and make your big mistakes early, a small town in TX that seemingly could use more storage. From the ratio of 6 per 100 ppl, it seems the town could support ~200 more. Only one facility in town is quality built/newer (maybe 10 yrs old) and it seems they do not have more room to expand and by secret shopping so to speak them plus the smaller less desirable facilities are mostly filled up. My location in mind would be closer than the newest nicer location to town. This particular tract of land is a fairly rectangular 7 acres (400'x700', more than needed) and is owned by someone who stopped using it prob 10 years ago. They had cleared it, put some gravel in of some sort, fenced it with barbed wire on top, manual gate on tracks and flood lights in the corners. There's a fire hydrant right outside the fence so I seemingly don't have to worry about adding one of those. They have said to send over a competitive LOI and they'd consider it (on tax rolls for ~80k, small rural town).

Rates in town of a 10x10 at the newest facility are 109 and a 10x15 at 129 (non-CC with none available, although they do have some CC). Plan would be to come in at say 99 for a 10x10 and 119 for a 10x15 and so on. They also have covered outdoor boat/rv parking for a solid price. 

So the plan is to try and pick up this plot of land for 80-100k. The lot is overgrown at the moment so clean it up and then start with two buildings on one end (30'x300') and covered parking on the other side. We would buy the land outright and then through our local bank connection that we've done deals with in the past have them help fund the build out with interest only until with hit a certain lease up %. Have contacted the city and zoning is fine. Have contacted building and concrete companies and approximately looking at 28 per sqft buildings built. Looked into getting the gate motorized with keypads on both sides for ~5k. We would consider caliche for the driveways or possibly something nicer (chipseal 2$ft/asphalt 3.5-4$ft/concrete 10$ft). 

All in cost ~750k, revenue possible at 90% SS and 60% parking roughly 175, operating expenses on the conservative side of 50k leaves 125 for P&I and profit. Phase two would be to have these first two building fill up and then build possibly two more including CC. 

Lots more info but thats just a start to the thread. Poke holes, give advice... see where this goes with me. 

[Zack Gill]

One question I'd ask is if anyone has done trailer parking? This is a small town in tx right off a major highway and could be good for tractor trailer parking... Then it could be quite different and just make the gate motorize, move in base and rent to trucks ( yes i get way over simplified), going to look for more resources on that possible route as the required capital would be drastically less for possibly a better ROI.

[Zack Gill]

@ronaldrohde I'm checking out your resources on the truck parking possibility. 

[Zack Gill]

Hey @Henry Clark quick question, if I went the route of purchasing the land outright and then having the bank help finance the construction, wouldn't they prob require me to have a professional feasibility study? 

[Henry Clark]

You will just need a good deal analysis.  Have 3 analysis.  Your expected plan.  If you have some cost overrun.  If your occupancy is low.  

On the downside show the lowest occupancy where you still cover all costs and P/I.  

Also show market analysis of both inventory and rent rates compared to your plan. 

[Zack Gill]

Got ya. Will have to make mine look more polished then. 

Next question. As I'm in talks with the oil company that currently owns the land, what questions should I find out from them that would help reduce any surprises? I believe it to have been just a staging ground/yard for them and not drilled on. The main question that comes to my mind is if I will need a phase I/II study done on it to cover myself (depending on specific use). Other than that a survey...

[Henry Clark]

I would be working with your bank prior to making an offer.   Get a term sheet from them.  Set up a working line of credit.  They will tell you what else they want.  3 years tax returns.  Personal financial statement.  Personal guarantee.  

[Zack Gill]

Question on that also. Would you stick with the bank  (have kept the communication going with my contact on what i'm working on, high level is 25% in, 9% rate amoritzed 15 currently but I think they would do 20 and also includes construction phase but not sure yet on when it would switch to p&i) and go that route or would bringing in a cash partner (friend/family, have multiple people interested) be something to consider? Could pay cash for everything to get built and lease up to break even and then cash out refi to pay them back and possibly (obviously could be worse too) at a lower interest rate then now.

[Henry Clark]

Ask them for a term sheet.  I would be looking at 7.5% interest, 5 or 7 year balloon with a 20 or 25 year amort.  Interest only during construction and during rent phase up to 65% occupancy or 18 months whichever came first.  

You will have had to walk them thru your deal analysis before asking them for your term sheet.  Show them 3 scenarios.  Occupancy level for break even paying everything plus PI.  90% occupancy.  $100,000 cost over run.  

If you have other cash equivalents that you dont need.  You might move to their bank.  You would still draw interest in them but they should lower your interest rate by 1% point.  They will have those assets locked down so you can’t use them for about 2 years until you can get an appraisal to release them with your new equity.

I would stay away from relatives funding.  Until you have done about 3 of these deals.