Commercial Expansion to Self Storage

[Account Closed]

So as a family, we own a large commercial industrial property with a single corporate tenant. There is about 2.5 acres, mostly which is asphalt.

We'd like to add self-storage.

Anybody have any experience here? There are franchises but not sure issues to anticipate.

[Jon Holdman]

I have an investment in a mini-storage and can give you some feedback. Just one data point, so take this for what its worth.

Zoning: Absolutely you will need to deal with zoning. I'd start here because its easy to figure out if this is going to be a show stopper. It may well be.

Market: Tougher to figure out. Unlikely the other owners or managers will just open their books for you. But you can pretend to be a tenant and find out what's available and the prices. If the area is growing and seeing new jobs, you will get tenants. If there is a lot of real estate activity, that also drives tenants because people store stuff during the selling process.

Manager: We have about 300 units plus open storage and we have a full time, on-site manager. Our LLC that owns the company also has two managers, though they're not full time. The on-site person manages the day to day operations of the business and the others run the business itself.

Conflict with existing tenant: You're going to take away a chunk of the space they have leased and turn it into your own business. I'd expect that to be a conflict. If I was them, I would try to extract something from you for giving up the space, even if I wasn't actually using it.

Marketing: Absolutely you will have to market. No, they won't just come. We do a lot of marketing to apartment complexes in the area and to real estate agents. And on-site signage and advertising. And, when the phone rights, someone needs to answer. If a new prospect calls and the phone isn't answered, you're very unlikely to ever get them as a tenant.

Valuation: This is a pure income play. The value of the property is STRONGLY tied to the income. When we refied recently, they lender went back five years. Weak years in 2007 and 2008 pulled down our value. These are not easy to finance.

Billing, etc.: You can probably find some software for the billing piece. Dealing with late payments, "overlocking" units, and auctioning them off is a routine part of the manager's business. If you have 200 units, you'll be doing this on a more or less continuous basis.