Self storage due dilligence???? - Posted by Cory

Posted by Bill on July 29, 2003 at 10:01:46:


Self storage due dilligence??? - Posted by Cory

Posted by Cory on July 29, 2003 at 06:44:18:

I am looking at a self storage business and would like somone to help with what I need to know about this complex. price expenses etc maybe some type of due dilligence like for apartment s but only for storage units…Thanks very much everyone…


Re: Self storage due dilligence??? - Posted by Eric C

Posted by Eric C on July 29, 2003 at 09:47:06:

Hi Cory -

You could do a lot worse than check the archives on this board – the issue of self-storage comes up pretty regularly.

And yes, the due diligence process is very similar to that used in evaluating other commercial properties such as apartments – you should check out Ray’s article on due diligence here on this site.

Having owned a couple of these things in the past I think I can safely say that you need to go a bit beyond the normal checklist for a RE property to include a close look at the BUSINESS – because that’s what these are - a business. While these operations do have a RE component and they do collect rents, they are far more business oriented than most commercial projects.

What’s that mean?

Well, for a start there’s almost no barriers to entry (in most parts of the country) for these projects. And while for a newbie that might seem to be a good thing, it ain’t.

It simply means that virtually anyone with a few thousand or a small credit line can build some units on a (formerly) vacant piece of ground and be “in business”.

Do these small guys really compete with the big boys? No, but they do compress margins and further the idea that this is simply a game of the “low price wins”.

Increasingly, to make any real money you need to (besides all that due diligence we talked about earlier):

  1. Choose your location wisely – don’t handicap the project by using your brother in laws’ old farm site. The location should be well traveled, highly visible and have great access.

  2. Look around. How many storage facilities are within five miles of you? three miles? one mile? Where are your customers going to come from? Apartments, subdivisions, businesses?

  3. Know your customer. Why should they come to you? Do you have a business plan? Are you prepared for a business that operates “24/7”? Can you train, pay and retain employees that will be assets, rather than order takers?

  4. Have a plan B. What happens if you’re wrong about all this? Got an exit plan? How will you execute it and what would trigger you to do so?

Here’s the deal – these things are becoming more and more competitive every day. Free rentals, truck rentals, box sales, packaging and wrapping services, etc. Often, the new target is business owners – small ones usually who can use a moderate sized unit as an office/warehouse. Climate controlled units, security gates, computerized access, and 24 hour on-site employees are how the game is played – at the higher levels anyway.

I dont’ mean to discourage you at all. I think these are great money makers when done properly, but I also think the time has pretty much passed when all you had to do is put up a few units and wait at home for the money to roll in.

I’ve seen two operators (small guys) put up units recently (both in the same town of 100K) and both made some of the same mistakes – poor location (no visibility) and not enough scale (plan enough to make at least some real money please). I don’t expect either of them to last long.

Take care,

Eric C

PS- just to show you how far this silliness can go, I just took a drive out into the country (about 50 miles from Ft Worth) and saw two new operations (each about 50 units or so). They face each other on opposite sides of a lonely two lane blacktop with no surrounding structures whatsoever and nothing within five miles either (other than the owner’s residences – also facing each other). So there you have it, two new self-storage operators with exactly the same game plan – face each other (to even up the competition of course - can’t let that other guy have all the business, you know?), compete for each and every potential customer (who that might be – who knows?, and keep prices as low as possible so that the other guy doesn’t make a cent (and neither will the other). Great industry!