It is critical to do one’s homework before committing to a development project. Self storage feasibility studies really consist of two or more distinct components, namely:
- A market study, and
- A financial feasibility analysis. At Get it Right Financial, we recommend addressing these two components separately. There is no reason for one to go through the effort (and incur the cost) of a full blown financial feasibility analysis if a market analysis tells us that demand won’t catch up to supply for several years.
Self Storage Market Study
A market study should answer several questions for the prospective developer including the following:
- What is the current supply in the submarket relative to the population?
- How highly occupied is that supply?
- How much will demand grow in the future, ie; how much annual absorption might I expect if I build?
- How do all of the competitors compare in terms of location, quality, web presence, …?
- How do all of the competitors compare in terms of rates they charge for each unit type / size.?
- What should I charge for each unit type / size if I decide to develop?
- What are the demographics for the sub-market and how would they be viewed by an institutional or other buyer?
- Given the demographics and the product offerings by the competition, what is the average unit size that should be targeted in a new development?
- Are any other new competitors coming into the market?
Self Storage Financial Feasibility Analysis
A financial feasibility analysis should answer several questions for the prospective developer including, at a high level, the following:
- What is a reasonable projection for revenues, including all of it’s subcomponents (ie: rental income, move-in discounts, bad debt, late fee income, admin fee income, …) on a monthly and annual basis during the first 5 to 7 years.
- What is a reasonable projection for expenses, including all of it’s subcomponents (ie: payroll, management fee, utility cost, credit card fees, property tax expense, …) on a monthly and annual basis during the first 5 to 7 years.
- What is a reasonable projection of value for my property at C of O and at Stabilization?
- How does that value compare with my cost to develop including the cost or value of the land?
- Given the return metrics that are relevant to the developer, how do pro-forma returns for this development project compare to desired returns?
In order for revenue projections to be reasonable, one needs to have an appropriate unit mix for the market. Many a developer has gotten into trouble by building a unit mix with too many 5 x 5’s, too many upstairs units,…
In his 14 combined years at Storage USA and Extra Space storage, Bret Durfee has studied, in depth, the lease-up experience of over 50 development projects in all kinds of markets and all kinds of economic cycles. As such, he is uniquely qualified to help you develop a reasonable pro-forma. Call Bret at 801.419.5600 to discuss your project and to get a customized quote for your unique situation.