What are the steps you should take to develop a self storage facility from the ground up? What should you keep in mind? Skyler Hartman, CEO of Capitaline Ventures will generously share his knowledge with us.
Tell us a little bit about you.
I started real estate in 2007, kind of, it was a little little bit of a fluke. I was a renter, and ended up buying my first house with some creative financing, and I picked up a nice equity spread on that piece. From there, I was hooked on real estate, and I've been in the residential space for quite a while. Four years ago I decided that I was going to move into commercial and that's when I got into the self storage industry.
Let's go over the process of developing a self storage facility from the ground up, you can start from the decision on where to find the land, all the way to the beginning of construction, and everything in between.
As far as the first place to start, I like to look in my backyard first because I know the the economics of my surrounding area better than anywhere else in the country, there's less research needed, but that does give you a limited scope. I would always start with the economic analysis and verify that the city or town is growing, that there are good jobs, schools are adequate and getting good ratings, I don't want to be in a war zone. Wether storage may perform great in a war zone, that's just not the place I want to be. So I start with an economic analysis and a little bit of city due diligence, I find out what the zoning process is, is it a conditional use permit? Does it fit into commercial general? Is there any overlay districts that may allow storage that I'm not seeing? Or is it strictly light industrial? Know your zoning, and your economic analysis.
From there, I do some competition analysis, basically mystery shopping. I have a basic spreadsheet with unit sizes prices, I'll shop online first and try to pinpoint their occupancy rates. And you can see that on some sites have "not available" or "call for availability". And you'll see the other units that are available as "rent now". Some of the REITs like U-haul won't even publish prices if they don't have units available. So you can really drill down on your competition very quickly. And from the online search, I'll then do a phone call and evaluate the customer service. Did they answer the phone? If not, did they call me back? Were they polite? Were they professional? Were they outgoing? That's the starting point.
You'll need a feasibility study not only for yourself but also for your bank financing. I do my competition analysis upfront and from there, once I know that we're good with our competitors, we have a demand for storage, we know we have a growing economy, I'll move into sourcing the piece of land that I want and of course we all know in real estate Location, Location, Location is what it's all about, so know your zoning, pinpoint your locations. We try to find properties that are off market so once we know our zoning we will then create another list for properties that fit our guidelines or our buy box and we'll find the property owners, skip trace, and reach out to them and potentially get those properties under contract off market. And hopefully we can save some money on realtor fees, but even better, get great pricing on the on the dirt in general.
Do you have a price that you try to go by for land per square foot?
Definitely. We have some parameters on purchase price per square foot. And we definitely like to be under $5 a square foot. Some of the pieces we pick up are closer to $1.50 and $2 a square foot in prime locations. So $5 is definitely the ceiling.
That's pretty incredible $1.50 from reaching out directly to owners. Moving on to finding contractors and doing land surveys, let's say someone is brand new to all of this lingo, what do they need to look for? What do they need to get? And how would they even figure out if a contractor is good for self storage or not?
I would interview at least five general contractors, and I'd prefer a design build contractor. They will help me through any of my processes that I get hung up on. They will help through the entitlement process if needed. We're really good at that in our company, nut sometimes there are some issues that we don't see or it's an area that we're not familiar with, such as California, we have a project going there right now, which I probably won't do another one there. With that being said, design build firms are excellent in walking you through the entire process, as well as optimizing your design from the start. Typically, you'll get a cost plus bid from a GC or that's what we want to see, a cost plus.
What that means is whatever the build cost, if it's $5 million, the builder will then put their price on top of that, which is typically six, eight, or 10%. Depending on how much business you do with the firm, you'll get a different pricing plan. The benefit there is if they bid the project at $5 million, it's an open book project, we come in at $4.5 million, that $500,000 in savings goes right back to us, which is excellent. And the benefit to the cost plus on the other side is that if it's a $5 million bid, and we are locked in with our cost plus, we've seen material prices get a little out of hand recently, well, that would not be our our problem, if the metal came in quite a bit higher than the final project, if it came in at $5.3 million, unfortunately, the contractor would eat that $300,000 and take that out of their 6% profit. It's a win win.
And the other way around, too, if and ever prices go down?
Absolutely. So you get the best of both worlds with the cost plus, and it's a great opportunity, I recommend checking it out.
What about beginning of construction? What should people keep in mind with regards to that?
First, I would back up a little bit, you're going to want to create a site plan. The best way to do that is if you have a relationship with a civil engineer, they will typically create a site plan for free, especially if you have a good working relationship with them. From your site plan you can get all your preliminary construction estimates, and that will allow you to move forward with your pro forma. All three of those things tied together because, one, you're going to need a site plan for the city. You're going to need a pro forma for your investors and/or banking. And it's great to have your civil engineer jump in there and knock that piece out for you. And your GC will then give you a preliminary budget to move forward with. Those are the first steps.
From there, we like to order a geotech, and Alta survey. The geotech gives you the "dirt on the dirt" if you will. And it will tell you how stable it is and how your foundation needs to be built and structured. The engineers will deal with all that data. And also, it'll help you identify if there's any buried treasure in your soil, because they're drilling borings into the dirt and pulling soil sample. So sometimes, we'll find old chunks of cement, or somebody has taken a backhoe and dug out a big pit and filled it with trash and then covered it back up. Those are the things we hope to find in our geotech along with the soil stability. From there, we get our Alta survey done, and that'll identify not only our topography, but where all of our utilities are underground, overhead, etc. And that is a great start for our civil and architect team to take off. So that's the preliminary steps in the construction process.
How many people do you have on your team to help you juggle all of these moving parts?
That's usually just me. You have to have a good process in place, mine's just a checklist. I use a management system called ClickUp. You've heard of Asana, Monday, Trello, they're all the same. But once you have a nice schedule laid out, and you can get some dates, you can create a Gantt chart, to hold yourself accountable. And you can handle a lot of this on your own.
From beginning to end, a project outside of California, how long would it take, give and take? Let's say a decent sized project?
Let's say it's a 100,000 square feet of net rentable, I would say, depending on the city process, you could go from start to finish in 12 to 14 months. And in the 12 months, I would say that six months is in design and six months in the build process. The other two months would be getting through the city process, assuming that you have to deal with a conditional use permit. And it's not just zoning by right.
With regards to legal, what should people keep in mind with regards to contracts, or anything at all related to a development?
I would always lean on an attorney. They're worth their weight in gold. I hate paying paying them. But it's nice to have somebody double check all your contracts. And it's a big deal, so I I lean heavily on my attorneys.
In these projects, you're building multiple buildings, do you build one out and then you start your lease up? Or do you build them all at the same time and lease them all together?
It depends on the project and how the site is laid out. I have one in South Pocatello. It's a smaller site, two acres, 33,000 square feet of net rentable. That project is going to be a single phase, it doesn't make sense to phase it. We also have two similar projects, one in Logan, Utah and one in Grand Junction, Colorado. And these will both be phased, they're a little bigger projects, 100,000 square feet. Our phase one in Grand Junction will be just under 60,000 square feet. We plan on stabilizing that, and as soon as we hit the 80% occupancy mark, we will start on the phase two portion of that.
Was there anything else that you think is important for our audience to know that we haven't covered?
There's so much more. I'll give you a brief overview of the rest of my development and due diligence check list. We've reviewed the geotech and the Alta survey, we've gone over the site plan. From there, I would reach out to your city or town and schedule a DRC meeting, Development Review Committee, and typically you'll have all of city brass there. I had a meeting the other day with Brigham City, we had the public works director, Chief Rayas with fire, we had the chief of police there, the city engineer, Tony from economic development. We get the whole city to buy in on our project and see if there are any issues that we're not seeing.
I always like to ask them, what else can we do? What are we missing? What have we not discussed? And probe them for additional information that I may not think about, that they may have some insider information. So plug your city officials hard on what are you missing? The other question I like to ask is, how can we fast track this? What can we do to make our process smoother, get their full process lined out, and then put that in your project management software and get after it, just stay on top of it, don't let things fall behind. I think when the projects really drag out, it's typically an internal issue. If you're waiting on external stuff, then you really don't have any control over that, you can condense your timelines on your internal processes. I'd really focus on those.
Another thing that I always like to do is get "Will Serve" letters from the utility companies. Just to confirm that we're going to be able to get gas, power, internet, I like to confirm that we'll have high speed internet. We have one facility that has slow internet, and it's a headache. That's something most people don't think about.
When you get the survey back, see if there are any encroachment issues. And if there are encroachment issues, have your surveyor write up new property lines or new legal descriptions to resolve that. That's your boundary line agreements if necessary. One thing that I like to do that a lot of people may or may not consider is, when I have a property under contract, I'm going to close on that after I get my civil set approved from the city. I like to keep the seller updated on the progress because sometimes these things can take a while. And they want to know what's going on with their property, when are they going to close. And I don't like to close until I have a full set of civils approved, and we have the green light from the city.
I like to start the financing process early in the game. Once we have the property under contract, and we got our preliminary bids, I start financing, I source at least five lenders and move through the process because you never know how those are going to shake out. I would also recommend building relationships with multiple commercial lenders and just stay on top of them, wish them happy birthday, have have a good relationship and spend some time building that relationship outside of just closing the loan. That's my overview in a nutshell. There are a lot of things in between that, but this is a good start.