Self-Storage Feasibility Studies

Jim Chiswell answers the most commonly asked questions about self-storage feasibility studies

Why Do I Need to Do This Feasibility Study?

When you are talking about self-storage feasibility studies, the bank is primarily looking for the opinion of someone with industry experience and no financial interest in the outcome. With the capabilities of Microsoft Excel, one can simulate various scenarios—asking “what if” repeatedly. For instance, a 100-square-foot unit that charges $11.00 per square foot could become an 85-square-foot unit charging $15.00. Over the years, I have seen many so-called “bankers’ mixed units.” They often look excellent on paper, but if you can’t rent them, that doesn’t matter.

This highlights the importance of objectivity. Despite all the technology available today and the various data sources developers can utilize, the analytical aspect of these decisions tends to be overlooked.

Sometimes the Feasibility Study Doesn’t Show Good News, Right?

For instance, I once told someone that while their location seemed good, the issue was that within four miles, much of the area was consumed by a park, which means there would be no potential for housing developments.

You’re limited by the existing circumstances. However, it’s in the analysis of the data where experience truly makes a difference. For instance, if I draw a radius around your location, I find that half of it extends into a different state across a river. There are only two points on the other side of the river, and neither of them is within 10 miles of your location. Therefore, you can’t expect to attract people from there statistically.  You may have some individuals who work on the other side of the river and find it convenient to shop or engage in activities near your location, but typically, people prefer convenience based on where they live. That’s a crucial point.

What you really need is an objective assessment of the situation. One of the disclaimers in my reports states that I have no financial interest in this matter. I have a fiduciary responsibility to tell you the truth based on my years of experience. If I don’t believe it’s going to work, I will let you know. There have been instances where clients insisted on proceeding with a project despite my recommendations, and in those cases, I told them they couldn’t hire me. When they asked why, I explained that I can’t support a decision if I truly believe it will fail. My role is to provide honest feedback, and if I don’t think it will work, that’s exactly what I will convey. 

What’s The Normal Turnaround Time?

We conducted a preliminary analysis called the site summary memorandum, and I have reached a point where I won’t take on an engagement without completing it first. What I am looking for is the supply-demand ratio for the market we are serving. For instance, if the market indicates that there is demand based on a residential population of X, equating to 300,000 square feet, but the area you are targeting already has 600,000 square feet available, I know it won’t work. I don’t want anyone to spend $10,000 just to have me fly to Kalamazoo, MI, for something unfeasible.

I can assess the situation from here using tools like Google Earth and other online services, as well as public assessment data available for most communities. This allows me to determine if there’s even a chance of success.

Part of the feasibility process goes beyond just operations. Like we do in our pro forma analysis, I’ve had clients tell me, “No, Jim, I’m going to lease this up in six months.” I have to tell them they’re mistaken. It could take 2.5 to 3 years, and if they achieve it in six months, then that’s great! But basing financial planning on such unrealistic expectations is dangerous.

The worst thing a feasibility study can do is create false expectations about how quickly a project can succeed. I don’t care if your cousin, who is 10 miles away, got lucky and filled his 40,000 square feet in six months. If you achieve the same, that’s fantastic! But if your financial planning hinges on that success, you’re making a mistake. Additionally, banks today are unlikely to accept such optimistic projections.

Jim Chiswell has also been appointed to the RV Storage Organization Advisory Board for Toy Storage Nation