Self-Storage Feasibility Studies

Pamela Alton answers the most commonly asked questions about self-storage feasibility studies

Why Do I Need to Do This Feasibility Study?

Self-storage feasibility studies are a necessary part of the process you’re starting.  It’s imperative to communicate to potential clients that securing a better interest rate is essential when obtaining a loan. Lenders will almost always require a feasibility study before approving any loan, particularly if you haven’t made a personal visit to their office. They need to ensure their investment is safeguarded. In many cases, they will insist you partner with a third-party management company for the initial years—especially if you lack prior experience in self-storage. Managing a self-storage facility is distinctly different from running a restaurant, and this difference cannot be overlooked.

In my experience, this is standard practice. I often collaborate with Live Oak Bank in Wilmington.  There, I take the lead in training new owners who are unfamiliar with self-storage management. During these intensive training sessions, I dedicate a couple of days to thoroughly covering the operations, challenges, and benefits of owning a self-storage facility.

Additionally, it’s crucial for owners to have at least 30% equity when dealing with loans of $5 million or $6 million and above. Lenders are focused on protecting their investments.  They aim to avoid any foreclosures on self-storage facilities. From what I’ve seen, even seasoned owners are regularly asked to present a feasibility study.

What’s The Normal Turnaround Time?

COVID has changed things. But in past years, and I believe we’re returning to that, you need to physically visit local properties. When you’re there, you not only meet with your client but also observe the surroundings of the facility. Is it in an industrial area? Are there strip malls, apartments, parks, or office buildings nearby? Understanding the surroundings is crucial for marketing purposes.  I also mystery shop the existing stores in the area.

You should also consider whether the area is less desirable, lacking easy access, or if getting into the property will be difficult. While you can look at a map, being on-site is important; it gives you a tangible feel for the location.

Depending on the number of properties within a three to five-mile radius, you might spend up to three days in the field gathering information. When I return to the hotel, I work on compiling that information until about 11:00 at night while everything is still fresh in my mind. It’s essential to physically visit all the locations, and I also explore the entire area for insights that might not be documented.

After gathering all the information, organizing everything might take another three days. So, overall, you’re looking at a week from start to finish, considering travel, research, and compiling the data into a comprehensive format.

The timeline can vary depending on the number of properties you’re dealing with.  For example, working with 30 properties will take significantly longer than working with just four. In essence, there isn’t a definitive right or wrong answer; it really depends on what you’re working with.

Do You Have an Area of The Country You Have An Expertise In?

I do audits all over. When I was in California, I also worked in Miami and Chicago. Years ago, we managed to handle properties in Kentucky, Tennessee, Florida, and Illinois. At one point, we managed 42 properties nationwide. I realize it’s just a plane ride away, no matter where it is. It’s really no big deal.

Do You Have References for Past Feasibility Study Clients?

Absolutely!