National Leader in Studies
Since 2004 GDP Feasibility has completed over 400 self-storage site studies nationwide. From desktop reviews to in-depth studies and actionable reports, GDP Feasibility offers the highest quality institutional-grade studies and self-storage consulting to the national self-storage community.
WHAT IS A FEASIBILITY STUDY?
A feasibility study is a key set of analyses that consider a project's relevant factors including but not limited to government approvals, market study, project economics, design, etc. They are designed to ascertain the likelihood of completing the project successfully and making everyone money.
WHY DEVELOP SELF-STORAGE?
As compared to other real estate sectors, such as retail, office, or industrial, the self-storage sector offers a number of advantages. GDP Feasibility has identified the following characteristics which, in its opinion, differentiate self-storage as an investment asset from other real estate sectors:
Diverse Tenant Base -Self-storage serves a large and diverse tenant base, so no single tenant should generally have a material adverse impact on a property.
Recession Resistant –Storage is a “need-based” product. Life forces that drive demand for storage, such as death, divorce, business expansion or contraction, moving, migration, changes in employment, and other life events create need-based demand in both up and down economic cycles. Therefore, storage benefits from needs-based events that tend to mitigate the severity of down economic cycles felt in other real estate sectors, like retail or office.
SELF-STORAGE DEFAULT RATE AS COMPARED TO ALL CMBS LOANS
Inflation Defensive –Storage contracts are month to month. In inflationary environments, storage rates can rise faster and more broadly than other real estate types that have yearly or even long multi-year contracts. The ability to strategically raise rates monthly across the board can act as a dynamic defense against inflation.
Easy Exit –Self-storage is highly fragmented as an industry. The large industry owners, mostly. REITs only own about 20% of the facilities in the nation. As the major players jockey for position and market share, they are aggressive in pursuit of quality targets to purchase. The post COVID stall in development and fewer properties on the market has transactions at an all-time high and cap-rate compression at an all-time low. If a property positions itself well as an institutional-grade facility, it has a near-built-in exit to a REIT at top dollar.
Higher Operating Margins -With no tenant improvement requirements, lower energy costs, property taxes that don't rise with inflation, and labor is not unionized. Typically, with some fluctuation, storage costs are about 1/3 of revenue making for gross margins of 60-70% on average. Those numbers far exceed that of other types of investment real estate.
Lower Cost of Tenant Rollover -Tenant rollover for most real estate sectors requires making changes to the tenant improvements and incurring costs associated with brokerage commissions, thus requiring longer lead times and expense to replace tenants, whereas self-storage usually requires a simple cleaning of the unit.
With such a well-performing asset in self-storage, where is the risk to a self-storage developer? Certainly, there is plenty of incentive to have an asset that hedges against inflation, has higher a rent-to-cost ratio, is deflation defensive and is recession-proof. But, there is a catch. Storage has the longest lease-up period of all the major asset classes. Storage lease-up to stabilization can take 12-48 months. The longer the lease-up to 90% the more risk to the project.
Moving forward on a project without knowing the risks can be catastrophic:
Questions that a developer should have solid answers for before they move forward or even purchase ground should include but not be limited to:
1. Where will a project fit in its market and its trade area?
2. What will be the strengths, opportunities, threats, and potential weaknesses of a proposed facility?
3. What will the projected lease-up be?
4. Is the trade area ready for more supply and how much?
5. What do the existing competitors look like (how old? how big? product mix?)
6. How much will the market bear for rents?
7. What are the demographic fundamentals that will either support or take down a project?
8. Do the numbers work? Does it all pencil out?
Establishing the feasibility of a project helps to know where you stand in project risk. You would not take a trip without a plan, build a house without a budget, or purchase a car without a test drive, right?
NO PROJECT SHOULD MOVE FORWARD WITHOUT A QUALITY FEASIBILITY STUDY!
WHY DO A
Please reach out and schedule a consultation to establish how we can help you empower yourself and others with the best information possible while you make money in self-storage development and acquisition.