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Articles Published by RK Kliebenstein

The great debate
By RK Kliebenstein

Many investors struggle with the decision to develop a self-storage property from scratch or acquire an existing site. Their answer is likely to be a matter of economics, but additional considerations should be included in the analysis.

This trite but true real estate notion of “location, location, location” could never be more important than in consideration of self storage ownership. A mature first generation store can easily compete with a state-of-the art property if its location is superior. Conversely, a poorly located store, such as one in an industrial park or at the end of a cul-de-sac, can be buried by a development project in a locale with higher traffic and better visibility. No sacrifice should be made when it comes to location quality.

Most investors would argue the choice to develop or acquire seflstorage is driven by one of the purest of economic theories: risk vs. return. The following juxtaposition outlines the benefits and drawbacks involved in acquisition and development of self storage. A case could easily be built for either strategy.

» Return


There are few “deals” in the current self-storage market. In fact, it’s a seller’s market. Capitalization rates have never been lower (or prices higher), and thus returns for most projects are weak. Should a buyer elect to buy at a very low cap rate (7 percent?), all will be well—as long as cap rates remain low and continue to decrease. If cap rates rise, as some investors predict, buyers could face problems. The increase may outrun any gains in income from rental-rate increases.

Anticipated returns for an existing self storage property may be down 10 percent to 12 percent cash-on-cash, and internal rates of return may be in single digits. It should be noted that the ability to leverage existing properties at a higher initial level than development sites affects this analysis.


All-time highs in vacant-land costs coupled with unprecedented increases in raw materials and supplies have eroded developers’ yields. Despite this diminution in profits, the “pay day” in self-storage lies in new builds. The increase in value from vacant land to an operating business is substantial and almost always outperforms acquisition targets.

Pro forma returns for self storage development projects (including the difference in leverage) are considerably higher than for acquisition. In fact, good development projects offer an infinite level of return at retirement if construction financing is in place, allowing the project to develop mature cash flows. Even with conservative pro forma incomes, most development projects will offer cash-on-cash returns in excess of 20 percent and internal rates of return at least in the mid-teens.

» Risk


Typically, self-storage acquisition occurs after a project has reached stabilization. Given this assumption, the buy target has a “proven” market. Historically, unless there are extenuating circumstances, physical occupancies do not significantly erode over time. In fact, rental-rate growth provides for increased gross potential income and, ultimately, greater profit and value.

The lack of available properties means the location risk is typically fixed for buy targets. Since most markets do not offer a selection of acquisitions in various locations, “what you see is what you get” sites make this a static analysis. Great concern should be given to projects in sub par locations.
Product type, including amenities, may be fixed or limited by the physical attributes of the existing site. Demand for features that are not practical or possible at an existing property may put the site at risk. For example, if a self-storage facility cannot provide climate-controlled space, it may be unable to meet the needs of the market. A buyer should forecast the need for amenities that might increase costs, for example, the addition of individual door alarms.


The inherent risk in development projects is the length of rent-up. The projected time to achieve stabilized occupancy is nothing more than a guess, hopefully an educated one. Pro forma lease-ups vary from market to market, depending on project size and type. They can range from 12 months, which is rare, to 48 months. One of the beauties of the self-storage development opportunity is the ability to select the “right” site. While this is tempered by availability, if the risk is too great, the developer has the option of looking for an alternate location.

A “clean sheet of paper” in the development process allows new projects to meet current demand. It can also produce designs adaptable enough to meet future market needs and shifts at relatively low cost. Flexibility in the development plan may allow for the addition of amenities at less expense.

» Deployment of Capital


Aside from risk adversity, the capital component is the largest advantage of existing self storage projects. Typical leverage of up to 80 percent of the purchase price is available in acquisition financing. This lower capital requirement may allow the investor to spread risks over a wider variety of projects and locations. Sponsor quality and experience is not typically the driving influence for acquisition lending.


One of the most significant barriers to entry in the development of self-storage projects is capital intensity. While every situation is unique, typical leverage requirements for a development project range from 65 percent of cost to 75 percent of appraised value at completion of construction. The level of leverage and comfort with the developer is typically dependent on the proven abilities and experience of the sponsors.

» Personal Guarantees


It is customary for acquisition loans to offer long-term, non recourse financing in which the strength of the property and proven cash flows are the primary strength of the loan. This may mean less stringent requirements on the borrower with regard to credit worthiness, financial strength and experience.


While the value of a self storage project must substantiate the lending decision, the primary criteria for construction lending are often based on the strength of the developer. This requires the sponsors to possess financial strength, development and/or construction expertise and experience, as well as a strong self-storage background. While not all-inclusive, this summary of salient differences in the buy vs. build decision can help. It is simply a matter of risk vs. reward.

Choosing a Self-Storage Feasibility firm, what to pay, what to expect
By RK Kliebenstein

Is it always necessary to conduct a self-storage feasibility study when developing a self-storage project? If you meet any of the following criteria, you probably do not need to seek a self-storage professional to analyze your project:

  • Your great Aunt Martha is richer than God, has only a few days left on earth, and is leaving you her entire estate.
  • Your best friend and business partner is Bill Gates, and you happen to have been one of the original investors in a little company called Microsoft.
  • Your bank just informed you that because of your track record and borrowing history, any and all loans you seek are preapproved.
  • You have controlling interest in Shurgard.
  • Your last 15 self-storage projects have been home runs.

If you meet any of the above criteria, consider yourself blessed. If you meet two or more and are open to blind dates, I have several relatives you need to meet! All kidding aside, there seems to be some mystique surrounding the process of conducting a self storage feasibility study. Who should you use? How much will it cost? What should you expect? Let's look at the procedure from the very beginning.

» Finding a self storage Feasibility Firm


Referrals are great, but if you are referred by someone who just thought he got a good report, it doesn't do you any good. In addition to a referral, seek other references. It is also a good idea to go into the open market and shop your options. I suggest investigating some of the following sources.


Go to industry tradeshows and visit the exhibits of companies that conduct self-storage feasibility studies. A good firm will be highly visible and available to answer questions. A tradeshow is a commitment. On average, it costs a company approximately $5,000 to exhibit (including travel and materials). If a firm is not willing to invest in meeting new prospects, you must wonder why. It could be the company just couldn't make it to a particular show; or it could be it is too busy to take on new business, financially unsound or just generally unavailable.

Articles And Seminars

Look for a firm that contributes to the industry in ways other than advertising and marketing and keeps abreast of self-storage developments beyond its particular focus. Seek a well-rounded professional who has experience and expertise in acquisitions, management, brokerage, training, operating, financing and development. Perhaps the firm has written articles or conducted seminars on some of these topics. Not only are these good ways to learn more about the self-storage feasibility process, but they may provide insight to the quality of the firm.

Trade Associations

It is a good idea to deal with firms that are members of state and national self storage associations--preferably ones active in the associations' activities. Giving back to the industry is an important part of the business process. It keeps consultants in touch with reality.

The Internet

These days, most reputable companies will have a website of some sort. If you search for a firm online, there are some things to look for: How informational is the firm's website? Can you view self-storage feasibility reports online? Are there other samples of the firm's work? Are fees listed? What about descriptions of levels of service? Are consultants' resumes posted? What kind of information is the firm willing to share?

» Cost

Last year, I had Lasik eye surgery. Tempted as I was to use the doctor with the lowest price, I had to ask myself, is this a price- or quality-driven purchase? I submit that if you are putting millions of dollars at risk (or borrowing that kind of money), saving a few thousand dollars on a study is probably not in your best interest. Here are some hints on what you can expect to receive in the different price ranges. Keep in mind that in addition to the fee, the client is expected to pay for travel and expenses.

$0-$2,999 Self Storage Feasibility

Fuhgeddaboudit. For that kind of fee, there is not much quality research or analysis a consultant can do. A knee-jerk reaction is the best this kind of analysis can produce. Pay for sufficient research so you can form an educated opinion.

$3,000-$4,999 Self- Storage Feasibility

The average consultant should charge around $75 per hour for his service. For this kind of fee, expect a one-day quickie. By the time travel and report-preparation time is included, the consultant cannot really afford to spend more than 35 to 45 hours total in this fee range. If he loses a day in travel and it takes two days to prepare the report, you might only expect him to spend a day or two on research and formulation of opinion. This fee should get you a decent report with the benefit of the consultant's instincts, but not a lot of documentation. If you are not using the report for a lender or investor, this may be all you need to spend.

$5,000-$8,000 Self Storage Feasibility

In this fee level, you should expect a very high level of service. The consultant should be spending about 40 hours or more on research alone, and at least two to three days in gathering market information. The report should be very comprehensive and demonstrate to your banker or investor the level of research and analysis that went into the consultant's opinion. At this fee level, you should also get a loan package in addition to the self storage feasibility study. (For more information, see the accompanying sidebar.)

$8,001-$10,000 Self- Storage Feasibility

This fee range should provide lots of follow-on service. The original assumptions should be updated and included at this fee, and you should get some design consulting. A unit mix is a must, so this level of service should include a beginning layout of the site, marketing plan, management plan and plenty of phone-consulting time. The consultant should invest well over 125 hours into the project. You should expect at least three to four days in the marketplace, and a significant amount of follow-up. You should also expect the consultant to offer to interact with engineers and architects in the process.

» Getting Started

You should expect the firm will send you a letter of engagement or professional-services agreement. If it uses a one-page agreement, it may say something about the relationship you can expect, i.e., shortcuts throughout the process. While the agreement or contract should not be in volumes, it should address at least the following:

  • Who are the parties?
  • What is the cost?
  • When is the report to be delivered?
  • What are the liabilities of the consultant? (Relative to the assignment and the report, the consultant's insurance company is going to want to see strong language in this part of the agreement. If there's no language, there's probably no insurance.)
  • How many copies will you receive?
  • How are expenses calculated and paid?
  • What kind of reliance language is included?
  • What kind of controls are there on the report distribution? (A good consultant will be concerned about who will rely on the report and to what extent.)

» Consultant Qualifications

You should expect to pay a deposit of approximately one-half the fee, plus expenses or a travel advance at the time you execute the agreement. The consultant should provide quotes for air fares and try to save you money by booking one to two weeks out.
When obtaining a self storage feasibility study, gather the following information about your consultant:

  • How many self-storage projects he has developed (not how many has he sold or how many self-storage feasibility studies he has done).
  • How many self storage feasibility studies he conducts each year. Make sure this is not just a part-time endeavor. Avoid brokers who may have a conflict of interest.
  • Is he insured? With whom and for how much? Would he provide a certificate of insurance for errors and omissions or professional liability? Insist on insured consultants.
  • What is the consultant's volume of self-storage transactions? A good target number might be something in the $500,000 range.

Where did the consultant receive his training to become qualified to consult? What kind of formal or informal training does the firm have?

  • Ask for references. For whom has the consultant worked? Do you know them? Are any of the consultant's clients large firms such as Storage USA, Extra Space, Public Storage, U-Haul or Sovran?
  • When was the last time the consultant sat behind the desk of a self-storage facility to know more about customer wants and needs? How does he stay in touch with the real self-storage world?
  • In what types of properties does the consultant specialize? If your consultant is limited by geography or size, make certain he has the experience you seek.
  • How long will it take to get the report? A good consultant is busy. A great consultant is busy and has depth--a self storage feasibility study is not just a one-man show. Look for a consultant with enough resources to get the job done.

» The Report

Subject to its purpose, the report should contain the following essential elements:

Community Analysis

How much does the consultant research the local community? What historical perspective does he have? History repeats itself; knowing the roots of a community helps a consultant to know how it can support your project.

Neighborhood Analysis

What comments are made about the neighborhood, its growth and composure? How are commercial and retail activity characterized? What does the consultant report about residential activity?

Site Analysis

What does the consultant say about the site? What are its strengths and weaknesses?

Competitive Analysis

Who are the competitors? Most important, how do they compare to your project? Where are they located? Does the consultant profile their amenities so you can compare apples to apples? Which competitors are primary and which are less important?

Rate Analysis

How many competitors' rates does the consultant survey? Do they match your unit mix? What can he tell you about why the rates may be higher or lower? How easy is it to compare profiles of the competition?

Unit Mix

How did the consultant derive your unit mix? Some would argue there is no formula that can determine a unit mix. It is an analysis based on market research, competitive data and experience.

Market Definition

What are your primary and secondary markets? Does the consultant use nice circles to define a market? Rarely is a market circular--railroad tracks, freeways, golf courses, commercial developments, mountains and major arterials can divide it. A good consultant defines the market by man-made, natural and socioeconomic barriers

Market Analysis

Does the consultant know how you will get to stabilized occupancy? Does he know from where your tenants will come? Has he discussed barriers and competitors relative to the market?

Demographic Analysis

A good study will define the primary market and analyze the demographics within it. Ask to see examples of defined market-demographic analyses. A thorough report will not only recognize and analyze the demographics of your site, but will pull reports on competitive sites to determine similarities and differences. Beware of postal counts--they do not tell the whole story.

Economic Analysis

What data does the consultant provide to determine the economics of the deal? You should see month-by-month budgets for at least five years. This data will be needed to determine returns on investment. How thorough are the pro formas? Do they allow for expense and income increases? How do they treat the lease-up period? How does the consultant determine what your operating reserve should be to carry the project during negative cash-flow periods? Is this a "plugged" or calculated number?

Exit Strategy

How are you going to exit this investment? What kind of guidance does the consultant provide? Does the report define institutional-grade criteria, and how does your project stack up? The consultant should perform three pro forma evaluations: base case, pessimistic (worst case) and optimistic (best case). He should be able to comment on how he stressed the analysis to determine the variances to base case.

Square-foot-per-capita Analysis

It is one thing to analyze the square foot per capita, but an entirely different analysis to compare it to others in your market, the top 50 and 100 U.S. markets, then the whole country. How recent is the consultant's data? How many comparisons does the report cover? How does the square foot per capita relate to the market area as defined by barriers, not circles?

Cost Analysis

To determine the return on investment, the consultant must determine how much money you are going to invest, which means a rough cost estimate is required. How does he obtain this number? How much detail does the report provide on the assumptions?

Return Analysis

How does the consultant determine if the project is viable? At minimum, you should see internal rates of return, developers' yields and cash-on-cash returns for a period of five to seven years. Look at the assumptions and make certain the consultant can tell you how he came up with the returns. Most important, how does the consultant comment on the returns specific to your project?

The accompanying sidebar provides a list of what you should see in your report. There is no substitute for hard work, sound research and prudent analysis. The instinctual, subjective analysis is invaluable when the consultant puts his experience to the test, but a good consultant can only arrive at an educated decision through research. Do not settle for shoddy or minimal investigation. Ensure the consultant avoids shortcuts and gives you the benefit of thorough fact finding and an educated opinion.

For a detailed list of self-storage consultancy firms with contact information and links, visit the Inside Self-Storage online buyer's guide at and click "Consulting."

Science or seat of the pants?
By RK Kliebenstein

Some people are fortunate enough to have the Midas touch when it comes to selecting self-storage sites. The rest of us, however, need concrete guidelines and a lot of luck. What would constitute the ideal storage site? One that is:

  • Properly zoned for self-storage use
  • Rectangular
  • Affordable
  • On a corner of “Main and Main”

The site would also have:

  • A willing, cooperative seller
  • 10 acres of land
  • Ingress and egress at both ends of the property
  • Higher than average incomes
  • Better than average density
  • Minimal competition, or competition that is full, high-priced, first-generation or otherwise inferior.

» The Scientific Approach

In the case of most development, the site will fall short of the mark in one or several of these categories. There are several search tools available to developers who are willing to make a greater than average investment in locating good sites. Keep in mind, however, that even the most sophisticated tools do very little if you do not have proper staff, experienced in self-storage, to operate them.

Demographic Applications and Services

There are demographic software programs that allow you to create layers and filters to search areas according to specific parameters. These criteria might include population density, income, land availability, traffic count, zoning, cost and size. To my knowledge, no single application catalogues all of these factors. One could be created, but it would be time-consuming and require data from a number of dissimilar sources.

There are a number of demographics services that can assist you in gathering data. The best are available online and integrate with mapping applications. Do not bother with those that are driven by ring studies. Markets are rarely circular (i.e., contained in a perfect radius). If there are any, I have yet to see them. There are a few sophisticated, GPS-driven mapping applications that allow easy data importing. The best two are MapPoint by Microsoft and Street Atlas USA by DeLorme.

Just a step down from the GIS interface is standalone chartography, which requires a dynamic link to demographic data. Adding zoning layers and parcel data will be labor-intensive but can be done. The better of these applications will permit you to import data, such as that collected from competitors in an area, from Access or Excel databases.

Computer Hardware

It would be very difficult to use any of these tools if they were only available through your desktop computer. The best solution is to create and gather the data on a desktop machine and network it via wireless connection to a laptop computer for field use.

The laptop should not just have wireless access but allow you to use the Internet even when you’re not in a “hot spot” (like at Starbucks). I suggest a CMDA or similar wireless card. Your desktop and laptop machines must have at least 1 gigabyte of RAM (memory), 100 gigabytes of hard-drive space and fast processors. From there, you can weigh your options for size, weight and screen size. The desktop computer should have at least one 24-inch LCD or plasma display. If budget allows, have more than one. Wireless keyboards and mice are a given.

Digital Camera

This will help you compare features of various sites once you’re back in the office. Again, you can debate the issue of physical size and added functions, but you need at least a 3.0 mega-pixel resolution and 1 gigabyte of storage. I personally opt for the Casio Slim Series, which offers form and function in a very small package. Transferring images from your camera to your computer is any easy challenge to address. The new cardto- CD direct transfer looks really inviting.


This choice is governed by whether you have your own transportation or are traveling to markets where you must rent. A conversion van is my first choice. It gives you room to set up an onboard office and allows for easy placement of LCD monitors. The generators can provide continuous power. Give me an endless budget, and I would have that previously mentioned desktop computer networked into the van! If this dream machine isn’t practical, a good compromise would be a comfortable vehicle with an inverter and plenty of 12-volt power.

Seat of the Pants

Even if you equip yourself with a techno-office and ride, there is still an important component missing. It doesn’t even require electricity. It is the “H” factor, the most fallible of all: the human being. You can invest thousands (or tens of thousands) of dollars and still not be at the top of the game if you do not have experienced eyes and ears to collect, interpret and analyze your data.

There is something that just feels good about the right site; and an experienced professional will be able to create a self-storage success even on a less-than-perfect location. Instinct will tell him traffic patterns, site con- figuration, visibility, access, and site size and price are optimal. In the end, there is no technological substitute for the self-storage development and ownership experience.
Let’s take a look at the “perfect” site selector. We’ll call this person “Sam.”

  • Sam is 40 to 45 years old, mature enough to have been around the block, but young enough to have the energy to work in the field all day, and then head back to the office for desk time.
  • Sam is physically fit, with 20/20 vision and excellent hearing. He/she is one of those blessed individuals with a built-in compass, the type who always knows which way is North, even in the dark and the rain.
  • Sam has a doctorate in business administration and a master’s in economics. It doesn’t hurt that he/she also has a degree in chartography and accounting. For amusement, Sam teaches a Dale Carnegie course.
  • The former mayor and chairperson of the city planning and zoning board, Sam comes from a politically connected family. Dad is the current chair of the zoning board; Mom is the head of permitting; and Tina, the sister, is the head loan officer at the largest bank in town. Let’s not forget Tom, Sam’s favorite uncle, who is in charge of personal investments for Bill Gates. He has held this position since he retired four years ago as Warren Buffet’s personal financial advisor.
  • Sam has developed at least five very successful self-storage properties, three of which he/she still personally owns and manages. Two were sold to a major self-storage company backed by an institutional investor, one of Sam’s former employees.

Do you get the picture? Site selection is easy if you are incredibly wealthy, politically connected or superhuman. For the rest of us, it requires sound research, reliable data, experienced assistance and all the right tools.

Be a wary buyer
By RK Kliebenstein

Due diligence is one of your first steps when shopping for a self storage facility, or a vacant parcel or building to convert to self-storage. When considering the purchase of a vacant land parcel or building to convert to self-storage or an existing storage property, one of your first steps is to organize your due-diligence effort. You can perform minimal tests and be subject to caveat emptor, or you can examine the asset carefully, become well-informed, and approach the seller with a caveat venditor attitude. Let the unprepared seller beware an educated buyer!

The most common question novice developers ask is “Where do I start?” Following is a partial list of necessary tasks common to new development, conversion or the purchase of an existing site:

  • Land survey
  • Environmental site assessment
  • Title search
  • Zoning/permitting
  • Market survey
  • Competition study

In the case of a new development, you’ll also need to evaluate the following:

  • Soils
  • Architectural design
  • Impact fees
  • Utility connections
  • Traffic study
  • Concurrency
  • Wetlands/mitigation
  • “Bugs and bunnies, turtles and trees”

Finally, if you’re purchasing an existing property, you’ll need to look at all the books and records, business-license requirements and the structural report.

» Go Team

If you attempt to go the DIY route, you can probably compile a lot of the information. The problem is you may not have the expertise to decipher it. For example, consider issues related to environment, survey and title, which require specialized knowledge and skills.

Many of the above tasks require the assistance of professionals. The time to assemble your due-diligence team is before you find a property, not while the clock is ticking. There are some industry consultants who can walk you through the entire process, or you can shop the services separately. Following is a list of experts you may want on your team (some are specific to development projects only):

  • Architect
  • Civil engineer
  • CPA/tax attorney
  • Environmental consultant
  • Feasibility consultant
  • General contractor
  • Insurance agent
  • Land planner
  • Management company
  • Owner’s construction representative
  • Property-tax consultant
  • Real estate attorney
  • Real estate broker
  • Soils engineer
  • Surveyor
  • Title company
  • Traffic engineer
  • Marketing advisor

Make sure all hires have self-storage experience. If they don’t, understand there will be a learning curve. A seasoned expert is well worth the cost, especially when it comes to your broker, consultant, land planner and real estate attorney.

An experienced architect and general contractor will also be worth their weight in gold. No matter how many projects these people have completed, lack of industry expertise will cost you time and money. On the other hand, someone who knows the business will help you cut costs and minimize errors. Just remember that even specialists are human, so be patient and diligent with everyone on your team.

» Keep It Organized

Many a 5-by-5 unit could be filled with the paperwork from a good acquisition. Much of it you may want to save for a subsequent sale or refinance. These days, you can digitize your records, but you’ll still have to deal with a tree’s worth of paper. This is why organization is critical in due diligence.

To minimize expenses and create a logical flow, tackle tasks in a precise order. For example, the survey must be ordered before the title work can be done. Before you order the survey, you need to know the requirements of your financier and the legal owning entity. This will help establish the scope of work for the surveyor and the certification to avoid additional charges and delays in closing. The same is true for the environmental reports—the reliance language, parties and the scope should be defined in advance of the engagement.

» Challenges Along the Way

Not every seller is going to be cooperative during the due-diligence process. Sometimes a seller is reticent to provide complete financial records or even basic information. Other times, he may exert pressure on the buyer by insisting on a short due-diligence period. This increases the cost of the transaction—everything you spend on services is at risk because the deal may never close.

In either case, it may be best to walk away from the purchase. Compromising here could have consequences down the road if you decide to refinance, for example. Unless you have very deep pockets, it’s best to let some Mr. Megabucks take on the risk instead.

» How Much Should You Expect to Spend?

Depending on how much time and expertise you have to handle some tasks on your own, you can expect to spend to spend $25,000 to $45,000 on due diligence for the acquisition of an existing property (less title insurance) and $60,000 to $90,000 for a new development (less fees for the general contractor and architect). This is what you should expect to pay before the closing, which means risk is involved. Good stewards will watch the timing and release of professional authorization to minimize damage on deals that don’t close. Start with a good real estate broker, and then use a good real estate attorney.