SO, WHERE DO I BUILD MY SELF STORAGE FACILITY?

As a general rule, you want to build your self-storage facility adjacent to a highly populated area. You want to be on the outskirts of a community that has apartments and condominiums or, even better, that will have apartments and condominiums. I say will have because the land will go up in value after the residential buildings are built and you really don't want to have to pay that premium if you don't have to.

I was born in 1946 and my parents lived in Brooklyn, New York at the time. We lived in a four-story walk-up in a very nice building with a porch outside that was as wide as the building and all of the tenants would congregate on the porch and it was a nice place to be social with your neighbors. Then in 1952, my parents bought a co-op in Flushing, Queens. First, and this was special for me, it was a 6-story building with an ELEVATOR!!! I was 6 years old and we now had an elevator, wow!!!

Now that I have reminisced for a moment, there were 7 apartments to a floor which meant that the building had 42 apartments. But the building has 2 sides, so we had 84 apartments in the building. We lived in a complex called Mitchell Gardens. Up the block was another similar complex called Linden Hill. And right next door to us there was another complex called Embassy Arms. And next to them there was another complex but I don't remember their name. The point is that there were over 30 buildings in the very small geographical space and if you take 84 apartments to a building times 35 buildings makes just about 3,000 families living in a very small area.

That makes this a prime place to build a self-storage or two or three. Unfortunately, there were no self-storage facilities anywhere in 1952, the concept had not been created yet. But they really were needed. We had a storage room in the basement that all of the tenants had keys to and that's where we would store our bicycles, extra furniture, and other "stuff". One day my brother went to the storage room to get his bicycle to go riding and found that someone had scratched it all up and cut some of the wires that controlled the brakes. As I said, all of the tenants had keys and your belongings were not protected.

So, the concept of self-storage is a good one as your things are segregated from everyone else's and they are locked up and protected. This has now become a multi-billion-dollar industry and "Public Storage" seems to be the largest owner of self-storage facilities in the country. But they create tax companies called REITS, Real Estate Investment Trusts, for their facilities which do not take advantage of some tax advantages which we will discuss tomorrow.

After talking to a lot of investors who want to own self-storage facilities and who already own self-storage facilities, they do not want to own a facility in California. The tax rates here, my home state, are too high and are driving investors away. Also, the cost of the land in California is much higher than in Texas, Tennessee, Florida, and a whole lot of other states. In fact, most investors will build their self-storage facilities in any state other than California. But, they are not necessarily correct. California may be the right place to build because the rents are higher here and the income will come. It will, to use one of my favorite accounting phrases, “pencil out”.

You want to find a relatively flat piece of land adjacent to a neighborhood that has a lot of apartments and condominiums. There is little storage space in these types of residences compared to single-family homes that have garages. Also, as people get older and their children leave to go to college or get married, they make the decision to downsize either from a large house to a smaller house or from a house to a condominium or apartment. What are they going to do with all of the “stuff” that they accumulate over so many years? So, even if you build a self-storage facility next to single-family homes you will have decent occupancy as we baby boomers are getting older now and we are the ones who are downsizing.

Self-storage facilities need minimal on-site management by the investor. You can build a facility anywhere and it does not have to be where you live. In my research, I have found that a majority of investors have built their facilities hundreds or thousands of miles from their homes. You do need an on-site manager but on-site managers are not a big expense. Many self-storage facilities are open 24 hours a day but the smaller facilities usually have regular hours and part-time managers.

My name is Paul Levine and I am the Managing Member of SELF STORAGE CONSULTING & CONSTRUCTION, LLC. You can call me at (818) 298 – 4000 Pacific Time 7 days a week after 10 AM or you can send an email to me at PLevine@selfstoragecc.com or at PLevineRealtor@gmail.com.