Site-Selection Process for Storage Condos...A Very Crucial AspectSITE-SELECTION Where to begin Site-selection is one of the most common concerns for developers. I’m sure you have heard it over and over “location, location, location” is the most important in real estate. Although it is true in the case with storage and/or garage condos, it is more the case of where they “fit in” verses the traditional factors like visibility, access and price. Based on the nature of the development, (i.e., storage) there tends to be an association with “mini-storage” developments. Mini-storage definitely serves a very valuable purpose but is generally not looked upon by local planning authorities as the most attractive/favorable developments. Therefore, we must understand that the site-selection for these types of developments is somewhat limited and have to be positioned in the community properly. In every community there tends to be a few basic levels of commercial zoning - business, commercial, and industrial/manufacturing. As of right now, the projects are located in commercially zoned areas; however, that is not to say it won’t be part of a “planned residential development” as an amenity someday. The easiest path to get a site selected and approved is to locate in “industrial” zoned areas. The downside is that, these areas are very industrial looking, and generally not as appealing to as many buyers. The next path to take is the “commercial” areas, which tend to be a little more upscale, more traffic, and more visibility but certainly harder to locate in especially if you are considered to be similar to “mini storage”. Finally, there are business areas which are more the retail oriented and are very difficult to locate in and very honestly our projects don’t fit there anyway. Now I know there are various other specific zoning classifications. In fact, “commercial” and “business” can be used interchangeably. The point is that these developments are generally limited to industrial and a select few commercial type areas - you are not going to locate next to a McDonalds. I have broken down the site-selection process into the following topics:
What is the best location? Location is huge factor in site-selection. I like to breakdown the areas into quadrants or sub areas (i.e. north shore, downtown, Southside). These areas are commonly referred to and used by people in real estate and/or the community. Within that area/community, there is a residential, commercial, and industrial base. It cannot be just an industrial area without any real “community” tied to it. There should be commerce, a residential and an employment component. The main reason for this is that the buyers are looking for convenience near where the work and it can be part of their daily social activities. I will talk more about why people buy but, a big reason is because the property is like an extension of their home. Check out why people buy. It is important to note that all areas should be considered. Some may feel that only want the sub areas that are “well off” are good places to look. That is not the case. As long as there is a community, there are people/buyers with the “means” to purchase. The very low income areas might be an exception. I have not ventured into those communities. It is important to realize that these units are great value and people from all socio economic groups are potential buyers. All “areas” should be considered for locations. When looking at locations I also consider the size of the area. I focus on metro areas and the smaller towns/villages around that city. I avoid small rural communities because I don’t think the demand is there. The main reason for this is that the rural community typically has very relaxed zoning regulations and the land prices are not expensive enough. That’s right “not expensive enough”. Let me explain. In the metro areas the land is expensive and the regulations are strict. This makes it difficult to find land and build something for what they can go buy a StorageShopUSA unit for. The rural communities are different. People have bigger lots, less restrictions, and he land is cheap. Even though the StorageShopUSA building is the most economical design, the value is in both the land and the building combined. There is simply less perceived value by the local rural community – most of them will choose to build their own building on their own land. It doesn’t mean it won’t work, it’s just more of a gamble. I developed a project in a smaller community a little farther out of the metro area than usual because the land was really cheap. I paid $32,000 for 2.3acres. The only reason I did this was because the land was purchased from the city and it was a TIF district. The smaller city lowered the land price only to attract business and development so then they can increase the taxes on that parcel. That means that a local person could go buy the 2.3 acres but the next year he would be assess taxes on $230,000 of value. For that reason, I was able to attract the smaller business owner who wanted an $80,000 building and be taxed on only $80,000. I sold all 8 units of the first phase within a year – which is pretty good for a small community. Don’t rule out any area but typically look for areas that have more significant land costs - it's seems backwards but it is a part of good site-selection criteria. What about price? Understanding the importance of the sub areas/communities is the basis for determining the price I should pay for land. As you know “commercially zoned land varies drastically around a city but it also varies within each sub area. The business/retail areas are the most expensive, the commercial being the next most expensive, and then the industrial/manufacturing. The final site-selection and building cost we offer has to be the best economic choice with the most value and at a price point that actually makes them think about their current situation. Around where I live, you simply can’t find a commercial property under $100,000 – that alone causes people to respond favorably. What I am about to tell you may be the most important factor when considering the land price and what I would consider a trade secret. A sub area has the 3 basic commercial zoning components and within each of the components there is a price range. We generally target the industrial areas and sometimes commercial areas which are the low end of the commercial property scale. There are two things we look at very closely. My strategy is to provide the MOST economical choice, and I can’t do that if I pay for land at the higher end of the scale. Industrial land ranges from $2 to $8/sf in our area. I can’t possible be the best choice if I buy at the middle to upper part unless I am willing to reduce the profits to a point that actually doesn’t make it worth the trouble. There is a side benefit to this and it virtually eliminates the competition because they can’t put a product out there to compete unless they are willing to concede to the lower profits. It is important to note that if you don’t combine the lower land price with the MOST economical building design you simple won’t be the most economical choice and you won’t reach that very important “price point” that gets people to respond. I use the age old strategy of “should I rent vs. own analysis. This will never go away and I know if the price point of the units in an area is comparable to renting, the people with “means” will consider buying. That is why all areas will work and that this is not restricted to “well-off” areas. At least 50% of the buyers are small business owners and generally they have the means to purchase – it is not just the hobbyists, etc. Remember that the highest priced land is business, then commercial, and then industrial. It is likely that the commercial price of one sub area is lower than the industrial price of a different sub area. That is ok because we have broken down the market to each community and the buyers will typically not drive farther (“too far – or go to a neighboring sub area”) because of price. This assumes that the price is not drastically different and, it shouldn’t be. This means I focus on the pricing structure within each sub area but pay attention to the pricing of the neighboring sub areas during the site-selection process. Zoning It's obvious that zoning is important in site-selection; however, you must be aware of a few things as you are considering each property. Each property will have a zoning designation specific to the municipality (town,city,village,or county). Those classifications tell you exactly what you can and cannot do in those areas. I consider this classification to be the “baseline zoning” or what can be achieved “by right”. The municipality has limited control on exactly what I develop when I stay within the “baseline zoning”. As long as the use is “office/warehouse” and I meet the “site plan” standards for that zoning designation (i.e comply with zoning codes), they can’t stop me from building what I want. The municipality can’t exercise their personal discretion. They can’t tell me no, I can’t do the project. They can, for example, have the fire chief say he wants 2 hydrants instead of 1. The fire chief has certain codes/standards but many times they leave some discretion and interpretation up to the local authority. They can comment on technical issues but not whether or not I can develop “storage condos” on the land. Another factor in the “baseline zoning is the deed restrictions and covenants that are recorded on the property. These restrictions vary greatly and many today have more restrictions than what the municipalities have. It’s very important to note that if the text of the deed restrictions allow for any personal discretion of a municipality, planning agency, etc, be very cautious. This doesn’t mean it won’t work but it adds such a big enough variable that I can’t establish a baseline zoning for the property. The goal is to figure out what can be done the property without a lot of other people’s input – it’s called property rights. This is one of the first steps in the site-selection process. From this point, I can determine what I would need to do and overcome to get a project located there. I specifically select sites that has the right zoning classification and no restrictions before I consider any other property. The reason I do this is two-fold. First, the site plan and building design are so important to the economics of the project (getting the product out there at the right price point) that I can’t afford the opportunity for some planner, official, etc to change something because he/she has a personal preference. They don’t understand the financial impacts of their requests and many times are unreasonable. I have worked with plan commissions, planners, developer boards, etc but it is not my first choice. Secondly, I need to feel more comfortable with what I have to do to develop the project and the associated costs before I write the offer for the land. It is important to realize that there is upfront development costs associated with bringing a project before a municipality for plan commission or planning agency approval. These local authorities could change something (the materials for the exterior) that could have a drastic impact of the price point I determined for the sub area. That would not be acceptable since I promote that we reduce the profit on the building rather than increase the price of the units. Knowing what to expect from the local authorities would then have give me an opportunity to cancel the project without a great deal of expense. Otherwise, if I cancel after I have invested the time and money required to make a formal submittal, I would lose my investment. This could be $10,000 to $15,000. I will always promote that the site-selection process should include a taking the development concept and location before the local zoning authorities for a "conceptual review" – it may involve one more step or 30-60 days longer timeframe but well worth it. I prepared a basic (low cost) conceptual design and review package I use for any new location I pursue. As a side note, I want to explain why I am leery of discretionary decisions by the local authorities. I started explaining this development to people and they all wanted to associate the project to was “mini-storage”. They said it won’t create jobs, they look residential, and asked “can people live there?” This came after I explained it to them – I must have done a horrible job but whom better to have explain it then me. What part is so confusing? When I explained it to the general public (friends, family and neighbors), they said “that’s a great idea, I could use one, I like the look of them, and can I sleep there? (Ha, Ha). What a difference. The big problem was that the municipalities didn’t know how to classify them, treat them, what conditions to put on them, etc so it caused long discussions and a variety of opinions. The real issue is that they can’t stop them from going into light industrial zoned areas. They look residential and some people use them for more personal/storage uses. That is not typical. The StorageShopUSA buildings are built to all the commercial building codes and are considered office/warehouse – a typical development in a industrial park. The industrial park zoning would hardly ever exclude storage as a permitted use. The whole development is just a little unconventional – that’s why they want to add their opinions. I did think to make them look more commercial – then I asked my buyers – case closed- I am staying with the residential look and feel. Needless to say, I avoid property that would involve input and opinion as to what I can and can’t do. It is very important to understand each town, city, village or county’s zoning regulations. As you are looking for property you can become more familiar with which ones are more restrictive - you become more eficient with site-selection. It is very likely you could have several different government agencies within 1 sub area. Knowledge of these zoning regulations allows you to look and evaluate potential sites much more efficiently. This takes time but it is time well spent. A word of caution as you discuss the project and the regulations with the municipal workers at the various counters. Do not rely on what they say as the final word. You should always ask them provide documentation on any interpretation or information they give you. Be very polite about asking because if you come across like you’re challenging them – they will make things more difficult. My goal is for each municipality, to find the zoning classification that will allow an “office/warehouse” use. I didn’t say storage condo or anything to do with storage. Again, to explain to the person at the counter what you are looking to do is way too difficult and not necessary in the preliminary step of learning the various zoning classifications. This step is only to help you scan through different properties more efficiently during the site-selection process. A more thorough discussion regarding the project will come later once you have a project under contract and are moving through the due diligence period finalizing the site-selection process. At that time, a meeting could be set up to discuss all the zoning issues and the procedural steps regarding the development. Let’s discuss zoning changes and conditional uses. Zoning changes are not out of the question. To this date, I have not developed on a property that needed a zoning change. These are more difficult to find and as you become familiar with the sub areas, these properties will standout. Applying for a zoning change is risky because it involves the public notices, planning commissions, etc. and as I said before there are a lot of different opinions regarding this new and exciting concept. I would not look at any property that needs a zoning change unless the site-selection process is not producing a good property in a sub area. Remember, the main focus is finding that piece of land that is at the lower end of the price scale for that sub area. There are plenty of properties that qualify that don’t need a zoning change. Conditional uses on the other hand will in many instances be part of site-selection and the final approval process. Although they still require some sort of planning approval, they are generally easier to get then a zoning change. In some municipalities, they say that any occupancy of any commercial property requires a conditional use permit. As I said before, learning the zoning regulations of the sub areas is vital and will clearly help you evaluate potential properties and the necessary steps to get a project approved. StorageShopUSA has gained quite a bit of ground with the local municipalities and the success has definitely helped define the development and actually make it easier to get approvals. I can go into a planning meeting and show how many municipalities have approved the developments and in many instances can show them how we address their concerns – the same ones that other municipalities had. This is a clear advantage for all you who are considering developing a site and using the StorageShopUSA site-selection and development pattern. Business and/or industrial parks are becoming more and more popular as areas get developed in and around a municipality. These are good places to look however, many of them are not on the lower end of the price range - especially the new ones. The ones that are, generally have so many restrictions, they cause the price of the building to increase drastically - makes site-selection difficult. We are trying to provide the most economical product and that takes land on the lower end of the price range in conjunction with the most economical designed building. The best places to look are industrial parks that are 5 to 15yrs old. These parks seldom have restrictions and, if they do, they are minimal and the land prices are generally lower - the best site-selection situation. You must make sure that the park doesn’t look shabby and run down. There needs to be pride of ownership in the park. The people buying these are looking for a place to go as an extension of their home - not some industrial work zone. Site improvements The most important thing to realize is that site improvements or what you have to do to the property to get it ready to build on has a drastic impact on the site-selection. In many instances the improvements cost more than the land itself and therefore must be given due consideration. These improvements include but are not limited to:
Actually, a property can be more expensive on the price range scale if it is offset by the reduced site improvement costs. It is a balancing act between the price of the land and the sit improvement costs. What is really necessary is to have a solid understanding of the layout and design of a typical site. Only when you have this, can you reasonably project what the improvement costs are. Read the section on site design and layout to get a better understanding. If you can’t reasonably estimate the improvement costs then how can you determine the most economical site. This is an area where consulting services may be a huge benefit to you as the developer. Size The size and shape of a property is very important in site-selection. How many acres do I need? I have developed ¼ acre lots up to 4 acres lots. Typically a 1.5 to 2.5 acre lot is ideal. I have realized that this medium sized parcel allows enough units for the economy of scale to kick in, there are more lots available in this size range, and most importantly it is not too big or too many units for the sub area. I would rather have 2 – 2 acre sites then 1- 4acre site. I usually get between 5 and 5.5 buildings/acre which is 10/11 units/acre. The smaller lots are becoming increasing more attractive and may be the only alternative in some sub areas. Although the economy of scale is not as great with the smaller projects, there are some substantial reasons they should be considered in the site-selection process. First, the size of the project gets scaled back which means there is less risk. The upfront cost of the land is minimal and therefore interest/holding costs are much lower. I found that in one sub area I looked at, the price of the industrial land was more than I ever considered paying. The land available is scarce. I have received many requests for units in the area so I am proceeding with land that is $6/sf (the most I have paid was $4.15). I can buy land on the other side of town at $3/sf. The key to this is that the parcel is only 37,000sf or 0.84acre which means I have an upfront cost for land around $212,000. That is quite different than if I bought 2 acres at the same price which is $525,000. I would much rather have the low risk strategy of lower upfront cost than to start the project over ½ million in the hole. Another reason for smaller lots is that the site improvement costs are less. First, the overall amount of improvements based on the scale of the project is less. More importantly, the magnitude or extend of the site improvements goes down. In some cases there are no storm water requirements, the sewer extensions are not as involved, less manholes and hydrants, no paved fire lanes are required. In addition, the project is less complicated and therefore the larger (more expensive) site improvement contractors are not as necessary. What is more important then the size of the lot, is the shape of the lot. The key here is that if you pay for the lands on a square foot basis well you better utilize every foot of it! Again, knowing the site design and layout criteria is very important as you evaluate different sites. Basically, the site would need to be approximately 200ft wide at the street. This provides for units on both sides of the drive (just like a subdivision). There are other designs but the more you stray from the basic layout the more you have to offset the additional cost with either other less expensive site improvements or less expensive land. Restrictions Restrictions can make or break site-selection - at least we find out early in the site-selection process. Make sure you are aware of all the zoning/use restrictions, deed restrictions, building design requirements, and easements. As you become familiar with the different industrial lands in a sub area you will be able to balance those against the other site improvement costs, land cost, size/shape etc. This information is part of the first bit of information I get when I inquire about property. Special features /uniqueness This portion of the site-selection process is more of the “art” of locating a site. Based on the conversations I have had with the people that have purchased from me, I concede price if the site is in a very nice setting (next to some green space), it is an “awesome location”, it would be the only location I could get in the sub area, it is the first development in the sub area, or it borders a residential area. These considerations are not economically tangible but can provide enough to make “go” or “no go” decision. The best way to develop this art is to study the personas of the people who buy these units and also to think like a buyer – its common sense. Site-selection summary Site-selection is so important to the cost and quality of the StorageShopUSA development. I think it the most difficult part and a good deal of a developer’s time will be looking for land that fits the site-selection and location criteria. Having spent the last 4 years establishing the building design and cost, site layout and design, and a solid market understanding, the only real variable is finding the right location. The optimum location would be:
Once a site-selection process is done, I go through a final site evaluation checklist. after site selection comes total development costs and profits it's a lot of "site selection" material - get the "workbook" version a "site-selection" case study may help to understand Return to storage condo info Don't forget to subscribe to the Storage Condo Insider to stay up-to-date on any further site-selection developments. |
