When a Beer and a Napkin Just Aren’t Enough

Recently, I followed up with a prospective client to see if he was going to move forward with a study before building.

“Nope,” he said. “My partner and I sat down over beers, and we decided we don’t need one.”

Clearly, as a self-storage feasibility consultant, I disagree. But perhaps as a new self-storage developer, you need a little more convincing than just taking my word for it.

I sat down with industry veterans to get their take on when you do—and when you don’t—need a self-storage feasibility study. (Just look at this fair and unbiased reporting.)

But I Don’t Need a Self-Storage Feasibility Study Because…

…I just know I have the perfect site.

Sure, you do. “Feasibility studies are necessary because of human nature,” says Brad Minsley, co-founder of the tremendously successful self-storage group 10 Federal. “When you are doing a deal, you want to interpret the data positively because you want to buy the property.”

“That is fraught with risk. The benefit of doing a feasibility study is that you are engaging with an expert who does this day in and day out without any confirmation bias.”

“I recommend facilities get a feasibility study because it is your best way to have an opinion that is not influenced by confirmation bias. Too often developers and operators find themselves wanting to do a deal and needing to do a deal, and they end up doing a bad deal because they let confirmation bias sway their underwriting,” adds Brad.

Dan Hogan, owner of Hogan Self Storage in Pennington, New Jersey, has built facilities with and without a feasibility study.

He agrees with Brad. “Some of the information in my feasibility study was contrary to my intuition,” Dan says. “Specifically, the data regarding Millennials and Generation X. I was thinking Millennials don’t gather stuff and were not interested in self-storage, but the opposite is true, and this directly impacts the future of my facility and how I should develop.”

…It’s too expensive.

This objection reminds Dan of the Oscar Wilde quote, ““A fool is a man who knows the price of everything, but the value of nothing.”

“In my mind it would be foolish to make a long-term decision about millions of dollars without spending money up front to make sure it is a good decision,” Dan says.

He equates self-storage feasibility studies to getting an environmental study of a property before you buy it. “You don’t want to get that far down the road to discover an issue you didn’t know about and now you’re stuck with the property probably forever because nobody else is going to want it either,” he explains.

“Whether you’re going to get funding through investors, a bank or crowdfunding, the first piece of information people are going to want to see is a feasibility study,” Dan says. “Unless you’ve got unlimited money and you can just roll the dice, a feasibility study is a vital part of every business plan. These people want to know the strengths, weaknesses, opportunities and threats facing your facility, and that is essentially what a feasibility study gives you.”

Building without a Self-Storage Feasibility Study

Saving Thousands, Losing Millions

After twenty-five years in the industry, Dianne Tanna only knows one person who built a facility without a study.

“When I first met with this prospective client, I let him know we managed two other properties in the area he wanted to build and there was no depth of market there at all,” says Dianne, co-founder of TNT Property Management. “When he refused to do a study, I tried to convince him to change his unit mix to sizes I knew were in high demand and he said it wouldn’t pencil. It doesn’t matter what pencils if you can’t rent it!”

Fast forward to a few years later when the person contacted Dianne again to help him with issues he was having leasing up his property. Unfortunately, many issues were not fixable, and shortly thereafter he ended up selling the facility and losing most of his personal wealth. Dianne remembers going through financials him and saying, “doesn’t that make that $10,000 initial investment in a feasibility study look like nothing?”

Doing it Yourself

There are two scenarios where you may not need to hire a self-storage feasibility consultant to do a study: if you have the data and expertise to do it yourself, or if your market is small and you do not have competitors.

Brad explains, “We now do feasibility studies ourselves because we have historical and current data from our fifty properties.”

“We take all the variables we can imagine that would impact the project’s feasibility and enter it into a regression model. That allows us to score new opportunities based on the performance of our trailing properties. This then becomes an unbiased algorithm allowing us to make informed decisions.”

At First Bank Financial Centre, a bank that does hundreds of self-storage loans a year, vice-president Nick Collins points out feasibility studies are a requirement for SBA 504 program but not for SBA 7A program (and Nick says whenever a borrower wants to get a feasibility study they would never deny that request). SBA 7A loans are under $5 million.

“Regardless, a feasibility study may not be needed in tertiary or smaller markets when the bank and client can figure it out,” Nick says. “These are typically smaller projects typically around $500,000.”

Why Your Property Manager Wants You to do a Self-Storage Feasibility Study

“I hate calling clients and asking them for money!” exclaims Dianne. “I want them to plan ahead—that’s why I encourage them to do a feasibility study and be well-prepared.”

“If they have a feasibility study and it says they are going to take two years to lease up, no one’s going to scream after a year, ‘why aren’t we full?’ I didn’t promise you that—I try to be realistic as opposed to optimistic, so clients are not surprised.”

Why Your Banker Wants You to do a Self-Storage Feasibility Study

“Doing storage deals for the last decade, I’ve ridden the wave up,” reflects Nick. “Doing feasibility studies eight or nine years ago was different than in today’s market with the REITs building so many facilities. More caution is needed going into new development deals than there was before.”

Knock on wood, First Bank Financial Centre has never had a self-storage deal go bad, “We’re heading into a time where some of the bigger projects that are being completed may not lease-up as originally planned. It’s hard to say what will happen in this industry the next few years as far as larger developments go,” Nick says.

If One Self-Storage Feasibility Study is Good, Are Two Even Better?

According to Dianne, sometimes yes.

“If a market study comes back or seems a little bit iffy, you should have a second feasibility study done,” she says.

“Recently, we had a client whose first study came in a little lukewarm, so I recommended he have another one done. The second study was much more positive, and the investor and bank were then comfortable moving forward. Had the results come back negative, they were prepared to look for a new site.”

Remote V. In Person Self-Storage Feasibility Studies

“Getting a quick study or a remote study might provide false hope. An in-depth study that gives you the full picture is important,” says Nick.

A remote or desktop self-storage feasibility study is just what it sounds: a study analyzing the supply and demand in the market completed without visiting the client’s trade area.

Typically, a full study includes a site visit by the self-storage feasibility consultant to analyze market trends in person. This type of study includes specific unit mix, pricing and phasing recommendations as well as a complete financial model for the facility. This is the study most frequently required by lenders.

Using Your Self-Storage Feasibility Study in Conjunction with Your Marketing & Operations Plan

“My feasibility study is a living document I reference and use for a lot of business operational decisions,” explains Dan. “If I have a question in my mind, I can go back to the feasibility study and see what to do.”

“From whom my potential clients are, to knowing more about specific trends and facts about this area, to specifics about my competition in my secondary marketplace, I refer to my study frequently for scientific information, and data I can use for decisions.”

About that Beer

I hope I’ve helped you see the value of a self-storage feasibility study. If nothing else, pull up a bar stool, pass the peanuts, and let’s keep trying to keep changing each other’s minds like civilized Americans.