Anybody ever developed self storage units in Texas?

My dad and I are in the infancy (as in, we have a site selected) of a small development of self storage in the San Antonio - New Braunfels area.

I would love to pick anyone's brain who has either developed or owned this type of real estate. We are beginners, but my dad is a do-anything-yourself type guy and i am a commercial real estate broker.

Market in general has been pretty saturated as there aren't many barriers to entry. How much competition do you have?

2 other self storage facilities within 2 miles.

Of course, they are where the residential development has happened. Our site is on the immediate path for future growth.

SLF11 said:

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2 other self storage facilities within 2 miles.

Of course, they are where the residential development has happened. Our site is on the immediate path for future growth.

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Purely interested here.. What's the cap rate on your project as stabilized?

I've represented a self storage developer in site selection. No expert but a few thoughts below:

From a location stand point, most developers look at a 1-3-5 mile ring study (sometimes larger depending on market). Add up all the rentable SF in those areas. The rule of thumb in a market like Houston is 10 rsf per person in population. Smaller markets like a Temple are closer to 5-7.

The industry is so bifurcated because you have the old Mom and Pops who still own their old places everywhere, Public Storage who will buy anything, quick and with cash and never sell, and one-off developers who can raise enough friends/family money to do a deal. Institutional equity has started investing in this use type, but still scratching the surface.

Because it's so bifurcated, data is hard to come by so trusting your proforma can be tough. All numbers are collected the old school way. There is no ADS/AXIO/Costar yet for SS (to my knowledge).

Competition/market risk always has a bit of an unknown as well. If you plan on holding long term, your demand numbers you calc today could be vastly different if 2 more pop up along your corridor in the next 3 years. Rents can teeter but one good thing is you always have a good percentage of tenants who are long term and don't want the pain of moving all their stuff.

Not sure where they get their demand coefficient but I have seen it in numerous packages and a colleague used to work for an institutional grade SS shop that used the same. Same with every 7 jobs is an apartment renter type deal.

We are not looking at it from a Cap rate perspective. More as a cash flow development to give my dad something to do when he retires in the next couple of years.

i have no comps at all, but with no functional obsolescence i don't see why you couldn't get a 7% CAP - that's simply based on what i'm seeing from industrial/office/medical investors. Plus, this would likely be small enough that the buyer pool would be larger.

Mr_mo8268 said:

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I've represented a self storage developer in site selection. No expert but a few thoughts below:

From a location stand point, most developers look at a 1-3-5 mile ring study (sometimes larger depending on market). Add up all the rentable SF in those areas. The rule of thumb in a market like Houston is 10 rsf per person in population. Smaller markets like a Temple are closer to 5-7.

The industry is so bifurcated because you have the old Mom and Pops who still own their old places everywhere, Public Storage who will buy anything, quick and with cash and never sell, and one-off developers who can raise enough friends/family money to do a deal. Institutional equity has started investing in this use type, but still scratching the surface.

Because it's so bifurcated, data is hard to come by so trusting your proforma can be tough. All numbers are collected the old school way. There is no ADS/AXIO/Costar yet for SS (to my knowledge).

Competition/market risk always has a bit of an unknown as well. If you plan on holding long term, your demand numbers you calc today could be vastly different if 2 more pop up along your corridor in the next 3 years. Rents can teeter but one good thing is you always have a good percentage of tenants who are long term and don't want the pain of moving all their stuff.

Not sure where they get their demand coefficient but I have seen it in numerous packages and a colleague used to work for an institutional grade SS shop that used the same. Same with every 7 jobs is an apartment renter type deal.

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Thanks for sharing Mr. Mo. Good general advice, which is what we need right now.

This will be that 'mom and pop' style development, outside city limits, and very simple. I see us as being a value option - and future residential development in this area is all track homes - so being pushed out of the market is not a huge concern, but important to consider nonetheless.

SLF11 said:

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We are not looking at it from a Cap rate perspective. More as a cash flow development to give my dad something to do when he retires in the next couple of years.

i have no comps at all, but with no functional obsolescence i don't see why you couldn't get a 7% CAP - that's simply based on what i'm seeing from industrial/office/medical investors. Plus, this would likely be small enough that the buyer pool would be larger.

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I think 7% would be a safe assumption for the reversion, but if growth reaches your project, debt stays cheap, and buyers keep paying for lower and lower yield, you might be surprised what you could get.

I've talked to a couple of owners in various areas of south Texas that indicate some cities are really starting to modify their regs regarding storage facilities in the ETJ and even zone them out based on complaints they make the entrance to town "trashy". Just something to think about and make sure you are ahead of the game on if there are rumblings going on in your target area. It did sound like in a few areas that was the guise they were doing it under to increase barriers to entry and protect the existing owners in town.

S said:

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We are beginners, but my dad is a do-anything-yourself type guy and i am a commercial real estate broker.

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I would suggest you read a few issues of Self-Storage News, which is the publication of the Texas Self Storage Association.

Texas Self Storage Association

I don't do any self storage stuff, but I've found their materials very helpful in the area of commercial real estate development in general, including planning, regulation and construction aspects.

Good luck. A friend who recently developed one of these was telling me the other day that in spite of security surveillance, controlled access, and excellent lighting, he was having trouble with units being burglarized. It's always something, it seems.

SLF11 said:

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Anybody ever developed self storage units in Texas?

My dad and I are in the infancy (as in, we have a site selected) of a small development of self storage in the San Antonio - New Braunfels area.

I would love to pick anyone's brain who has either developed or owned this type of real estate. We are beginners, but my dad is a do-anything-yourself type guy and i am a commercial real estate broker.

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I am in almost the exact same situation you are right now. Looking to develop self storage on a piece of land my father owns. We work together as residential construction general contractors and I'm a realtor. We're looking at doing a mixture of self storage, RV storage, and small metal building rental for businesses.

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We're looking at doing a mixture of self storage, RV storage, and small metal building rental for businesses.

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I might suggest that you be somewhat selective on your permitted uses with these. Lately, I've been seeing more and more listings for these type properties containing these restrictions:

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NO paint and body, NO auto repair, no upholstery, no diesel truck shops, no tire shops, no game rooms, etc...

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That wording was seen in an actual ad on Craigslist for properties leasing for between $500 and $750 per month in Central Texas.

Apparently the relatively low cost of rent attracts these uses, but the risk that you're going to be left with a small junkyard, environmental pollution, or hazmat (except with game rooms) when the tenant 'terminates' is higher than average.

Having an environmental clause in the lease won't help much when you have a 'judgment-proof' tenant.

Now, these are all (except for game rooms, perhaps) legitimate businesses performing needed services, so please don't think I'm slamming them. But, if you do decide to accommodate them, I'd suggest that you get some good references and make sure they're financially stout enough to be good citizens.

Good luck. I lease out some mid-sized industrial buildings so I deal with many of these same issues, as well.

Shoot a PM to hullabaque - he has done similar things as you and likely can help