Why Self-Storage Conversions Make Sense
Here’s how converting an existing building into self-storage can save you time and money in the short and long term.
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Fueled by the expansion of the housing market, the self-storage sector experienced a development boom in 2018. The race for more space prompted developers to turn to conversion projects besides ground-up developments. The need for more storage, coupled with the decline in big-box retail, created an ideal condition for conversions. Today, as the pandemic led to even more permanent store closures, there are more opportunities for self-storage conversions than ever.
While not every empty retail or warehouse space makes sense as a self-storage building, most of these assets provide a good opportunity for investors. In the article below, we look at why self-storage conversion projects make sense and what advantages and benefits these developments bring.
The Benefits of Self-Storage Conversions
1. Location
When developing a new self-storage facility, location is the most important aspect to consider. Retail buildings are often located near major thoroughfares and residential areas, providing visibility and ensuring constant traffic from which a self-storage facility can highly benefit.
Furthermore, converting a building can provide investors access to markets with high barriers to entry. Some of these markets offer limited opportunities for new development due to no available land. In these situations, tearing down existing buildings or redevelopment make the most sense. Bringing a self-storage facility into a land-constrained area might also limit competition down the road.
Many of these existing properties, especially retail centers, usually have a large parking lot, which can provide opportunities for more traditional storage space or RV and boat parking options — which have become increasingly popular in recent years.
2. Zoning
Although some cities have detailed regulations specifically for self-storage, others have the same zoning rules for storage as for general commercial space. Therefore, a conversion project might help developers avoid lengthy rezoning processes and complete the project faster.
If the area is not zoned for storage, city officials are generally eager to make changes to zoning regulations to help revitalize empty buildings. In contrast, if developers are looking for an infill location in a major urban area, it might be nearly impossible to obtain zoning approval for self-storage, as these sites are usually reserved for multifamily or other uses.
3. Costs, Time & Sustainability
Converting an existing building can help developers cut down on construction costs and the time it takes to finish the project. While a ground-up development usually requires around nine months to be completed, conversions can be delivered in roughly four months. Banks also prefer conversion projects to ground-up developments because they are less time-consuming and allow the borrower to open the property faster.
Additionally, although the existing structure requires thorough inspection, development costs can be significantly reduced if the building doesn’t have major infrastructure issues. For example, in the case of converting a former retail building, developers might save money on existing HVAC systems, as sometimes these are in well-kept conditions.
Last but not least, conversion projects are more environmentally friendly, as repurposing an existing structure has a smaller carbon footprint than developing a facility from the ground up.
Related Questions
What are the benefits of converting a self-storage facility?
Converting a self-storage facility can be a great way to increase the value of your investment. Self-storage facilities are relatively easy to manage and have low operational costs, making them a great option for investors looking to safeguard their investments over the long term. Additionally, self-storage facilities are recession-resistant, meaning that they will not be dramatically impacted by economic downturns or market fluctuations. This makes them a reliable asset class and an attractive option for investors. Furthermore, converting a self-storage facility can lead to higher profits and fewer headaches for investors, as they can be automated and tenants typically only stay for a few months at a time.
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What are the challenges of converting a self-storage facility?
When converting a self-storage facility, there are a few challenges to consider. First, you need to make sure that the facility is up to code with local zoning regulations. Depending on the area, there may be restrictions on the type of business that can be operated in the space. Additionally, you may need to make renovations to the facility to make it suitable for the new business. This could include installing new plumbing, electrical, and HVAC systems, as well as making changes to the interior and exterior of the building. Finally, you need to make sure that the new business is profitable and can generate enough revenue to cover the costs of the conversion and any ongoing expenses.
For more information, you can read this article about the top 5 emerging self-storage markets.
What are the most common types of self-storage conversions?
The most common types of self-storage conversions are drive-up/single story, modern multi-story, climate controlled, and specialty properties. For more information, please speak with a commercial mortgage banker or email us at [email protected].
What are the costs associated with converting a self-storage facility?
The costs associated with converting a self-storage facility depend on the size and scope of the project. Generally, the costs include the purchase of the property, the cost of construction, and the cost of any necessary permits. Commercial Real Estate Loans offers bridge financing for the repositioning of existing self storage properties and for self-storage property conversions, with bridge loans starting at $1,000,000 and non-recourse options starting at $5,000,000. Additionally, SBA 504 loans could be a great way for self-storage entrepreneurs to get the funding they need to expand their businesses.
What are the legal considerations for converting a self-storage facility?
When converting a self-storage facility, you should check the zoning laws or ordinances in effect at your property. While many zoning boards classify self-storage facilities as commercial real estate properties, they may be zoned differently in your area. Zoning changes do occur from time to time, but they typically are time-intensive and require meetings with your local government or city council. Even if a change is approved, there may be different restrictions that your property could run afoul of. For example, a self-storage-zoned parcel may require a higher parking ratio than one in a multifamily zone — or vice versa. Multifamily-zoned properties may also require a different floor area ratio, too, which may shut down your project before it even gets started. While many of these zoning requirements can be bypassed with government approval, don’t assume you’ll get it. Even outside of zoning, other legal issues could arise if your self-storage facility is a registered landmark or on a historic register of buildings.
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What are the best practices for successful self-storage conversions?
Successful self-storage conversions require careful planning and research. Here are some best practices to consider when converting a property into a self-storage facility:
- Analyze the local market conditions and demographics to determine the demand for self-storage in the area.
- Research the competition within the market radius to determine the saturation level of the market.
- Consider the size and layout of the property to determine the number of units that can be accommodated.
- Evaluate the condition of the property and the cost of any necessary renovations.
- Determine the best pricing strategy for the units.
- Develop a marketing plan to attract tenants.
For more information, check out this guide to self-storage investing.