John Good, President & COO of Jernigan Capital, Inc.
As the self-storage development cycle moves over the crest and onto the downward slope, the low-hanging fruit has been picked. Good sites remain, but finding and obtaining them will require careful research, discipline, and perseverance.
Having reviewed over 650 prospective
sites since early 2015, we at Jernigan Capital (JCAP) would like to share some
of our views on the anatomy of a good self-storage development site.
Safety: Today the majority of self-storage users are women. Elimination of safety concerns is essential to attracting customers. At the same time, many properly zoned self-storage sites are in industrial areas. Jernigan Capital applies a “Night Visit” test to every site we consider: “Would our wives or girlfriends feel safe retrieving Christmas presents from this location after dark?” If the answer is “no,” the site likely fails.
Supply: Any self-storage developer must
understand supply in his submarket. Multiple new facilities hitting a submarket
at the same time will likely lengthen lease-up times, place significant
downward pressure on street rates, and possibly lead to price wars. Knowing existing
supply is important as well; new supply may be absent because the submarket
already has too much supply or existing supply is not full. The best sites are
those where the developer can obtain good data regarding both existing and new
supply, giving him the tools to accurately predict the impact of both on his
project. Developers should call building departments, review other reliable
industry supply data, drive their markets, and use all available sector connections
to attempt to identify all new supply in the submarkets they seek to develop.
facilities often fall into different zoning classifications than other
commercial real estate. Some municipalities only allow self-storage facilities
in industrial areas, while others might grant zoning/special use permits in
traditional consumer areas containing retail, multifamily, and hotels, but
often with restrictions. Rezoning takes significant time and is sometimes
beyond reach. The best sites are either zoned “of right” or located in
jurisdictions with histories of rezoning sites for storage. Time is money, and
rezoning is a major time killer.
Economics: The economics of a potential
self-storage facility are obviously the driving force behind a decision to
develop. The primary economic factors are facility cost, competitive data, and
demographics. Good self-storage sites have high population density, strong
population growth rates, above-average household incomes, and a large number of
apartment dwellers in the submarket. Presence of the large self-storage REITs
is a plus. Finally, land prices must not have been driven overly high by
developers from other sectors.
None of these factors, in and of
itself, will ensure success of a self-storage development project. We look for
the presence of each of these characteristics (albeit weighted differently,
depending on the project) in making our investment decisions. The model has
worked well for us.
If you have further questions
about our approach to site selection or would like to know more about Jernigan
Capital, please visit our website www.jernigancapital.com.