Site Selection Insights

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.

• Entitlements/Zoning/Permitting: Self-storage 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.