BUILDING A BETTER BUDGET – A GUIDE TO SELF STORAGE CONSTRUCTION COSTS
By Angie Guerin
National Sales Manager, Mako Steel
Building a construction budget is one of the first, most important, and most nebulous processes a developer will go through on the path to a successful project. It requires an educated approach, comprehensive research, patience, and ultimately, flexibility and open-mindedness.. Basically, all of the things you learned as a parent, or will need to learn if you choose to become one.
Construction budgets are ever changing. The first, conceptual budgets and pro-forma’s are not unlike some of the planning you might go through before you decide to have a child. They are the pie in the sky dreams that are entrenched in idyllic scenarios, they are exciting and enthusiastic, and if all goes well, they will offer enough hope and promise to inspire you to take the leap and move to the next phase.
Conceptual budgeting occurs at the critical time of determining if a specific piece of property is worth pursuing. I advise my clients, daily, to do enough research to get excited, and then always, to consult with an expert and purchase third party Feasibility Study to reinforce the excitement, or diffuse it so that educated risks can be taken, or not.
When determining the cost to build Self Storage, the concept budgets can be as simple as using construction “ballpark” numbers for the type of Storage you are considering building, adding in land acquisition costs & bank financing to determine a baseline budget. It’s important to keep in mind, that banks will require “equity participation” or a cash investment to the tune of 15% -30% of your budget, and using these “plug” numbers should help you build to the scale that is appropriate for your situation.
Now, lets take a look at nationwide “ballpark” prices for the different types of Storage: Costs outlined below are considered “Turn-Key” Construction costs, and should represent a budget that includes everything less the cost of land acquisition, due diligence, and costs associated with financing.
TYPES OF STORAGE
Standard Exterior Access Single Level Self Storage:
Cost per Square Ft. $40-$45 PSF
Average Parcel Size: 3-5 Acres
Typical Coverage Ratio: 40-45%
Average Facility Size: 52-88K sq. ft.
Single Story Climate Controlled Storage:
Cost per Square Ft. $45-$55 PSF
Average Parcel Size: 3-5 Acres
Typical Coverage Ratio: 50%
Average Facility Size: 52K-87K sq. ft.
Multi-Level Class A Self Storage:
Cost Per Square Ft. $70-$80 PSF
Average Parcel Size: 1.5 – 2.0 Acres
Typical Coverage Ratio: 45-50%
Average Facility Size: 88 – 117K sq. ft., Gross = 62K – 88K Net Rentable
Boat and RV Roof Only
Average Cost Per Square Ft. $25-$32 PSF
Average Parcel Size: 5-10 Acres
Typical Coverage Ratio: 40-50%
Average Facility Size: 80-100K sq. ft.
Boat and RV Fully Enclosed –
Cost per square ft. $50-$60 PSF
Average Parcel Size: 7-10 Acres
Typical Coverage Ratio: 40-50%
Average Facility Size: 80-100K sq. ft.
*The average new construction project today, will yield between 500-700 mini storage units or between 150-200 Boat and RV units, and while smaller – less risky development is undertaken regularly, it’s important to note that construction costs are higher on smaller projects, and the return on cash is often much less.
Armed with these ballpark budgets, ratios, & land requirements - you can start to look closely at your specific site, or a group of prospective sites, to determine which one might be worth pursuing to the next level. Keep in mind, that every market has it’s own nuances, and the above “rules of thumb” are from data pulled nationwide, across a wide variety of markets.
Should your market specific due diligence provide more incentive to move forward, it may be a good time to look at investing in conceptual site design for your project. Typically, at this juncture, you have decided to pursue the purchase, or have purchased your land, and can employ an industry expert to help draft a concept plan for your new project.
There are many skilled and experienced Architects, and Designers that specialize in Storage that can help you put concept site designs and renderings together for your project for a nominal fee. Preliminary documents, can make the next step of budgeting much more thorough.
INITIAL CONSTRUCTION BUDGETING
If the concept bid is akin to pondering parenting, than the next phase of construction budgeting might be the reality of an up-all night infant or a temper tantrum throwing toddler. One minute, seemingly on track, and the next totally derailed. Be patient during this phase. There is great value in walking the path of the folks who have gone the road before you. Talk with other developers, and network with other storage operators. Research and feedback, are essential.
The next decisions a developer makes in the process of determining budget are critical in measuring the success (or failure) of a budget, and can be consequential in the profitability of a project.
We mentioned that a feasibility study is critical, and important. Likewise, a good concept plan is going be vital in determining the feasibility of your project, and will help in fleshing out the realities of a site. It should propose a building layout, a concept unit mix, and basic renderings of the buildings. It should be based on the topography of the site, access, zoning restrictions, and local design standards. These documents should enable you to build a business plan, and proforma, working with site specific land costs.
Among other things, these documents can assist in the site plan approval process and are also a perfect vehicle to start talking with experienced contractors that can discuss more specific costs per square foot based on other similar projects.
Put some thought into each of the disciplines of the construction project, and working with your contractors, you can attempt to put a value to each category.
Marc Goodin, president of Storage Authority Franchising, and owner of three storage facilities, wrote recently that the primary catagories to include in a final bid are:
- Erosion Control: Including Silt Fence, construction entrance, inspections, sedimentation traps, etc.
- Site Work: including mass-earth work, rough grading, final grading, sub base, and base materials, compaction, quantities, depths, etc.
- Paving: Including two courses, thickness, type of pacing material, etc.
- Drainage Including Piping, catch basins, storm water detention basin, end of job cleaning, etc.
- Landscaping: Including topsoil, lawn establishment, landscape plantings, watering, irrigation
- Utilities: Including water, sanitary sewer, gas, propane, cable, internet, electric.
- Concrete Foundation: Including full foundation vs. floating slab details and requirements, how the foundation will be formed and finished, concrete strength, saw cuts, curing spray, minimum thickness, rebar testing, etc.
- Building Materials: Including insulation, HVAC for climate control, site specific siding materials, warranties, roof painting, etc.
- Building Erection: Including unloading, site preparation requirements prior to construction, ownership of scrap, leftover materials, and start and finish dates, etc.
- Office Build-Out: including special exterior features such as split block, doors, windows, flooring, ceiling, HVAC, electrical, plumbing, bathroom, and fixtures, trim and finishes, carpentry, desks and cabinets, wall product displays, utility room, etc.
- Lighting: Including site and building lighting, fixture types, wattage, light timers, etc.
- Security: Including camera location and types, screens =, recording equipment, door security, fencing, access control gates, software, etc.
- Site Signage: Including property and building signage, front door signage, office signage, lighted signs, etc.
Once you’ve discussed your project with the various contractors, and can update your concept budget with “closer to the truth” values, based on expertise and design. You can utilize rental rates and operating costs outlined in your feasibility study to make a determination to move forward into the site plan approval and formal construction document phase.
Quality construction documents in tandem with reputable and experienced contractors are the key to a good budget. Due to the varying degrees of difficulty with Self Storage projects, each submittal, county / city jurisdiction, and project is likely to have its own requirements. Generally speaking, expect to spend between $2.00- $3.00 psf for development of design / construction documents. The more work that is completed prior to bidding, the higher quality the bid.
- Geotechnical Engineer / Soils Report – This is critical in determining if the soils will need to be mitigated, and should be one of the first consultants on site.
- Civil Engineer (Grading / Drainage) - A good set of civil plans will provide guidance to your contractor on how much site work, site prep, mitigation, and storm water management will be required.
- Architect: An architect of record is required in many jurisdictions, think of this person as your “Quarterback” - tying together all of the design team. An architect is responsible for Elevation Drawings, Section Drawings, Material Specs, IECC Criteria, over-seeing fire suppression plans, and complying with local ADA regulations.
- Structural Engineer: Can be sourced locally, but is, many times – provided by the metal building company of your choice, based on budget bids during the previous phase. Allowing your metal building contractor to engineer, allows you to take advantage of the estimated economies of each system, and utilizes the industry specific knowledge relative to light gauge metal construction
- Mechanical Engineer – Utilizing an HVAC company that understands Storage may save you money. Remember – Climate Controlled Storage industry standard means meeting temperatures between 50 and 90 degrees all year round.
- Electrical Engineer – Again, experience is key. Electrical plans should be representative of industry standards (i.e. individually lighted units in units 10x15 and LARGER)
- Plumbing Engineer
FINAL CONSTRUCTION BUDGET
You have arrived at the place where the rubber meets the road. The FINAL most important budget will be developed based on the work you have done to date and will be used to obtain construction financing and execute contracts.
Choosing to work with qualified and experienced Self Storage contractors is a huge part of risk mitigation at this phase. A good contractor is going to outline hard bid costs, and bring attention to the things that may still be nebulous. It’s important to remember, that a construction project is NEVER perfect, and chances are, the unknowns, will equate to real dollars spent at the end of the day.
“Budget Busters” – can come at anytime. The most common reasons for budget overruns are time delays between budgeting and construction (fluctuations in cost of material and labor), previously unknown conditions with site work and soil types, misinterpretation of IECC standards, and lastly, failure to quantify the extent of soft costs and initial operating expenses.
We recommend including a 15% contingency fee be added to the bottom line of every budget, to help offset some of the hurdles you can expect to jump through during construction.
They say in life, timing is everything. So too does this old adage play into construction budgeting. Costs for construction material and labor can change on a dime- so be sure to qualify, when talking to your contractors, how long a proposal is valid, and how a company will deal with price fluctuations during the course of construction.
According to Larry Damato, owner of DAI Contracting in Irvine, CA, remediation of poor soil conditions are the number one most under budgeted item in construction. “A comprehensive soil report, early on in a project, will save money, time, and heartache down the road. It will help a contractor get $.10 - .20 cents a square foot closer to accurate if it’s done right, and done early. Additionally, it helps a structural engineer design a more cost effective slab. It helps all of your trades, and shouldn’t be overlooked.”
Additionally, Mr. Damato brings to light a new, and separate issue that has Self Storage Developers jumping through new hoops. The code change in 2012, and the advent of IECC standards. “Developers that built in 2005 and 2006 are in for a shock when they compare budgets for insulation, energy efficient LED lighting, low energy windows, etc. – these items have to be budgeted using new protocols that unfortunately, are variable and differ in every project. Your architect is key in helping to establish how these will impact your project.” Said Damato.
Your Architect & Engineering Team are the first and most important of your “soft costs” in construction, but there are other items that can be overlooked, but require capital on the front end, and hopefully, have been factored in the overall scheme. “Probably close to 50% of our clients, severely underestimate the cost to bring utilities the site, and also fail to budget for special inspections. These are considered “soft costs” and are typically not part of a General Contractors scope” Says Robert Stacks, owner of RDS Construction in San Diego, CA.
When finalizing your budget, make sure to include values for:
- City Site Plan Application Fees
- Construction Permit Fees (including city taxes, school fees, etc.)
- Construction inspection fees
- Bank Fees
- Appraisal Fees
- As Built Survey
- Interest during Construction
- Legal Fees
- Accounting Fees
- Construction insurance
- Utility Connection Fees
- Management Software
- Insurance Premiums
- Website Development Costs
- Office furniture / supplies
- Computer equipment
- Maintenance equipment
- Retail Product (i.e. locks, boxes, packing tape, etc.)
It’s a long road from conceptual to final – and it’s full of learning opportunities and mentors that can help you along the way. You’ll probably encounter some forks in the road, and you will take them, and learn. There is no advice more valuable than that of someone who has hit a landmine or two and can point out some ways to avoid it.
Building a budget is hard work. It’s tedious! Not unlike another job many of us have. The good news, is that if the budget process is similar to the early years of parenting – then the culmination of having done a good job with the process, is like sending your child off to college on a full ride.
You’ve got your bases covered, you’ve planned for the next journey ahead, and if all goes as planned. This baby will be taking care of you in the years to come.
Angie is the National Sales Manager at Mako Steel, a company that specializes in building Self Storage. When she’s not helping developers build Storage, she’s having philosophical debates with a 7-year old princess….and losing.