by Terry Campbell | metalbuilding.com
Conventional wisdom has taught those in the self-storage business that while the business isn’t recession proof, it has always been recession-resistant. But all bets are off these days. Self-storage is feeling the residue of the current downturn for two reasons: 1) Getting financing is much more difficult, and 2) most people seem to have a passive, “wait-and-see” attitude toward the economy, rather than the usual aggressive stance we saw a few years ago.

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However, even under these circumstances, self-storage is still a viable business, in spite of the naysayers, and there are strategies one can employ during uncertain times to ensure success. In fact, the smart investor knows how to turn a negative situation into a positive.
We have all heard that during tough economic times, some people look at the situation as an opportunity to actually make money, while others are either losing money or trying to stay even. This is absolutely true. For example, some investors buy up depressed stocks or commodities during a recession, hold onto them until the economy improves then sell them at a substantial profit. This is a sound strategy, if you have enough discretionary money to participate and if you’re in no hurry to make a profit.
Then there are instances where a recession will create a set of circumstances that will be beneficial to certain businesses, if those in the business can take advantage of the circumstances. This is precisely what is happening in the self-storage business today. There are compelling reasons for those not in the business to take the plunge now and those already in the business to expand. Here’s why:
Building materials and land costs are lower.
The uncertain economy has forced building prices lower than they have been in years. If you consider that building material costs are one of the single largest expenses an owner will incur in building a facility, you can assume that bargains simply don’t come along except in unusual times. And you can bet that these are unusual times.
The same can be said for the cost of land, although it will vary, depending on location. Land costs in some areas of the country continue to appreciate, some are holding steady but most continue to fall. Therefore, on balance, there are bargains to be had.
Finding Financing.
Even though interest rates are low, banks are now requiring higher down payments. This is a problem for some investors because they have to come up with more upfront money than in previous years. But there are ways to get around this by partnering with others. In other words, there is strength in numbers. If an investor can’t come up with 100% of the down payment necessary for a construction loan, there are others, in similar circumstances, who are perfectly willing to step up and participate in a limited partnership arrangement. And there are those in the business, e.g., some manufacturers, consultants, and commercial real estate brokers, who are in a position to help locate suitable partners.
Design considerations.
Before construction can proceed, buildings must be designed. During prosperous times, a good design team may be hard to find and expensive to boot. In contrast, tough times usually finds designers more available, which means they are probably less expensive, and may require less time to turn plans around.
A good deal of time, expense, and headaches can be avoided if one seeks out a single-source manufacturer because, among other things, it will have its own design and engineering departments. The fewer suppliers you have to deal with the better. And speaking of manufacturers, a weak economy will more than likely present opportunities to save on manufacturing production time because fewer jobs will be in the pipeline, which will mean faster scheduling.
Once plans are completed, they must be submitted to the proper city and county authorities in order to obtain the necessary permits. Once again, time and expense come into play in this process.
Permitting and zoning.
When times are good and there is a lot of construction going on, self-storage projects can expect higher costs and increased time in obtaining zoning and getting permits. That’s because there are so many projects in progress that permitting, which may normally take a month or so, can be protracted into many months. It’s also because city and county officials are overworked which could extend approvals longer.
But in a difficult economy, the process gets speeded up. Why? Due to limited submittals there are fewer competitors taking up the time of city and county staffs. This could result in approval times being cut down considerably.
Advantages of construction during economic downturns.
Poor economic times actually can create advantages for the construction process. Here’s why: During good times, if construction superintendents or contractors want quality, they should anticipate higher costs and increased production time due to the fact that everyone is busy and can charge more for their services. The reverse is true in poor economic times. If you want quality, you can realize lower costs (more qualified workers available) and shorter production time (better workers mean faster building erections).
Of course, if you have a building manufacturer who provides their own certified construction crews, this can be a substantial advantage in any type of economic environment.
Finally, an owner or prospective owner should not be discouraged just because the economy goes south. Traditionally, the very nature of the self-storage business means that owners take fewer risks than most real estate developers, so a declining economy is no reason to stand on the sidelines and wait to see what’s going to happen. There are plenty of reasons to be pro-active and make things happen on your own terms.
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