Entering the self-storage industry can be an exciting prospect. The chance to develop and build your own facility can lead to a financial windfall but getting started can also bring with it many newfound risks. Getting the most out of your self-storage facility requires the right amount of capital, good locations and industry expertise. All of these things can be difficult for one person to obtain which is why building an equity team can help you mitigate risk by allowing you to team up with expert business partners who can assure the projects optimal success.
Here are a few things to consider when building your equity team.
Why build an equity team?
You usually want to build an equity team when you have a self-storage project but you are lacking the key ingredients to get that project off the ground. For example, you might have a good plot of land, but may lack the capital needed to develop the property or vice versa. Perhaps, you have both the land and the capital to develop the project but you lack the expertise in dealing with municipal building codes.
An equity team adds an infusion of management, financing and expertise to a project you are unable to complete on your own in exchange for split ownership on the project. However, the formation of an equity team should not be taken lightly because working with bad business partners can only hurt your project. Here are a few things you need to think about.
Draft a summary of the property location
If you are looking to build an equity team for your self-storage project, then it is important for everyone on your team to have all the necessary information regarding the location. Bring a summary of the location that tells potential members of your equity team the size of the land, the zoning and the history of the site. The land history should tell team members what the land was originally used for in the past and if there is proper access to utilities. Be honest about the condition of the land and tell reveal and issues that could be prohibitive.
What is the entitlement status?
What do your local municipalities think of your project? Has your project been zoned for self-storage and do you have all the necessary permits to build a self-storage facility? The biggest thing you need to avoid when it comes to entitlements is resistance to your project. If a city or its citizens are against your project it can be almost impossible to get your facility properly zoned.
Figure out if it is feasible
Make sure you have a feasible project before you and your team begin investing in a self-storage project. Know how much competition is in your area. What is the demand for a self-storage facility and how many self-storage facilities are in your area? Do a feasibility study and learn how much your competition pays in rent, how occupied they are and what it costs to build their facility. Knowing these things will give you a greater sense of the market and allow you to correctly assess your own project.
Create accurate projections and a budget
Make sure you have projections of how you think the project will do month by month by creating a proper profit and loss statement. Create accurate traffic reports so you know how many people come through your area at a given time. Report on each phase of construction so we can accurately asses the cost of the project and when it is projected to be completed.
Most importantly make sure you have good character references for every member of your equity team. You always want to work with people of high integrity. Character references should be with people and organizations your team members have worked with in the past. They should have a good credit history and consistently pay their loans on time. A past lawsuit does not need to be a deal-breaker but a history of lawsuits is a bad sign. Doing your due diligence with the people you are working with is so important in preventing unwanted risk.
Starting a self-storage facility can be a difficult but rewarding process. Building the right equity team around you can ease some of the burdens and mitigate your risk in a hot market. Follow the steps and cover all your bases and you should be on your way to a strong partnership.
Dave Kotter is the Principal of Integrity Capital LLC, a commercial mortgage brokerage in Scottsdale Arizona. Integrity Capital has obtained self-storage financing for clients across the nation. They are an expert in the industry.