Adapting to the Shifting World of Self-Storage and Boat and RV Storage Development in 2022

I spent time with four industry experts to gain their perspective on best development practices and expectations given the current state of the self-storage and boat and RV storage industry. They delivered words of wisdom and insights from having boots on the ground and skin in the game valuable to all of us building self-storage and boat and RV storage.

Meet the Experts

Lisa Maloney, Director of Strategic Accounts for Boxwell—a leading provider of relocatable self-storage units and portable storage containers.

Angie Guerin, Vice President of Business Development for MakoRabco—a nationwide self-storage and boat and RV storage building supplier that provides engineering, planning and building services company that specializes in storage design, supply, and installation.

Ted Culbreth, Vice President of Sales and Marketing at SDS Construction—a company specializing in both new self-storage construction and repairs/restorations.

Jamie Lindau, National Sales Manager at Trachte Building Systems Inc—a company that designs, manufactures, and erects a full line of durable, pre-engineered and customized steel self-storage and boat and RV storage systems.

What is your advice to self-storage and boat and RV storage developers in the process of getting bids for new storage facilities?

Maloney goes right to the point. “It’s always good to consider all the costs associated, not just the actual buildings or relocatable self-storage units,” she explained, “Make sure you are including costs estimates such as ground prep, site layouts, full build, and installation.” 

There are times when the cost of the buildings alone appears similar from one company to the next, and she implores us to remember to add in the installation service or ground prep required to see the cost per square foot. “This can increase dramatically with one company and not the other,” she continued.

Guerin takes an approach rooted in collaboration and based on the details of a project, “Read the fine print. What's the economy looking like? Contingencies are still really important, not just the steel building line item, but really the overall construction project,” she said.

A project is only as solid as its team. “Make sure that you're working with your lender. Lenders have a great experience at this point, understanding how valuable that contingency is to the developer—budget needs to be a soft spot to land when you're dealing with rising costs,” Guerin cautioned.

Open dialogue can do a world of good in a shifting market. “It's not safe to assume that no news is good news. The industry is changing so drastically.” Guerin continued, “If what the general contractors that our clients are saying are true, then the same thing that happened to steel last year is now happening to other trades.”

The steel industry isn’t in a bubble. The effects of these changes impact other industries in more ways than one—not the least of which being the self-storage and boat and RV storage industries.

“It's unrealistic for developers to think that, ‘hey, I'm going to lock in my pricing 18 months before I break ground.’ That's not a realistic expectation. Know your budgets. Make sure that your loan is covering what your contractor's expectations are for cost moving through the project,” Guerin advised.

Ted Culbreth’s advice centers on relationship building. “Put together a team or a partnership of civil engineer, architect, general contractor, and start. Have all three of those people in place when you start the development process,” said Culbreth, “When you get to the point at which you're submitting for a permit, and you're going through the bid process, that's the number you're going to contract with. You need to have a relationship with the group at that point because that's when it's going to be crunch time.”

Culbreth encourages a “ferreting out” process early in the design to make sure everyone’s on the same page and avoid roadblocks like unavailable materials. “You can weed all of that out before you ever get to the point where it's going to cause you a problem.”

The architect, engineer, and general contractor will be able to value-engineer the design through the process. This creates an environment to have the fewest surprises possible.

Jamie Lindau acknowledged one of the main factors of development today, “The costs are higher than it was two years ago. And that is the truth, and that'll be painful to watch,” he said, “But the flip side is the industry is so strong, and rental rates have increased. Even though you're paying more, it'll offset itself,” Lindau explained.

Make sure your plans work on paper, and, if you ask Lindau, there’s no such thing as cutting corners. “You should always build it for the long term,” he cautioned.

It can be tempting to buy cheaper materials, especially if you’re selling the project to someone else, but when it comes down to it—building for the long term is better business, reputation, and return on investment.

At what point do you advise developers to lock in their price for portable mobile units?

Pricing is typically one of the most variable aspects of development—as we’ve discussed, materials and deals aren’t getting any cheaper. Maloney explains the importance of taking increased demand into account.

“I would lock in orders for portable units as soon as you are ready with funds,” she said, “You would not want to be behind in your planning for having units on-site and with the increased demand and freight issues. Plus, you are likely to find out that the production timing is not as quick as you had originally anticipated,” she continued.

It’s a roll of the dice when it comes to metal companies saying they’ll hold their price until a certain point.

“Where you're trying to finalize your budget is once you've got your construction permit, and breaking ground is on the horizon,” Guerin said, “Make sure that you're communicating and asking for clarification on what risks the developer might have.”

It can be tempting to lock the budget in right away but ask yourself what the scene may look like in six months. “Does it make sense to lock it in today? Does it make sense to have that expectation?” Guerin continued, “Clarity needs to be asked for and received from a subcontractor vendor.”

The contract itself can lend to a clearer understanding of the timeline. “We can lock in our price when we sign the contract,” claimed Culbreth, “I can then turn around and lock in my price with my steel supplier. But there are a ton of contingencies on that because I'm locking it in based on a date that we're going to take delivery.”

If you can't see far enough ahead on the deal, then it’s a greater risk to lock in prices. Variables abound in the development world. Weather, delayed building permits—conditions are always shifting.

“Most people don't lock anything in,” Lindau reasoned, “Forget the price part. You’ve got to get the service behind you because, what's happened, is everybody wants to build these things, and what is the capacity of the people who are qualified to actually build them?” he continued.

And, of course, with that consideration comes the trick of availability and seasonal struggles. Building in the dead of winter can prove detrimental to new businesses due to the lack of traffic and awareness. I don’t know about you, but I’m pretty thoroughly hibernated in the winter months.

“I refuse to ever build in the dead of winter ever again,” said Lindau, “I would do whatever it takes to build before the winter.”

The war of timing, conditions, prices, and availability is rampant. “How do you win the war? You open a good facility built well. One that’s correctly laid out in a good market,” stressed Lindau. If you’ve overspent on a project, that’s no matter if the completed project is profitable.

Are there other construction costs you currently are seeing rise or decline, or that you anticipate going up or down in 2022?

It can be close to impossible to nail down what will and won’t rise or fall with all the variables in the market. However, our experts gave it their best shot.

“If there is anything that 2020-2021 has taught us, it’s that we are not very good at predicting the future of world economics and trends,” Maloney said, “We’d love to be able to give all our self-storage and portable storage customers a big hug and let them know that production and prices will be going down over the next year. And we are doing all that we can within our power to make that happen,” she continued.

Watching the numbers can be disheartening, but it can also be fruitful when it comes to tracking highs and lows. “We have seen freight rates begin to drop over the last month, and we are hoping that this trend will continue. Demand for storage is still high, and manufacturers are working hard to secure employees and find ways to fill all the needs of the ever-growing self-storage industry!” she said.

Another way to address these possibilities is to assume that prices rising is a given.

“I anticipate pretty much anything and everything will keep going up. Now, the steel thing— that's unknown. I don't know what that's going to do. I foresee steel coming down sometime in 2022,” said Culbreth, “But if oil continues to go up, then what's that going to do to the trucking and the price of manufacturing and inflation with everything else that goes into it?”

All of the pieces in play can cause a hectic mess of calculated risk. “My best hope right now is that 2022 is a year of stabilization,” continued Culbreth.

“You have to try to know the costs of getting it all completed—the project,” said Lindau. “You better plan. We're selling a lot of these outside access garage doors, and the problem is that a lot of them are four to five months out. So, the price has doubled for those.” And with high demand comes higher prices and longer wait times. Understanding the timeframe plays into pricing, including shipping times.

In the past, a 10% construction contingency has been the rule of thumb. What are you now recommending developers allot for contingency?

This question is a tough one to answer—every situation is so unique. Contingency can be flighty.

“I haven't seen a new facility in our situation that has gone above [10%]. But that is because we are so proactive with updating our prices so many times in the process,” said Culbreth, “So that when we get to the day that we have to lock in, they lock in their loans and we lock in our contract, we have kept our finger on the pulse of this so well that our developers don't lock it because the price goes up every two weeks.” It’s not foolproof, but it serves the purpose of providing reliable service.

“So, you know, they've seen these prices climb and climb and climb. But we stay on top of so much that I think if they still kept that 10%, they would still be fine. It's just 10% of a much bigger number than it was two years ago,” Culbreth continued.

Lindau takes a broader approach to contingency. “There are two parts to a contingency,” he explained, “the first is a construction contingency designated for cost overruns and unplanned added costs—including escalating materials costs. The second portion is for working capital during rent up. Typically, you set aside money for the 1-2 year rent up period to get you to the breakeven point.” He added, “Many lenders include an interest only period during construction and rent up, which makes it easier for new developers. A 20% total contingency is reasonable in today’s environment.”

Just like all aspects of development, contingency will fluctuate as 2022 takes shape. All we can do is keep an eye on the market, build strong relationships with contractors and clients alike, and pivot with the changing times.

 About the Author

Katherine D’Agostino, Founder, Self-Storage Ninjas

Katherine D’Agostino, MBA, is the founder and owner of Self-Storage Ninjas, a national feasibility consulting firm. A former marketing-communications executive turned Sensei, Katherine has a background that includes 24 years of creating and implementing business plans for a wide range of companies. A self-storage developer and owner herself, she focuses on delivering quality in-depth unbiased reports that empower investors to make knowledgeable well-informed decisions.