Local industrial property, zoned for self storage, is hard to come by to build or convert. Not to mention expensive. I have found some smaller buildings that could be converted to self storage but the catch is that are for lease, not for sale. My initial pro-forma shows a leased scenario has a much bigger return than a standard build/buy/convert path, but I can’t find anything online regarding this method. Is it not done? If not, why? I realize caution needs to be taken to get protections in the lease so the business and your customers don’t have move in 5 years. But if the return is there for the next 10-20 years, why would this not be a great option? What am I missing? Why is this not a common set up for self storage conversions?
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
4y
Ton of risk in forking over the initial capital to get setup, you get no depreciation, and industrial is pretty darn hot too, so I'd think the location would be really poor or need a lot of work if a landlord really was open to it.
I'm sure this happens in very tight coastal markets, but with larger operators and very long lease terms.
Houston, TX · Member since 2019 · 99 posts · 26 votes
4y
It will also depend on your exit and finance strategy. If your exit strategy is to sell the SS on leased lot/facility, it will be very difficult if not impossible. Financing will also be limited as most banks want a lease much longer then the financing term (so if financing for 20 year, they want lease to be at least 25 or 30 years), also probably forget about SBA. As mentioned above the tax benefits are out of the window since it is not your property, the owner of the property will get it. You are also at the control of the owner of the property on lease increases and overall control.
If you are in high cost area, may I suggest you look at laws around storing equipment on land instead of real estate, so like storage containers and portable units. Those may not require commercial zoning to the same degree and if those laws look favorable, just buy non-commercial property and fill them with portable storage units and call it self storage. This way you own the land, the business, save on taxes as equipment can be depreciated much faster, financing for the units exists in form of equipment loans and land loans, you can easily expand with demand just by adding more units...etc.