Self Storage- Deal 19 Add another row of buildings to existing site Analysis

Doing analysis to add another row of storage buildings to one of our existing locations.  Haven't really looked at construction costs in 2 to 3 years.  We want to add more to our product mix.  So will do 12 wide versus 10 wide; 12 tall versus 10 tall; 30-foot depth versus 10/15/20ft, interior motion light and light amp plug in.

Have the total deal analysis done, except waiting on electrician.  This deal is straight forward Building cost, Concrete, Electrician, security cameras, signage, building permit, engineering costs.  Rest is already owned- land, fence, overall electrical, overall security systems, driveway in front except for extension to building.

Overall cost $597,000 on 13,680 sqft, building cost is $450,000 of this total. Again, a lot of the location cost is already bought and built into our Phase 1 Deal Analysis, so you can't use this for a Startup analysis.  This cost is a little high.  This town requires frost free footings versus a floating slab, even though these units are not temperature controlled. Adds about $40,000 more concrete work and another week worth of time to make and pour footings.  This is also quoted with a Standing Seam roof which is structurally more dependable.

Finance- Phase 1 was thru an SBA loan.  Both the SBA group and the Local bank are all set to do this deal, just need to finalize the Analysis.  Will be 10% down on our part.  Both SBA and Local bank will cover 45% each.  SBA will be a 20-year fixed term.  Local bank will be a 10-year fixed, then 5-year balloon adjustments.  So, we will put down $60,000.  SBA said we might not have to put anything down and could use our built-in equity on Phase 1.  Assuming a 6.5% rate.

Units- 38, 12 by 12 by 30 ft depth.  Using our 10 x 20 market rate.  Normally larger units get less per square foot, but these mid-size units actually hold the per sqft price.  Assumed 85% occupancy, normally I use 90% for Deal Analysis, but last time these banks preferred 85%.  Property tax, insurance, electric, and Maintenance ($0) are easy to estimate.

Year One write-off- will write-off electrical, driveways, signage.  This time we are having the Building Contractor make a single line item for the Doors.  We have never written off Doors before but will do this time.  38 doors at about say $1,500= $57,000.  Concrete work $44,000; Electrical $20,000; Security $15,000.  Not a lot in total but will take off $136,000 at say 25%= $34,000 Federal income tax.  Basically, an interest free loan for a while.

Return- I always calculate a cash flow before and after P/I payments.  $73,000 before and $24,000 after P/I.  Couple ways to evaluate this deal.

A.  $24,000 after P/I cash flow/$597,000 total cost= 4% return.

B.  $24,000/$60,000 downpayment= 40% return.

C. CAP rate value $76,000 OPI/6.5% use same as the interest rate= $1,169,000 market valuation, versus total cost of $597,000; or versus Downpayment of $60,000; plus, the ongoing Cashflow as long as we hold it. Since these buildings don't deteriorate the Market Valuation pretty well stays forever. $572,000 Market value increase/$60,000 downpayment= 953% return.  Normally we shoot for a 400% return when you factor in ALL costs for a new site.  Those figures can't be right, right?

D.  Cash on hand, Federal Debt, projected interest rates and Inflation- I have a negative view of the future.  So, any CASH on hand will lose its value in 10 years.  Any hard Assets we own will double in value in 10 years (not really value, but Cash price, Cash will be worth less).  This isn't a true return, just Cash going worth less.  So, this return is the safety of moving more Cash to hard, rent paying assets.

Sensitivity Tests- we always do sensitivity tests on Cost overruns, Interest rate change, Occupancy change.  This time we did not do a Cost overrun analysis since all of the big items are covered and contracted.  Interest rate we did 1% point higher.  No impact.  Occupancy we always take down to where Breakeven and P/I are covered.  Took down to 50% occupancy versus 85% and all costs and P/I covered.  We can always cut rates and get renters in.  So, Storage is not a Zero-Sum game.  Our Lenders always appreciate knowing we take these Sensitivity tests into account.  Even though they do this on their own also.

Mistakes- twice I forgot to add in Construction Interest.  But finally added to our Deal Analysis template, so not making that mistake.  Used 7.5% for Construction interest.  We may have added costs for a street sidewalk.  Last time we built they mentioned if we ever develop the front (which we are not) they will require a public street sidewalk.

Potential Issues- Get drawings from both Building manufactured and our local Engineering firm for site.  Getting thru P/Z departments.  Building Manufacturer lead time for delivery.  Get footings in the ground before winter.  We are in Iowa.  Need done by December 1st.  Today is June 13th.

Start small and Make Your Big Mistakes Early.

New row will be behind Daisy towards the existing Storage buildings. She is a guard dog and not a Pointer.  Would have looked better if she was pointing the other direction.