Self Storage- Inflation- Large Diet Coke please; $1.09; $1.39; $1.59; $1.70

Commercial Real Estate Investing
3wFollow

Self Storage- Inflation- Large Diet Coke please; $1.09; $1.39; $1.59; $1.70

Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes

Normally I get a Large Diet coke most mornings. Just went up from $1.59 to $1.70 today at Mc Donalds. It was $1.09 about 3 years ago. Before that it stayed at $1.09 for I think 5 years. This is my Day To Day living Inflation barometer.

Just talked with our Banker today, finalizing a loan for a new Addition and was thinking about our cost to develop.

Just Building, Driveways and Construction interest. Not Land, Fences, etc.

The new addition is 3 buildings totaling 13,680 sq feet. Cost to build is $42 per square feet. This location is different than all of our others. Requires hard surface driveways versus crushed rock. Also requires frost free footings of 48 inch depth versus 18 inch floating slab. I normally don't think in terms of cost per square feet, just the overall deal analysis. Probably 8 years ago I was around $28 per sq ft, but again, this was within concrete driveways and 48 inch footings. We have used the same Building Mfg and same Contractors always.

Large diet Coke inflation- $1.70 / $1.07= 56% increase.

Storage buildings, let's use $35 versus the $42 above versus $28= 25% increase. I guess I shouldn't be crying about my Self Storage construction inflation.

Self storage has "Sticky" customers, they don't like to move. I'm a Sticky McD Large Diet Coke customer, even though I could get one out of our fridge before I leave each morning.

1Reply
319 views

3 Replies

Jump to latestLatest
  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 891 votes
    3w

    The Diet Coke inflation barometer made me laugh, but it’s actually a pretty good way to look at inflation. The construction numbers are interesting too. Going from $28 to $42 a square foot over eight years isn’t insignificant, but it’s probably better than what we’ve seen in a lot of other parts of construction. And I like the comparison to self-storage customers. Once people get comfortable with something, they tend to stick with it even when the price goes up. There’s probably a lesson there for both of us.

    1Reply
  • Max Comperatore
    Technology · New York, NY · Member since 2026 · 48 posts · 10 votes
    4d

    Henry, Brian, the Diet Coke barometer is fine, but the underwriting proof is in the spread. Your 13,680 sf at $42/sf is $574,560 of vertical shell, up from $383,040 at $28/sf, a 50% increase or roughly 5.2% CAGR over eight years. That is not the full basis. Hard-surface driveways and 48 inch frost footings are horizontal infra per pad and per drive aisle, so they do not scale with rentable square feet. Underwrite them as separate site cost lines, then test LTC vs LTARV and take the lower proceeds.

    Brian, sticky customers support rent elasticity, but they do not cure a DSCR floor. At a 1.25x DSCR and a 9.5% debt constant, every $10,000 of NOI supports about $84,200 of loan. Run debt constants at current and plus 200 bp, then let LTC vs LTARV govern. S-curve carry is not straight line: light in months 1 to 3, peak in months 4 to 9, taper after.

    Henry, what stabilized NOI and economic occupancy are you underwriting on the 13,680 sf, and does that loan clear 1.25x DSCR at a 9.5% debt constant after the site work carry?

    0Reply
  • Henry ClarkPro Member
    OP
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    4d

    @Max Comperatore we stress test for our Lenders. Breakeven covering all costs and P/I also, occupancy is at 50%. Our rental rate per sqft is at market or slightly below, with new units. Including driveways and footings. We actually had two sets of buildings I did estimates on. This one shares a driveway with existing building. Whereas the other would have to carry the stand alone cost of a full new driveway. Did this one since less risk. Lower driveway cost.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free