Smart Land Buys: Key Property Traits That Keep Construction Costs Low

Investing in commercial real estate can be a worthwhile endeavor, but maximizing returns requires strategic decision making, especially when it comes to construction costs. While many people think that location is the most important part, smart investors know that the characteristics of a parcel can significantly impact the cost of development, especially when it comes to self storage. Factors such as terrain, utility availability, zoning restrictions, land use, and existing site conditions all play a role in determining how much a developer will spend before a project is completed. Understanding these factors can make the difference between a cost-effective development and a budget-breaking endeavor.

Hidden Development Costs

Investors considering building a self storage facility that are looking for ways to reduce costs and avoid overruns need to begin by properly reviewing the land they’re interested in. To make an accurate assessment it is important to analyze all the details before determining an offer price.

The land itself can drive up construction costs due to bad soil conditions, steep or uneven topography, unusable land (wetlands, floodplains, easements), and other issues.

Some other factors that can increase construction costs include:

• Utility Access: Required utilities may not be on the site already. Sometimes, these utilities can be run to the site from a main source, and other times, they are simply not available. For instance, a more rural site may not have public water and sewer in the area. If these utilities are required, then an option would be to drill a well and add a septic system.
• Fire Requirements: Every municipality will have a variation of its Fire Code and Regulations. Some may require firewalls to separate a fire area, others will require a full fire suppression system, and others could require fire hydrants on the property. Another requirement could be to have a secondary exit to be used in case of an emergency.
• Ingress/Egress: It is ideal if there is already a paved driveway to access the property. If not, it will need to be determined which authority controls the process/permitting to allow ingress/egress to the site.
• Environmental Reports: A municipality could require third-party Environmental Testing and Reports to be completed. For instance, if a seepage bed is required for the property, appropriate tests must be completed prior to construction.
• Drainage Requirements: Drainage requirements vary from parcel to parcel depending on the topography and the area of the country the property is located. The best way to know exactly what these requirements are is to hire a Civil Engineer to provide a drainage design working directly with the municipality’s requirements.

There are other regulations that a municipality may have in place that limit how much square footage permanent structures can take up on the parcel. That is, you may only be able to build on 40% of the area of the parcel. This could directly impact on the rentable square footage you are able to obtain by developing.

Zoning and Acceptable Land Use

It is important to understand the difference between Zoning and Acceptable Land use for a parcel.  Municipalities categorize land in the community based on where it is located, the current use of the land, and what is acceptable to be developed on that parcel. Although there are many similarities on how zoning is done from municipality to municipality, each one will have its own codes and definitions.

A common mistake made amongst new developers is making assumptions that if a parcel has a specific zoning, then self storage will be okay to build on the site. This assumption could be costly. It is imperative to dig deeper and learn what the Acceptable Land Use is for that property.

If the property’s zoning and acceptable land use does not work for self storage, there are a few options. First, the property could be rezoned. This process is not consistent between different municipalities. It is essential to ask what the process is, the cost to apply for rezoning, and how quickly it could be executed. If the property is zoned correctly, but self storage is not an acceptable use of land, then a Conditional Use Permit (CUP) or a Special Use Permit (SUP) may be an option. This is an option that needs to be discussed directly with the Planning and Zoning Department for the municipality.

Ensuring that a property can be developed and used in a specific manner is part of the Entitlement Process. There are those who can be hired to assist in this process; however, this is an additional cost that should be accounted for.  Below is a list of experts that could help if there are hurdles during this process.

• Architect
• Civil Engineer
• Land Use Attorney
• Self Storage Development Consultants

Design Requirements

Municipalities not only have say on whether storage can or cannot be developed on property, but they can also have specifications that the buildings(s) must meet.  Some of these requirements will directly increase the cost of development. For instance, the municipality may dictate that there can be no more than 40% of steel paneling on building. In this situation, it would be required to use other material such as stucco or masonry products. These other exterior building materials are more expensive than a typical exposed fastened metal panel. There are other times that a municipality may indicate they do not want any buildings to be visible from the road. This would typically require a tall CMU wall, which in return will drive up costs.

Environmental Regulations to Consider

Before purchasing land, it is important to consider the environmental regulations in the area. Depending on the location, there may be local, state, and federal regulations that need to be considered. For example, the Clean Air Act requires that any new construction projects must meet certain air quality standards. Additionally, the Clean Water Act requires that any new construction projects meet certain water quality standards.

Other Considerations When Selecting Land for Self Storage Development

Other considerations to consider when purchasing land for self storage development include:

• Proximity to residential areas. The ideal location for a self storage facility is one that is close to residential, particularly multifamily. This gives it the edge when nearby customers search for a facility online.
• Municipal Borders. Whether or not the land is inside or outside of city limits also factors into a facility’s online searchability. Purchasing land outside of municipal borders may be less expensive, but it will likely not appear as prominently in an online search if the query includes the name of the city or town.
• Natural and Human-Made Barriers.  Although a facility may be close to residential areas, some barriers will deter a renter from going to a specific facility.  For instance, if there is a residential area close by, but tenants would have to cross a busy thoroughfare, they are likely to select a facility that is on the same side as they are to that barrier.

Final Thoughts

Selecting the land to develop a self storage facility can be a daunting task. Finding the ideal site can take time and research. An affordable parcel may not be too visible. A visible parcel may not be zoned for a self storage facility. A parcel in an eligible zone may be prone to flooding or be in an odd shape. When selecting land, keeping these fundamental considerations in mind could prevent an investor from costly problems down the line.

Contributing Editor: Melissa Anderson, Forge Building Company