What You Need to Know About Self-Storage Feasibility and Due Diligence. Presented by Jim Chiswell, President Chiswell & Associates LLC

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2 What You Need to Know About Self-Storage Feasibility and Due Diligence Presented by Jim Chiswell, President Chiswell & Associates LLC

3 There are no perfect self-storage sites left in the United States.

4 3 Questions Whether you re building or buying, there are three questions that must be answered: 1. What rate of return are you willing to accept? 2. What is the exit strategy for your equity money? 3. How long are you willing to wait for 1 and 2?

5 What Rate of Return Are You Willing to Accept? 20% 7.5% 13% >10% 15%+ 9.5% 24%

6 What Is the Exit Strategy for Your Equity? Equity Sell the store? Refinance? Estate transfer? At what stage? At what terms? Gift? Trust? How long am I willing to wait?

7 There are a number of similarities in the due-diligence approach to business feasibility, whether you re building or buying. President Ronald Reagan and Russian President Mikhail Gorbachev at the 1987 Intermediate-Range Nuclear Forces Treaty Trust but verify!

8 Trust But Verify What the seller s broker tells you about vacant land or conversion: I know you can build self-storage here. You shouldn t have any neighborhood opposition. Don t worry about the easements shown on the plot plan. They re old and no longer in effect.

9 All the information the seller gives you: Trust But Verify Here s our unit mix and street rates. Don t worry, your real estate taxes won t go up. Why do you need to look at every tenant s lease? I m sure I ve got those Certificates of Occupancy somewhere.

10 Contract: Due-Diligence Period A minimum of 90 days after all requested information is provided If rezoning necessary, until government approvals are granted

11 Acquisition Due-Diligence Items At least two years for all data: Operational history Financial history (tax return, balance sheet and income statement) Detailed tax bills (sales, property, and personal property) Copies of employee W-2s Statement of repair and maintenance bills Copies of utility bills Copies of P&C insurance policy and premiums Letter from insurance provider concerning any claims filed Copies of any service agreements and/or contracts for services Itemization of assets to be transferred (computers, power tools, hand tools, office equipment, etc.) Copy of the title-insurance policy Copy of rental agreement should be reviewed by counsel Copy of URL ownership information

12 Target Market Area

13 Target Market Area

14 ZIP Code 89015

15 Competition Evaluation Objective = Quantity and Subjective = Quality

16 Subject Site

17 Competition Evaluation Location Visibility Ingress/Egress Curb Appeal Quality Age Deferred Maintenance Signage Amenities Climate Units Security Office Image Management Employee Appearance Professionalism

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19 Silverado Self Storage 9930 Spencer St. Old Junk-Pile Self Storage

20 The Unknown Can Hurt You Are there any projects in the pipeline?

21 Clark County Assessor

22 6.69 Acre Site Zoned Community Mixed Use

23 Bing Maps Bing Maps

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26 Municipal Planning and Building Staff Search planning and permit records.

27 What will be your net buildable area? 6.5 Acre Site

28 What will be your net buildable area? Highway right of way Setback requirements Storm-water retention Floor-area-ratio maximums Green-space mandates Net 3 acres buildable

29 Have a vision of what you can achieve.

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31 Building Codes The 2012 International Building Code (IBC) and 2012 International Energy Conservation Code (IECC) Some of the key changes, depending on the building size, include requiring installation of sprinkler systems or adding firewalls to improve fire safety. The new codes also might mandate extra insulation.

32 Development Impact Fees Traffic/highway fees Schools Parks and recreation Lighting In lieu of fees offset sales tax Special districts Dog-walking path Mayor

33 Community Image of Our Industry

34 Homeowners Association Meeting

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38 11,695 households within a five-minute drive time Average household income = $55, % = >$75,000

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40 47% of residential storage customers have household incomes of $50,000 or less. Source: Self Storage Demand Study, 2013 Edition, Page 11, Figure 3-3

41 Demand-Potential Calculations Households 11,695 Current users 8.96% Subtotal 1,048 Number of units 1.3 Subtotal 1,362 Average square feet 120 Residential (80%) 163,440 Commercial (20%) 40,860 Total square feet of demand 204,300

42 Source for traffic data from across Nevada Typically available from every department of transportation

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44 AADT = 10,000 Source: Self Storage Demand Study, 2013 Edition, Page 28, Figure 3-19

45 Road-Construction Projects

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48 Construction or Buying Pricing $32.75

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50 The bathroom is a direct reflection of how you feel about your facility and customers!

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52 Occupancies Units rented Square footage Financial

53 Unit Mix Unit Size # of Units % of Units SF Total SF % of SF Rent Rate Price SF Gross Monthly Gross Annual % of Annual 5 x % % $35 $16.80 $350 $4, % 5 x 5 cc % % $45 $21.60 $1,035 $12, % 5 x % 50 1, % $55 $13.20 $1,375 $16, % 5 x 10 cc % 50 1, % $65 $15.60 $2,275 $27, % 7.5 x 10 cc % 75 1, % $85 $13.60 $1,615 $19, % 10 x % 100 9, % $90 $10.80 $8,100 $97, % 10 x 10 cc % 100 4, % $115 $13.80 $4,600 $55, % 10 x % 150 7, % $110 $8.80 $5,500 $66, % 10 x 15 cc % 150 3, % $140 $11.20 $2,800 $33, % 10 x % 200 6, % $125 $7.50 $3,750 $45, % 10 x 20 cc % 200 3, % $160 $9.60 $2,400 $28, % 10 x % 300 6, % $150 $6.00 $3,000 $36, % Unit Totals % , % $10.09 $36,800 $441, % RV/Boat Parking 25 <30 feet $40 $1,000 $12,000 RV/Boat Parking 25 >30 feet $65 $1,625 $19,500 Total $39,425 $473,100

54 Operation Expenses Payroll Utilities (gas, water, sewer) Phone (local and long distance) Advertising Insurance Office expenses Legal and professional fees Landscaping and maintenance Maintenance and reserves Trash removal Property taxes Management fee Miscellaneous Total expenses

55 Lease-Up Assumptions Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Total SF 45,000 45,000 45,000 45,000 45,000 45,000 Lease-Up Rate % 7.85% 7.85% 7.85% 5.25% 5.25% 5.25% SF Rented 3,533 3,533 3,533 2,363 2,363 2,363 Total SF 3,533 7,065 10,598 12,960 15,323 17,685 Units Rented Monthly Total Occupancy 7.85% 15.70% 23.55% 28.80% 34.05% 39.30% Rate Per SF $0.841 $0.841 $0.841 $0.841 $0.841 $0.841 Unit Rental Income $2,971 $5,943 $8,914 $10,901 $12,888 $14,876 RV & Boat Parking $210 $420 $630 $840 $1,050 $1,260 Administrative $300 $300 $300 $200 $200 $200 4% $0 $0 $0 $436 $516 $595 Total Income $3,481 $6,663 $9,844 $12,377 $14,654 $16,931 Monthly Expense $10,067 $10,067 $10,067 $10,067 $10,067 $10,067 Real Estate Taxes $1,667 $1,667 $1,667 $1,667 $1,667 $1,667 Net Operating Income (before debt services and corporate income tax) ($8,252) ($5,071) ($1,889) $644 $2,921 $5,197

56 Capitalization Rate Net Operating Income / Cap Rate = Value $350,000 /.07% = $5,000,000 $350,000 /.08% = $4,375,000 $350,000 /.09% = $3,888,889 $350,000 /.10% = $3,500,000 $350,000 /.11% = $3,181,818

57 Don t forget about the marketing!

58 What's in a name? That which we call a rose by any other name would smell as sweet. William Shakespeare, Romeo and Juliet

59 References

60 Searchable Article Archive

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63 Recommendations Turn over all the rocks in doing your homework. Don t get carried away with yourself. Never be afraid to ask questions. Be conservative in your financial projections. It takes a team to be successful in self-storage. Join your state association. Don t ignore the marketing while you re building. Be smart about naming your business. Tell everyone you know about your facility.

64 Contact the Presenter Jim Chiswell President Chiswell & Associates LLC

65 Thank You!

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