As an investor, it’s important to know what you’re actually investing in. When a new property is being built—and your money is tied into it—you want to know the who, what, why, how, and when involved with creating a profitable self-storage facility from the ground up. 

At Belrose, we offer investors the opportunity to invest in both new construction and existing self-storage facilities. Because we want you to be aware of your investment options, we think it’s important to understand the difference between building and acquiring a facility and, more specifically, how it can impact investors.

Here’s a look at how a self-storage facility is built, and why that process differs from acquiring an already existing facility.

Building vs. Acquiring a Self-Storage Facility

The easiest way to think about the differences between building and acquiring a self-storage facility is to imagine a home. If you’ve ever built a house from the ground up, you know that the process takes time—much more time than when buying an existing structure.

As investors, there’s some careful consideration regarding budgeting and timelines when building a new facility. Primarily, a newly constructed facility is going to take significantly longer than an acquired facility to get up and running, occupied, and, ultimately, turning a profit. When Belrose and our private investors acquire an existing facility, we’re able to step in, make some adjustments, and start earning income right away. This means investors can start receiving distributions soon after making their initial investment.

But in our experience, the timeline between preparing to build a new facility and generating enough profit to make distributions is at least two years. In that time, the project must be approved, built, marketed, and leased out to customers.

It’s not uncommon for investors to be compensated for the longer wait and higher risk with a greater rate of return than if they had invested in an existing facility.

How Are They Similar?

While the process and timeline differ, our team still looks at the same factors when deciding to either buy or build a self-storage facility.

We gather information including:

• Whether the surrounding population is growing

• The health of the local job market

• How diversified the local economy is

• Average household income

• Crime rate

• Poverty rate

• Current or future potential competitors

What Goes Into Building a New Facility?

While we won’t get too detailed here, there are many steps and hurdles an operator goes through when building a new self-storage facility.

Before the ground is ever broken, operators need to research potential locations. They’ll conduct a feasibility study and competitor analysis to determine if the local population can support a new self-storage facility. As with any type of business endeavor, they’ll need to develop a business plan and secure financing through investors or a bank loan (sometimes it can be both).

Once an operator has identified a potential property, they’ll need to follow the guidelines established by the authority having jurisdiction (AHJ) regarding zoning codes and property types in the area. Zoning and permits are important, since they help keep residential communities free from commercial properties.

Once a potential property is selected for a facility, it needs to be determined if building a self-storage facility is an allowable use for that parcel of land. If it is, they may proceed to build. If not, they may have to go through a rezoning process with the city planning department.

After a piece of land has been selected and approved, the operator needs to decide what type of facility should be built and how it should be designed. It’s common to involve other professionals in the design process including a civil engineer (to discuss stormwater mitigation and general layout), a structural engineer (to ensure the building will withstand common environmental conditions), and mechanical, electrical, and plumbing (MEP) consultants. 

Once a general building plan is made, the operator needs to work with a contractor to start bringing their vision to life. The general contractor should be able to get bids from multiple specialists and put together a schedule and budget for the project.

It should be noted that throughout this process, the operator is typically required to conduct different environmental tests as determined by local authorities.

In short, there is plenty of upfront work involved in building a new self-storage facility, which makes it a riskier endeavor for banks or investors to fund. But, creating a new facility from the ground up is an exciting opportunity for operators to build something to their exact specifications or break into an untapped market. 

Which Type of Facility Should You Invest In?

While we do work with both acquired and newly constructed properties, recent industry reports indicate that construction may slow down in the coming months. Not due to a lack of demand, but rather because of high construction costs and supply chain bottlenecks that continue to impact new builds.

The global self-storage market is expected to reach a value of $71.37 billion by 2027, which means there’s never been a better time for investors to get involved. At Belrose, we invest in both existing facility acquisitions and new construction projects. When a new opportunity is presented to our private investors, spots fill up quickly. To be sure you’re the first to know when our next investment comes around, join our Investor Portal now.