Aurora East Self Storage

Aurora East Self Storage

Marcia C. Romero

Regis University

Executive Summary

This business plan describes a proposed self-storage facility to be established in Aurora, Colorado and involves the purchase of a parcel of land and the construction of the Aurora East Self-Storage facility east of E 470. The Aurora East Self-Storage is a service company that will provide a variety of storage units sized for both commercial and residential use.

"In the fourth quarter of 2005, reported outliers in the equity universe by the real estate investment trust (REIT), was the small self storage sector, which gained 26.6%. Private institutional investment in the self-storage sector on this scale is new, but self-storage has been part of the public institutional real estate for more than two decades." (U.S. Quarterly Market Perspective, 2006)

As shown above, the market of the self-storage industry is one of the smaller sectors of the real estate market but has continued growing over the past two decades. By making a move at the onset of a developing new community, the potential for economic growth of the facility is exceptional. As added incentive for potential clients, there will be state of the art security with cameras positioned strategically throughout the grounds and in the buildings, pass word protected gated entry, and individually owned locks on the units.

Aurora East Self-Storage is a start up business with a projected opening date of January 1, 2007. The purchase of land, paving of the recreational parking area, construction of the storage units, office, living quarters, and pre-opening expenses are estimated at $3,754,168. "Based on current and projected strong demand for self-storage units, rental revenue is expected to grow rapidly as units fill up from the first year's target of $475,797 to $734,086 in the third year." (Sonne, 2006a, p. 34) By the fifth year the revenue is expected to reach the one million mark.

INTRODUCTION

I. Type of business

The type of business is a self storage facility with office and living quarters for the owner/manager. "The self storage operator is primarily engaged in renting or leasing space for self storage. Rooms, lockers, compartments, containers or outside space is provided where clients can store and retrieve their goods."(North American Industry Classification System, 2002) This is a service related business that offers the community the option of having a secure area where their belongings can be stored and easily accessed as needed.

The legalities of building and operating a self storage facility are many. From the zoning issues, eminent domain, unit size litigation, disability access to the site, homeland security, marketing, and tenant issues that involve related risk, bankruptcy and even death. (Inside Self Storage, 2005) These issues are handled on a daily basis by the self-storage community and have not affected the industry growth or the income generated by these facilities.

The services offered by the self-storage industry are many and varied. Boat and RV storage, mail services, mobile storage, records storage, retail and merchandising, truck rentals and even wine storage. Wine storage and records storage are a growing industry on their own.

II. The Mission/Vision Statement

Complete customer satisfaction and the knowledge that those in charge of the facility have their interests in providing the most up to date facility to protect their belongings.

SITUATION ANALYSIS

I. Industry analysis

Investors, both mortgage and equity, are storing capital in self-storage real estate. From humble origins as an "interim" use, self-storage has become a $15 billion industry with more than 41,000 facilities in the U.S. (Sonne, 2006b). There are five real estate investment trusts (REIT) that are now publicly traded which is an indicator of how well the self-storage business is doing in the market today. "Once a unit is rented, the average stay is 12 months for residential customers and approximately 76.9% of users are residential." (Mini Storage Messenger, p. 54) "The break even occupancy rate for a self-storage facility is approximately 40-45%, compared to 60% or more for apartments." (Sonne, 2006a, p. 34)

Rental income is derived from the self storage units. Due to the number of units and the configurations possibilities, as some have suggested, it is generally not appropriate to analyze self-storage per rentable square foot without analyzing each unit like an apartment. Rents can vary for the basic unit types, such as outside access, inside access, upper units, and climate controlled units. As prepared by C. Sonne in the June issue of RMA, a typical rent roll is summarized in Table 1 on page 11.

As time goes on, the technological advances become more valuable to the self-storage business. Exceptional customer service is what makes a self-storage facility stand out from the rest. A state of the art communication system is one of the most effective ways to promote exceptional service. Strategically placed intercom units and paging capabilities offer immediate access to assistance for the consumer. An exceptional security system will also keep the customers feeling safe about their possessions.

Other issues that are important to the future of the self-storage business are laws enacted by each state. Most legislation enacted by congress concerning self-storage is not stricter than state guidelines. Eight states--Arizona, California, Maine, Maryland, Missouri, North Carolina, Ohio and West Virginia--have some type of law governing the late-fee amount that can be charged in a self-storage owner/tenant relationship. Most of these bills are favorable to the industry, and self-storage associations of the remaining states recognize the value of legislation to set a reasonable late-fee law that will protect operators from potential litigation. Several states have introduced legislation to impose sales tax on rents charged by self-storage operators. A few, including Ohio, have even been successful in passing on this new tax to industry consumers. (Greenberger, 2005)

TABLE 1

POTENTIAL GROSS INCOME

Size Total Rented Outside Inside Up CC Outside Inside Up CC Monthly Rent Annual Rent