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The Big Question of Feasibility
Benjamin BurkhartBKB Properties
2008 Southeastern Self Storage Convention
2008 Myrtle Beach, SC
Three Areas of Feasibility
• Site Selection
• Market Dynamics
• Financial Performance
• Opportunities/Risks
2008 Myrtle Beach, SC
Measuring Risks
• Supply & Demand
• Lease-Up/Absorption
• Development Budget
• Financial Performance
• Site Quality
• Local Horizon
• Objectivity!!!
2008 Myrtle Beach, SC
Critical Piece of the Puzzle
• Investor Package
• Loan Request
• Design Team
• Management Team
• Promotion Initiatives
• Exit Strategy
2008 Myrtle Beach, SC
Site Selection
Rifle Approach
• Get A BIG road map
• Get a Zoning map
• Identify traffic patterns
• Plot Competitors
• Find Holes
• Go There!!!
2008 Myrtle Beach, SC
Site Research
• Zoning
• Environmental
• Long-Term Growth Plans
• Setbacks
• Utilities
2008 Myrtle Beach, SC
Site Planning
• Drive Aisles• Access• Visibility• Signage• Code Issues• Turning Radius• Site Features• Traffic
QuickTime™ and aTIFF (Uncompressed) decompressor
are needed to see this picture.
2008 Myrtle Beach, SC
Demographic Analysis
• Primary Market
• Population
• Households
• % of Renters
• Household Income
• Other population statistics
2008 Myrtle Beach, SC
Competitor Analysis
• Competitor Strength• MANAGER!!!!!!!!!!!• Age & Appearance• Location• Management Style• Features & Benefits• Rates• Size & Occupancy
2008 Myrtle Beach, SC
Competitor Analysis6
U-Store-It3501 Washington St
6a-9p9:30-6p
3.5 milesJean
88,000800
85%13200
non-climate climate
$38.00 $45.00 x$45.00 $55.00 x
x Masonryx x
$79.00 $148.00 x x Gate$119.00 $184.00$179.00 $199.00$194.00 $199.00 Door Alarms Grades$199.00 B
DB-
Name:Address:
Gate Hours:Office Hours:Distance from Subject
Manager:NRSF: s.f.# of Units unitsOccupancy:
vacant s.f.
Rates:5x5 Paved Drives Move In Truck5x10 Video Surveillance Professional Center5x15 Copy/Fax Service7.5x10 Security Fence Retail Prominence10x10 Keypad Entry10x15 Resident Manager10x20 RV/Boat Storage10x2510x30 Electronic Signage Site (physical layout, etc.)______________ Service (manager, amenities)
______________ Location (visibility, prominence)
The store is a little out of the way from the main road, hence the lower score on location. Jean is a terrible manager. She was horrible on the phone, and worse in person. Jean is merely a warm body behind a desk,
with no focus on sales or service. She was stressing over making a bank deposit when I interviewed her, and seemed to only have three or four checks that she was trying to enter into the computer. The site was clean,
but access was a little cramped.
2008 Myrtle Beach, SC
Competition
2008 Myrtle Beach, SC
Competitor Data
Name
Distance to
Subject NRSF OCC% 5x5 5x5 cc5x10 5x10cc10x10 10x10cc10x15 10x15cc10x20 10x20cc10x25 10x30
Highway 4 Storage 0.2 44800 97% 30 48 65 80 110U-Can-Stor-It 0.9 18200 84% 51 77U-Can-Stor-It 1.4 103680 82% 34 39 54 69 170 104 104 94U-Can-Stor-It 1.6 66662 94% 64 72 89 105 150Public Storage 1.7 36750 95% 35 103 139 165Expressway Stor-All 1.7 40680 75% 25 25 70 85 75 125 100 190Public Storage 2 47280 95% 34 46 64 81 143Private Stor-All 1.8 47276 75% 45 85 135 160 190 230Uhaul 2.3 18720 97% 60 80 115 130 140Extra Attic 2.2 6500 100% 48 65 75Cool Time Mini Storage 2.5 77220 85% 35 51 65 69 95 89 135 99 175 150Uhaul 2.7 70200 92% 35 40 50 75 75 120 130 175Beltway Storage 2.6 58200 95%
Uhaul 2.7 38760 85% 50 60 70 85 105 100StorMorMax 2.5 65542 98% 44 65 100 140 170 240
2008 Myrtle Beach, SC
Construction Goals
Let’s Be Realistic• Market Demands• Type of Construction• Hurdles• Approvals• Process & Red Tape• Phasing
2008 Myrtle Beach, SC
Financial Feasibility
• Capital Requirements
• Development Costs
• Cash Flow Deficit
• Interest Expense
• Operating Expenses
• Pro-forma Lease-Up
• Sensitivity Analysis
• Exit Strategy
2008 Myrtle Beach, SC
Development Budget
• Design Costs
• Soft Costs
• Hard Construction
• Start-Up
• Construction Interest
• Cash Flow Deficit
• Contingency
2008 Myrtle Beach, SC
Condensed Budget
Item Quantity Unit Unit Cost SubtotalConsulting 1 estimate $15,000.00 $15,000.00Permitting 50,000 s.f. $0.20 $10,000.00Fees & other Permits 1 estimate $20,000.00 $20,000.00Site Work 5 acres $120,000.00 $600,000.00Project Design/Engineering 1 estimate $100,000.00 $100,000.00GC/Project Management 1 estimate $150,000.00 $150,000.00Office 1500 s.f. $90.00 $135,000.00Concrete 50,000 s.f. $6.00 $300,000.00Self Storage Buildings & Doors 50,000 s.f. $14.00 $700,000.00Masonry 6,000 s.f. $8.50 $51,000.00HVAC 19,038 s.f. $1.75 $33,317.31Electrical 50,000 s.f. $2.00 $100,000.00Signage 1 allowance $40,000.00 $40,000.00Security 50,000 allowance $1.00 $50,000.00Landscaping 1 allowance $35,000.00 $35,000.00Cash reserve 1.00 RESERVE $235,000.00 $235,000.00Interest During Construction 1.00 estimate $52,500.00 $52,500.00Move-In Truck 1 allowance $32,000.00 $32,000.00Start Up Costs 1 various $35,000.00 $35,000.00Financing Fees 1.5 percent $30,000.00 $45,000.00Builder's Risk 1 estimate $3,500.00 $3,500.00Professional Fees 1 allowance $8,000.00 $8,000.00Miscellaneous & Contingency 50,000 s.f. $2.00 $100,000.00Total $3,375,317.31
2008 Myrtle Beach, SC
Unit Mix Analysis
2008 Myrtle Beach, SC
Operating Expenses
Operating ExpensesYear 1 Year 2 Year 3 Year 4
Advertising $1,667 $20,000 $20,600 $21,012 $21,432 YP, direct mail, coupons, etc.Administration $333 $4,000 $5,000 $5,500 $6,050 accounting, feesInsurance $1,042 $12,500 $12,750 $18,000 $18,360 estimatePayroll & Taxes $3,987 $47,840 $49,275 $71,760 $73,913 PH I 60 hrs; PH II 80 hrsManagement Fee $2,500 $30,000 $28,928 $42,289 $52,681 6% of rentalsMiscellaneous $500 $6,000 $6,120 $6,242 $6,367Property Taxes $4,831 $57,976 $57,976 $77,193 $79,509 based on 2008 tax rateRepairs/Maint. $417 $5,000 $5,250 $5,775 $6,353 estimate to be budgetedSupplies $667 $8,000 $8,160 $8,323 $8,490 inventory, office expensesUtilities $1,250 $15,000 $15,750 $18,000 $18,900 electric, phone, etc.TOTAL $17,193 $206,316 $209,809 $274,095 $292,054
monthly $17,193.00 $17,484.10 $22,841.21 $24,337.85 some expenses not paid monthly
% of Gross Revenue 36.63% 37.25% 29.11% 31.02%
Year 1 Monthly Expense
2008 Myrtle Beach, SC
Cash Flow Analysis
• Cost of Operations• Real Estate Taxes• Interest/Debt Repay• Seasonal Fluctuations• Lease Up• Monthly Rentals• Rate Structure• Discounts
2008 Myrtle Beach, SC
Cash Flow Analysis
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5OCCUPANCY 53% 88% 73% 80% 80%GROSS INCOME $199,004 $472,490 $690,720 $869,237 $886,621
EXPENSES $206,316 $230,055 $274,095 $292,054 $294,975
NOI ($7,312) $242,435 $416,625 $577,182 $591,647
DEBT SERVICE ($200,831) ($200,831) ($369,605) ($369,605) ($369,605)
CASH FLOW ($208,144) $41,604 $47,020 $207,577 $222,041DSCR (0.04) 1.21 1.13 1.56 1.60
2008 Myrtle Beach, SC
Sensitivity Analysis
• What If Rents Decline?
• What about Discounts?
• Interest Expense
• Local Economy
• Slower Lease-Up
• Cost of Operations
2008 Myrtle Beach, SC
Sensitivity Analysis
Cash Flow Sensitivity YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 55% decrease in rents ($54,401) $128,952 $216,115 $225,625 $232,133
DSCR (0.40) 0.95 1.19 1.25 1.285% increase in expenses ($56,795) $136,254 $227,996 $238,025 $244,881
DSCR (0.42) 1.00 1.26 1.31 1.3536 month lease-up ($208,972) ($48,547) $26,858 $64,282 $71,187
DSCR (0.53) 0.64 1.15 1.35 1.39
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5OCCUPANCY 45% 85% 85% 85% 85%GROSS INCOME $130,492 $341,798 $430,192 $447,619 $456,572
EXPENSES $178,368 $195,756 $192,568 $199,614 $201,610
NOI ($47,876) $146,042 $237,625 $248,005 $254,962
DEBT SERVICE ($136,309) ($136,309) ($181,166) ($181,166) ($181,166)
CASH FLOW ($184,185) $9,734 $56,459 $66,840 $73,796DSCR (0.35) 1.07 1.31 1.37 1.41
2008 Myrtle Beach, SC
Interpreting Data
• How it all fits together• Red Flags• Site, Market,
Financials• Identifying and
Mitigating Risks• SWOT-Internal/
External
2008 Myrtle Beach, SC
Execution
• Team Building• Design• GC/Project Management• Bidding• Scheduling• Financing• Managing• Promoting• Marketing
2008 Myrtle Beach, SC
Exit Strategy
• Best & Worst Case Scenarios
• Refinancing--- Timing & Structure
• When to Sell/If to Sell
• External Influences
• Things Forever Change
2008 Myrtle Beach, SC
Biggest Mistake/Biggest Opportunity
• Who’s driving your ship?
• You get what you pay for.
• Train your managers.