Session Plan
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Chapter Ten:
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Short Discussion on warehouse and self-storage
properties
Review Industrial Case Studies
Review of questions from any of the case studies
Warehouse Properties
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These are structures designed and used for storage
of wares, goods, and merchandise.
The ceiling clearance for a warehouse is very
important
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The higher that items can be stored the better
Bulk warehouses have higher ceilings (24’ height) than
service warehouses (18’ height)
The less specialized the design and the less risk in
operation, the more likely to be investment property
Types of Warehouses
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Bulk/Distribution Warehouse
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Service Warehouse
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Lower ceiling heights than bulk
More office space typically than bulk
Flex
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Pre-engineered metal primarily
Higher ceiling heights as previously mentioned
Mix of office and warehouse space (20/80 split)
Self-Storage
Office/Warehouses
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Have much better “curb appeal” than bulk
warehouses
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Usually multi-tenant facilities, with office
space ranging from 25-50% of the total
space
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And thus higher rent per square foot
Bulk warehouse usually has single tenant
Warehouse ceiling clearance is lower than
for bulk & service warehouses
Importance of Location
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Should have easy access to major arteries
Proximity to rail road and airport is desirable
Bulk warehouses are often located in an
industrial park
Bulk warehouses need wide streets that
provide easy access for large trucks
Parking availability is less important than for
the other primary property types
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Although need more for office warehouses
Projecting Demand for Industrial
Space
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Demand: from firms moving into an area, relocations
within an area, & expansion of existing facilities
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Project current # and productivity of workers
Project future industrial employment by industry
Then can obtain output per sq. ft. of floor space
Future land requirements: projected area required
per worker (industrial density) x expected industrial
employment for each use
Trends show increase in output per square foot of
floor space
Diversity of Income
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Many warehouses are single tenant facilities
Any prudent investor would want to find out
about the financial health of the tenant before
either purchasing the property or signing the
tenant for a long-term lease
Investors should request copies of
environmental reports to see if facilities
contained any “at-risk” manufacturing in the
past
Self-Storage Facilities
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Also known as Mini-Storage
These are simply constructed properties that
may have climate control in some of the
units, and may have keyless entry
Anyone use self-storage facilities?
Who are the primary users of this type of
space?
Self-Storage Customers
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Students
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In-transition adults
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Moving, down-sizing, up-sizing houses
Small business owners
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Store personal items during summer breaks
Pharmaceutical representatives
Military personnel
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During large deployments, occupancy rates soar
Projecting Demand for Storage Space
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Estimate average rentable sq ft of storage
per person vs. current population in primary
market area
Then compare to existing supply in the
market
Is Self-Storage Recession Proof?
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Some investors believe that this is true
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Thought pattern is that people always need
storage space and if economy is doing bad,
people will attempt to reduce the size of their
homes and store their belongings when
unemployed
This has not proven to be the case
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Many large cities have an over-supply of this type
of space and occupancy levels have suffered
Nothing in real estate is immune to the business
cycle
“Ayatollah of Climate Controllah”
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One of my all-time favorite ads outside a selfstorage facility
Portable On Demand Self Storage (PODS) is
the latest fad
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You have probably seen these in your neighbors’
driveways
These can be good investments due to the
low cost of construction (for the basic units)
and the high concentration of income per
square foot
Storage Auctions!
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Been around since late 1970’s
Lease agreement allows for lien if bill is left unpaid
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Auctions begin typically after unit is 90-120 days in arrears
Helps prove property is not recession-proof
Storage Auction Impact on Owner
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Typically not recovering full amount owed
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Debt recovery vs. a profit opportunity
Any profit must be returned to original owner of unit contents
Problems with Self Storage
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Obtaining supply and demand for these units
is tough
Not as easy to glean future demand levels
from demographic information as in
apartments
Most commercial banks have a hard time
approving loans for “start-up” projects
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Want to see a track record of performance first
Very Fragmented Market
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Self-Storage industry does have a few major
players, but for the most part has thousands
of small owners throughout the country
The few larger players have much deeper
pockets than the typical investor, and they
have the ability to temporarily lower their
prices to drive out better located, smaller
rivals, to increase their market share.
End of Session