Mini Storage Messenger, March 2005 | Wesco Storage

W ith self-storage facilities no longer confined to the outskirts of town, land for developing new facilities has become ever more difficult to find. The answer for many operators and developers facing this situation has been to forego building from the ground up and convert an existing structure instead. A glowing example of this trend is the fact that three of the four Mini-Storage Messenger 2004 Facility of the Year winners were conversions: the overall, construction, and conversion winners.

"Over the last five years, our office has done an increasing number of conversions and I'm optimistic this will be a continuing trend for some time," says Bruce Jordan, president of San Clemente, Calif.-based Jordan Architects Inc., whose company was the architect for the construction and conversion winners, and the consulting design architect for the overall winner.
Further testifying to the trend, in 2004, Jordan Architects worked 24 conversion projects, and at the end of the year was still signing contracts to do design work on conversions in 2005.

Self-storage builders and suppliers are also reporting that an increasing percentage of business has gone to conversion projects as opposed to new developments. "This year 25 percent of our total volume has been conversions, up from about 10 percent a few years back," notes James Bratton, president of MST Constructors Inc. in Austin, Texas, a company that was doing conversions for U-Haul 20 years ago. As such, Bratton is extremely pleased to see this type of work come back around.

The New Face Of Conversions

Today's self-storage conversions are definitely different from those that were built a decade or two ago. "The trend is toward multi-story, elevator facilities that are much larger," says Bratton. "Generally, they are 100,000-square feet as opposed to the 20,000 to 50,000 square feet that they were back then."

Also today, the types of structures that are being converted know no bounds. Besides the more common conversions from buildings designed for industrial or manufacturing use, big-box retail outlets are also getting the makeover, as are office buildings, grocery stores, movie theaters, auto dealerships, apartments, lumberyards, and schools. If it's big enough, it could probably be converted into a self-storage center. One self-storage project that MST Constructors converted was an indoor tennis facility located in San Mateo, Calif. The expansive, metal building accommodated 96,000 square feet of storage space by going up three floors. Why did it work? It's all about structure, then density, and potential rental rates.

"If you have the height, then it becomes more feasible to put in three floors of storage," says Bratton. "Then you can get more return for the amount of ground cover, especially when ground can cost $15 to $20 a square foot. With more density, it pays to do the conversion versus going out and buying vacant property."

The Name Of The Game: Location

The biggest, single driver of conversions today remains location. Hence, if you can't find a site for sale in a target market area, if there is no raw land to buy, or nothing for sale at a price that will work for the developer, a self-storage conversion just makes sense.

"The only way you are going to get a site is by buying a building which has been used as something else previously and converting it or tearing it down and building anew," says Ken Nitzberg, chairman and chief executive officer of Devon Self-Storage in Emeryville, Calif.

Nitzberg explains that if a developer is looking to do something in a major urban market, it is unlikely there would be enough raw land to construct a new facility on. "You are not going to find a lot in Manhattan, Boston, or Los Angeles to build on," he says.

Devon Self-Storage has long had a reputation as a company that does nothing but conversions. What it looks for are high-visibility structures on streets with heavy drive-by traffic. "We want a good location," says Nitzberg. "What we try to do is obtain that location by buying a building that no one else can figure out what to do with. Everyone looks at the old K-MartŪ and says how will we put better retailers in? Well, maybe the building is not good for retail. Maybe it's good for self-storage."

Just because a building is vacant, however, doesn't mean it will work for self-storage. "A vacant building at the dead-end of a cul-de-sac in an industrial park at the back end of town is not going to work for self-storage no matter how inexpensively you acquire the asset," says Nitzberg.

A number of self-storage developers are coming back from the suburbs to develop closer to the inner city where population numbers are high, traffic busy, and it's difficult for someone else to build another store nearby. This usually means selecting a site with an existing building.

"A lot of the good places to build self-storage are in big cities where there isn't vacant land available, so the only way to do it is to tear down an existing building or convert it," reiterates Jamie Lindau, sales manager for Trachte Building Systems Inc., a Sun Prairie, Wisc.-based manufacturer and supplier to the self-storage industry.

Recently, Trachte worked with a developer who bought a beer distribution building in Chicago and converted it into a multi-story self-storage facility. The company also worked with another developer who converted an old Payless Cashways lumberyard, and a couple of people who are converting vacant K-Marts.

"In outlying towns where land is available, there is plenty of self-storage," says Landau. "If you want to be closer to denser population areas, the only way to figure it out is buying an older building to convert for storage."

Trachte did business with about 40 conversion projects in 2004, says Lindau. "I see the future leaning toward more conversions because finding a nice, four-acre parcel is getting too expensive," he offers. "It doesn't work financially. But, finding an existing building where the owner went bankrupt is a lot more achievable task."

Zoning Conquered

Zoning is another key factor that has emerged, causing more and more owners and developers to opt for conversions instead of ground-up development on raw land. That's because operators prefer not to fight zoning battles unless they have to.

Zoning for conversions works two ways. In sprawl cities such as Phoenix, Houston, or Atlanta, it is still easy to find suburban sites for self-storage; zoning for that kind of development is relatively easy to get. The downside is that if you do build, the easy zoning regulations allow someone else to build another self-storage facility 100 yards down the street. On the other hand, developers prefer more infill locations-but to get sites re-zoned to allow for self-storage is almost impossible. The solution is to find a property that has already been grandfathered.

For example, says Nitzberg, if someone was lucky enough to find something akin to raw land in Los Angeles, the city would never grant the zoning for self-storage so "you almost have to do a conversion."

Moreover, a building already zoned means a lot less time is spent down at city hall. "A conversion can be completed in 70 percent less time than one built from the ground up," says Gayel Crotts, sales coordinator for Betco Inc., a Statesville, N.C. designer and builder of self-storage buildings. "The time frame is quicker. If zoning is in place, you don't have to worry about city codes."

For many developers, turning to conversions is really all about the zoning codes in different areas. "Rather than go through the zoning process, which gets tougher and tougher every year, people try find an existing building that can be remodeled," says Rich Keeton, a principal with Avid Building Systems in Austin, Texas.

In many instances, the cities will bend over backwards, even if there is a pre-existing zoning issue, in order to get an abandoned building filled, functioning, and paying taxes. "Cities and towns want to see these eyesores go away," says Keeton. "If you can convert that old building into a real nice looking structure, it is better for the city and the owner of the property as well."

Avid, which does a lot of design\build projects, doubled the number of conversions it did from 2003 to 2004. Keeton thinks the percentage of Avid's business that are conversions could increase to 35 or 40 percent of the total volume of business.

The Good, Bad, And Ugly

According to Crotts, Betco's volume of conversions has also doubled in the past year. "We have been inundated with requests for quotes," she says. "We see a lot of old buildings; some have been owned by the same family for years and the owners have gotten the idea to convert them into mini-storage."

Crotts usually meets the customers and visits the site. And while many structures will work as a self-storage center, there are just as many that won't. Recently, she met with the owners of a vacant warehouse, but she recommended against the project. The foundation needed a lot of work and the walls had a lot of open holes. A conversion would have been too expensive. Then there was the group she met with that had converted an old warehouse into a church and now wanted to use it for self-storage, but the seating was on a slope and it would have been costly to build up. The location also didn't have much visibility and there was a basement, which the owners wanted to convert to storage space, but the height wasn't six feet.

While almost any type of commercial building can be converted, the easiest are generally old warehouses. Not only are they big with spacious interiors, but they were built on thick concrete slabs which can hold a lot of weight. "We are able to put a new, bearing-wall system in without doing significant foundation work," says Jordan. That's important when turning a 40,000-square foot warehouse into 80,000 square feet of storage space by adding another floor.

Sturdiness of floors and foundations are always a key point, especially when creating new floors. It was a major problem for MST Constructors when it redeveloped the tennis courts in San Mateo. "We had to overcome poor soil conditions underneath the tennis courts, so we literally had to segregate our building from the outside building and construct a very specialized interior building in order to comply with the latest seismic codes," Bratton explains.

A major structural issue often encountered in conversions is footing size; these are either not adequate to support a second or third floor, or are non-existent, says Gary Albert, a project manager with Godbey-Monroe Inc., a Laguna Hills, Calif., general contractor that specializes in self-storage. "Also, we try to use existing walls, but they are often inadequate."

The problem is, in self-storage the live load is 125 pounds per square foot. Other commercial buildings aren't made for that weight. "For an office building, as an example, the live load is 65 pounds per square foot," says Gary Monroe, president of Godbey-Monroe. "You have to find some way to support the heavier weight such as to overlay a slab. In other words, where there is an existing slab, pour another two to four inches of concrete on top to have a structural foundation on which to build up."

Jordan tends to rule out buildings where the interiors have been broken up into a lot of different spaces, with fragmented rooms that don't connect well. "It gives us fits trying to align corridors so you don't have an internal labyrinth of hallways going in every direction," he explains. "What we try to do is strive for a predictable, linear corridor layout so patrons don't lose sight of where they are in the building."

One recent, difficult conversion was a newspaper building that once housed its presses. "There were numerous floor levels within the buildings for the machines," says Jordan. "We had to unify all the floor levels to get a clear hallway circulation."

Office buildings are a big mistake, notes Bratton. "Novice developers in a conversion project make this mistake; they think it would be easy to convert an office building, but it is harder. The elevator is not going to service self-storage-it carries 2,500 pounds as opposed to the 4,000 pounds necessary for self-storage. The floors need to be reinforced, and there is always a lot of demolition work because hallways are too narrow."

Before beginning to convert, one should also compare the cost of knocking the whole structure down and starting over. "Almost any building can be converted, but does it always make economic sense to do so?" asks Monroe. With a project in Pico Rivera, Calif., Godbey-Monroe spent a considerable amount of time trying to figure a way to convert three existing industrial buildings into one self-storage facility. "These were three different structures with different elevations," Monroe says. "A lot of things were going on with those buildings. Ultimately we went to the owner and said, 'Here's what it cost to convert, but here's what it costs to knock it all down and build exactly what you want.' In the end, we knocked the whole thing down and built new."

Always Surprises

Avid Building Systems has been looking at a vacant Safeway store in Georgia that it is considering converting into self-storage. Right off, there were a few minor obstacles including a number of air conditioning units on the roof that needed to be torn out, a roof that needed to be replaced since it was old, and a lot of useless wiring that ran through the floor for the old freezer units.

"We might have to tear up the floors," says Keeton. That's not too much to worry about; when big retail departs the space left behind is generally easy to work with.

That, obviously, is not always the case. As Nitzberg observes, "When you knock down a wall, you always get a surprise. Sometimes it is good and sometimes it is bad." Just as floors and foundations are worries. So are roofs. "Customers don't like it when a building leaks onto their goods. We had one building where we found there had been 10 roofs on top of each other."

The Wesco Self Storage Center in Torrance, Calif., Mini-Storage Messenger's Facility of the Year 2004 Conversion Winner, started out as a "broken-down, ugly warehouse," on an exceptionally good street. "We knew we had a winner," says Jordan. "We also knew we had to do some major surgery. We tore the front wall completely off and rebuilt it to get those big panes of glass and striking geometry."

When doing a conversion, one has to make a number of important decisions. The first thing to consider is if the structure can be functional. With an existing building there are no rows of storage units with accessible doors, so the challenge is to get convenient access, parking and loading points in the building to minimize the travel distance where goods are dropped off and put into storage. Secondly, aesthetics are important. Many self-storage customers are female, so the challenge is to take something that was otherwise designed as industrial structure and turn it into a retail presentation that is visually appealing and user friendly.

The problem going forward will be to find the buildings that can be converted. As Jordan observes, "With the increased percentage of work being conversions, the fact is, quality infill sites are getting harder and harder to find."

Steve Bergsman is a freelance writer based in Mesa, Arizona, and the author of Maverick Real Estate Investing: The Art of Buying & Selling Properties Like Trump, Zell, Simon and the World's Greatest Land Owners.

This article is provided courtesy of MST Constructors Inc. with the permission of Mini-Storage Messenger magazine. MiniCo, Inc. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo, Inc. .