the big question of feasibility

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


Measuring Risks

• Supply & Demand

• Lease-Up/Absorption

• Development Budget

• Financial Performance

• Site Quality

• Local Horizon

• Objectivity!!!


Critical Piece of the Puzzle

• Investor Package

• Loan Request

• Design Team

• Management Team

• Promotion Initiatives

• Exit Strategy


Site Selection

Rifle Approach

• Get A BIG road map

• Get a Zoning map

• Identify traffic patterns

• Plot Competitors

• Find Holes

• Go There!!!


Site Research

• Zoning

• Environmental

• Long-Term Growth Plans

• Setbacks

• Utilities


Site Planning

• Drive Aisles• Access• Visibility• Signage• Code Issues• Turning Radius• Site Features• Traffic

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Demographic Analysis

• Primary Market

• Population

• Households

• % of Renters

• Household Income

• Other population statistics


Competitor Analysis

• Competitor Strength• MANAGER!!!!!!!!!!!• Age & Appearance• Location• Management Style• Features & Benefits• Rates• Size & Occupancy


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.


Competition


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


Construction Goals

Let’s Be Realistic• Market Demands• Type of Construction• Hurdles• Approvals• Process & Red Tape• Phasing


Financial Feasibility

• Capital Requirements

• Development Costs

• Cash Flow Deficit

• Interest Expense

• Operating Expenses

• Pro-forma Lease-Up

• Sensitivity Analysis

• Exit Strategy


Development Budget

• Design Costs

• Soft Costs

• Hard Construction

• Start-Up

• Construction Interest

• Cash Flow Deficit

• Contingency


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


Unit Mix Analysis


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


Cash Flow Analysis

• Cost of Operations• Real Estate Taxes• Interest/Debt Repay• Seasonal Fluctuations• Lease Up• Monthly Rentals• Rate Structure• Discounts


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


Sensitivity Analysis

• What If Rents Decline?

• What about Discounts?

• Interest Expense

• Local Economy

• Slower Lease-Up

• Cost of Operations


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


Interpreting Data

• How it all fits together• Red Flags• Site, Market,

Financials• Identifying and

Mitigating Risks• SWOT-Internal/

External


Execution

• Team Building• Design• GC/Project Management• Bidding• Scheduling• Financing• Managing• Promoting• Marketing


Exit Strategy

• Best & Worst Case Scenarios

• Refinancing--- Timing & Structure

• When to Sell/If to Sell

• External Influences

• Things Forever Change


Biggest Mistake/Biggest Opportunity

• Who’s driving your ship?

• You get what you pay for.

• Train your managers.


BKB Properties

Benjamin K. Burkhart

[email protected]

804-598-8742

the big question of feasibility

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