The second largest capital investment of any self-storage facility – after the building – are the roads and parking areas. These are an essential part of everything from access to aesthetics, and the lenders are phobic about their type and condition. They are expensive to install and to maintain. So the bottom line is that it’s important to understand what the options are for roads and repair and how those choices will impact your investment returns.
Road surface options
There are many different types of road surfaces, each with their own unique attributes to consider.
- Concrete. Lenders and buyers love concrete roads as they are considered permanent and are the most expensive of all options. Due to cost they are, however, relatively rare in many markets.
- Asphalt. This is the second choice of lenders and buyers as it is strong and attractive, yet will require frequent and costly maintenance. It serves as the industry standard.
- Chip & Seal. This is a derivation of asphalt, being a thick coat of tar then topped with aggregate which, over time and the pressure of tires, becomes actually harder. It is extremely messy to install and is not black but more of a rock color. Some lenders will accept it and others won’t. Its only benefit is lower cost to build and longer useful life.
- Road Base. This is the substance that sits below the surface of asphalt and is typically crushed limestone. It is nearly white in color when installed and often dusty. While it is strong and easy to work with, it does not have any of the visual clues of a paved surface and lenders and buyers typically are not big fans.
- Dirt. This is not a road surface, but simply the absence of one. It sends a clear message to customers and lenders that “this is not a nice property” and invariably is muddy when it rains.
Road repair options
Any of the above surfaces – including concrete – need continual maintenance to be free from potholes and deterioration. Here are the options when it comes to repair
- Crack sealing. This is only needed on concrete roads. The purpose is to protect the concrete from the damaging impact of water and its ability to freeze and hydraulically expand the cracks until the concrete has to be replaced. This is typically done annually.
- Hot asphalt. When you have asphalt problems, the only professional cure is to bring in hot asphalt, which means the type of repair only real paving companies can provide. These type of repairs – or adding another asphalt surface on top – can be very expensive.
- Cold patch. Small holes in asphalt – particularly in non-load bearing areas – can sometimes be cosmetically fixed by filling them with “cold patch” which is air drying asphalt that has little strength but does dry black in appearance. You can buy this material at any Home Depot or Lowes.
- Emulsion. This is essentially spraying tar on top of the asphalt to give it a uniform, black appearance. It can fool the eye as even a rough, often patched road has the look of a newly built one once you spray it a solid black color.
- Striping. One trick to extend the aesthetics of any road surface is to keep it freshly striped. The simply method of keeping the paint current makes the roads seem in good order. Since striping roads is the least expensive form of maintenance, you should consider doing this annually.
- Road Base. The beauty of a road base construction is ease of maintenance. You simply put more road base over the road system and you’re good to go.
Strategic timing
Road repair can be very expensive, so you have to be strategic about it.
- When you open. Obviously, the roads at any self-storage look their absolute best when they are first installed. And that’s a good thing as opening day starts the process of the initial filling of all your units.
- When you approach refinancing. Virtually every self-storage investor uses some form of debt to purchase the property, whether it’s bank or CMBS. As a result, most property owners focus on getting their roads perfect right before they seek financing. As most bank debt products are about ten years in length, that means most storage roads get the full treatment every ten years.
- When you prepare to sell. Most storage owners are thinking about selling at the same time they are thinking about refinancing, so they take the same steps to improve the road condition.
Pitfalls to avoid
There are a multitude of terrible stories regarding storage owners and road repair, so here are some things to avoid.
- Unscrupulous paving companies. Never sign a contract with a paving contractor unless you have it 100% clear what the final cost will be in both materials and labor. Paving contractors are notorious for saying “it’s going to be $500 per dump truck” but never telling you how many trucks it will take, or maybe saying “I’m not sure how many but not that many”, and then bringing you a bill for twice as much as they promised.
- Manager contact changes. Another classic scam is for the paving company to go to your on-site manager and have them agree to changes to the contract without your knowledge, and then sticking you with the bill. Put in your contract that nobody can amend it legally except you, and then tell the manager they are not to talk to the paver about anything without you joining the conversation on speakerphone on their cell phone.
- Liability insurance woes. Paving is extremely dangerous. It can result in death or injury just in the process of heavy materials or equipment, and can also result in damage or death to pedestrians or other vehicles. Make sure that you never do any road work without making 100% sure that you have the correct liability and property insurance in place by talking to your insurance agent.
Conclusion
Roads are a vital part of any self-storage facility. They require just as much planning as the storage investment itself since they will have a continual impact on your pricing, financing, appraisal and ultimate cap rate. You need to understand the process and make smart decisions based on the facts.