As we stand at the edge of our properties and look inward, we can see the rows of roll doors. The two stories of glass elegantly showing off 5’ x 5’ doors inside, and the steady stream of customers begging to store their belongings with us.
Our feasibility study provider concluded this is an amazing site and we should build the absolute maximum amount of storage possible and not leave one stone unturned. We envision every square foot of dirt brilliantly developed to maximize net operating income with efficient operations and zero wasted space.
However, as developers, dreaming is not our job. Within proximity of our property, we must assess the built environment and correctly determine what is going to be economically viable three to four years hence. All this given imperfect information, dynamic economic and financial environments, and changing population demographics.
This is no small task and not for the faint at heart. Our biggest risk in development is to build something no one wants. A building not economically viable when the certificate of occupancy is granted.
There are two primary ways to mitigate this risk. First, choose the correct variables to assess the built environment as it stands today. Ascertain their rates of change, and then use those rates of change to develop a future state projection of the built environment of tomorrow.
While experts argue how to conduct a scan of the environment, Spartan Investment Group, LLC takes a page out of the standard strategic planning playbook by using the PESTLE acronym for initial assessments. PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental.
Political, the smart developer engages local residents and leaders to determine the appetite for a self-storage facility. While we love them, they are not always the preferred type of development. No matter what the other variables tell you, if the residents and local politicians are going to fight you every step of the way, it may not be worth the fight.
Economic looks at positive economic indicators such as median income, competitive rates, property taxes, operating costs, job growth, etc.
Social Variable analyzes population growth, demand for storage, leisure activities, etc.
Technological examines the coming environment that will enable operating efficiencies.
Legal dives into laws and regulations of the local jurisdiction to ensure a self-storage facility is allowed.
Environmental provides insight into the types of environment factors in play. For example, wetlands, storm water mitigation, civil infrastructure demands, etc.
After the PESTLE assessment is complete, a second way to mitigate development risk is to look at multiple courses of action (COAs) for each facility under development. Some call these exit plans, we don’t. We look at COAs to adjust the development to meet unforeseen changes in the operating environment.
When developing COAs, we use a page out of the military’s decision-making process. When military leaders are assessing various COAs to accomplish their missions, they use the following criteria summed up by the acronym FAS-DC. FAS – DC stands for feasible, acceptable, sustainable, distinguishable and complete.
Feasible – This is generally answered by the feasibility study; however, developers should consider that a feasible COA may not be the type of facility they started out with. For example, a law could change disallowing self-storage, causing the developer to add retail pads to attract local and national tenants. A tough situation, but one many developers have been in.
Acceptable looks at whether the development risks associated with a particular project are acceptable to include to investors.
Sustainable identifies what is required to sustain the project from financial and operational viewpoints and then compares them to what is available to the project. We’ve all seem the half built structures that started out with promise only to run out of one resource or another.
Distinguishable Many planners have a very hard time with creating distinguishable courses of action. The example often used in military school houses is going to McDonalds for lunch. Sure, there are burgers, chicken nuggets, and salads, but it is all fast food. Distinguishable lunch COAs would be McDonalds, bringing lunch from home, or going to a fancy restaurant.
Complete ensures the COA has been developed from the first day to the closing day.
Developing land carries risk and the corresponding reward. No developer can mitigate risk and there are pages of texts on mitigation strategies. You will mitigate a large number of risks by assessing the operating environment using a PESTLE analysis and developing multiple COAs that adhere to FAS-DC. If used on a consistent basis, these strategies will enable your team to make systemized, repeatable, and defendable decisions on all of your development projects.