Day 7: Single-Story vs Multi-Story Self Storage: What the Numbers Actually Tell You

All right. Welcome back. Day 7 of the Storage 100 series. I am Joe Downs with the Self Storage Mastermind. Today we are tackling a fundamental decision that shapes some development questions with a new self-storage deal. Single-story versus multi-story facilities. I guess also a due diligence question. If you're evaluating a deal that's maybe underperforming or there's a reason that it's not stabilized, You're going to want to follow along here with the same decision tree. But this isn't just some architectural choice, by the way. It's a decision about land economics, construction costs, operational complexity. So we're going to break down the pros and cons of each model so you can make the right choice for your market. Understanding this trade-offs here is crucial for maximizing your net operating income. So let's start by looking at the most critical factor, how you use the land. The core difference between these 2 facility types comes down to the land utilization. So Single-story facilities spread out horizontally, taking up a lot more, typically a lot more ground space for the, well, definitely for the same square footage. Multi-story facilities, however, maximize vertical space. You're going up so you can actually build the same square footage on less acreage. The vertical density is the key advantage of the multi-story model, right? You can achieve 2 to 4 times the rentable square footage on the exact same land footprint. This means that the cost of the land per square foot of rentable space is what ultimately drives your decision. If land is cheap, you might want to spread out. If land's expensive, you might want to go vertical. But building up comes with a cost, which brings us to the next slide. So if multi-story facilities are much more efficient with land, why doesn't everybody just build them? And the answer is construction costs. So moving from a simple single-story metal building to a multi-story structure dramatically increases your cost per square foot. Single-story facilities are straightforward, costing around $25,000 $5 to $40 per square foot to build. Multi— again, not including land and soft costs. Multi-story facilities jump up to that $50 to $70 per square foot range. So this is because you need expensive structural steel, complex fire suppression systems, massive elevator systems that can cost hundreds of thousands of dollars, right? This higher construction cost is a major hurdle, and you have to overcome this. With higher rents. And that's not the only cost increase, right? We talked about this already. Operations get more complex as well. So the operational difference between these 2 facilities, as previously mentioned, significantly can impact your bottom line and your NOI. So multi-story facilities require elevators, which means ongoing maintenance contracts, inspections, inevitable downtime. That's $15,000 to $40,000 annual expense you don't have to deal with in a single story right there. You also have more complex HVAC systems because you are climate control Right across multiple floors. So that's going to lead to a 30 to 50% higher utility cost. And then lastly, multi-story facilities create tenant friction sometimes. So moving items requires carts and elevators, which is slower and less convenient than drive-up access like a single-story unit provides. So this often means you need more onsite staff to help manage the flow, and that can increase your labor costs. So how do you decide which model is right for your market? The decision between single-story and multi-story ultimately boils down to market suitability and land cost. So there's a decision threshold usually around $10 to $15 a square foot of land that dictates that choice. That's $10 to $15 per foot of what you're building on the land. So in dense urban markets, land expense— land is expensive, excuse me, and it's often $15 to $50 more per square foot. So here you have to build a multi-story to maximize density and justify the land cost, right? The premium rents in these markets Can support the higher construction and operational expenses. You just got to understand the market, right? So it usually should, otherwise you're not going to build it. Conversely, in suburban or rural markets, land is cheap and abundant. You can build single-story facilities because the lower construction costs and simpler operations outweigh the need for vertical density. Plus, tenants in these areas prefer convenience of drive-up typically. So this is a crucial distinction that separates successful investors from those who overpay for the wrong facility type or build the wrong facility type. All right. So we've talked about market selection, but now let's get into the mind of the actual tenant. You need to know what your customer values are most, or what they are when they're choosing a storage unit. So it turns out for most people, convenience is king. Tenants overwhelmingly prefer drive-up access. They want typically to back their car or truck right up to the unit and unload right there or load, whatever they're doing. And it's super easy, right? You're literally right out front. This ease of access often trumps the climate control for the majority of users. Remember, accessibility is a huge factor here. So elderly or disabled tenants really struggle with elevator stairs, long hallways, making ground level access critical, or picking something up twice, right? You gotta take it out of the truck or car, load it onto a dolly, then pick it up and put it in your unit. So there, but there's a counterpoint to this, and that's multi-story buildings do offer the perception and probably frankly do offer better security. So the enclosed hallways and climate control feels safer to some tenants. So you have this tension between convenience and perceived security. But how do you know which of these tenants' preferences make— is going to ultimately lead to the smarter financial decision? Well, we just saw tenants have competing preferences. So we need to make a— you need to use, I should say, a clear framework to make that final decision. First step is always to calculate your land cost per buildable square foot. This is the single most important number. So if your land cost is above that $10 to $15 per square foot threshold, then multi-story construction starts to become more economically viable. Next, you have to project the construction costs for both scenarios. So single story is cheaper to build, usually $25 to $40 a foot, while multi-story again jumps to $50 to $70 per square foot. Then you model the NOI impact for both options. So net operating income impact for both options. You have to factor in the density average of advantage, excuse me, of multi-story against the higher operating costs for things like elevators and HVAC. And then finally, you layer in your market analysis. What are your competitors doing? What do the local demographics tell you about the tenant preferences, etc.? So ultimately, the land cost per square foot of build is usually the deciding factor that pushes you one way or the other. But you have to run the full model first. All right, let's look at the 3 biggest mistakes people make when they skip using this decision framework. So skipping the decision framework leads directly to these 3 common and very expensive mistakes. First is building multi-story in a low land cost market. If your land's cheap, say under $10 per buildable square foot, you're wasting money building up. You're spending an extra $25 to $30 per square foot on construction for a density gain that doesn't justify the cost. Maybe there's an outlier case, but come on, probably not likely. And why are you taking the risk anyway? That half a million to a million dollars is just unnecessary spending, right? The second mistake is ignoring the true cost of elevators and maintenance. Elevators are a huge capital expense, but they also require $5,000 to $15,000 a year annual maintenance and inspections. Forgetting to add that into your ops budget can kill your projected NOI by 5% to 10%. And finally, Never underestimate the tenant preference for drive-up in suburban and rural markets. If you build a multi-story facility where— in a market where everyone wants drive-up, you may actually have to offer a discount to fill up your interior units, which completely erodes the density advantage you were trying to achieve. Why did you bother doing it? Right? So avoid these mistakes by using the framework we just discussed. All right. Action steps for today. We covered a lot of ground today on the critical decision of a single story versus multi-story. So here are your action steps for day 8. First, calculate land cost per square foot in your, in your target market. You need to know that key number. So just drive around, look at, look at competitors in the markets that you're in, you live in, and try to calculate what was their land cost. Why did they choose to build multi-story climate control versus drive-up non-climate control. All right. And then model both scenarios financially to the best you can. Take a stab at it with 10-year projections. You have to start to do the exercise of seeing the numbers side by side and how they all work interchangeably. All right. And we're gonna cover more of this as we go through the series, but just start exercising these new tools you have today. All right. So this deep dive into building types decisions was helpful. Hit the like button for me. Subscribe so you don't miss the next facility decisions we'll be covering in this series, and I will see you tomorrow for day 8. Please share this episode with your network so that they can understand the land economics behind self-storage. Someone in your network will definitely thank you later.