Does Self-Storage Make Sense for Your Carwash? (Self-Storing More Income)

Property and business owners always look for ways to increase their bottom line. To boost profitability, most carwash owners typically start by analyzing how many bays would be appropriate at each location and whether to include automatic or other services at the facility.

For instance, an automatic bay may produce a two-to-three times higher level of income than a self-service bay but, on the flip side, would require greater operating costs to maintain. These operating costs could include a site manager who directs traffic during busy times and performs maintenance and upkeep on the automatic bay equipment.

Many carwash owners today are looking beyond these obvious types of profit boosters to determine how they can effectively utilize their facilities’ excess land or adjacent property parcels to further support their growth aspirations. As you ponder the possibilities, you should start by considering the connection between, and proper use of, currently non-income producing land to an existing carwash business.

You need to determine the type of business that would create logical synergies, increase traffic count at the carwash, require minimum increased management and oversight, necessitate only reasonably higher investment costs, and most importantly, increase your income.

With these considerations as a starting point, you may want to take a closer look at adding self-storage to your business mix.

Eye-Catching Possibilities

Similar to the carwash industry, the self-storage industry (which includes boat and recreational vehicle storage) has matured greatly during the past 20 years. It has proven to be a viable and profitable real estate property investment depending upon local market conditions and demand.

Statistics regarding storage industry growth are quite eye-catching to those unfamiliar with this real estate asset class. According to the Self Storage Association (SSA), the national trade organization for self-storage owners and operators:

• During the last 30 years, the self-storage industry has been the fastest growing sector of the U.S. commercial real estate industry, based upon the number of new companies, new facilities and amount of total square footage added.
• At the end of 2007, there were 51,500 “primary” self-storage facilities in the United States whose gross revenues were approximately $20.1 billion. “Primary” means that self-storage is the primary source of business revenue.
• In addition to these primary facilities, there are an additional 8,434 small business “secondary” mini-storage facilities nationwide. While very little data exist on these companies, the vast majority are owned by small business owner-operators who report to the U.S. Census Bureau that self-storage is a “secondary” source of business revenue.
• The self-storage industry required more than 25 years to build its first billion square feet of space; it added the second billion in just eight years (1998-2005).
• The pace of self-storage development has slowed since 2006. The SSA estimates that 1,200-1,500 new facilities entered the market in 2007, which is well below the peak development year when more than 4,500 new facilities opened nationwide.
• Nearly one in 10 U.S. households currently rents a self-storage unit, up from one in 17 in 1995. That’s approximately a 65 percent increase in the past 12 years.

Among the most attractive aspects of self-storage facilities to carwash owners is that their operating components are certainly less complicated and mechanical compared to a carwash business.

Traditional and RV/Boat Storage

As you consider adding self-storage to your carwash business mix, the first element to your decision should be whether you have enough land mass to develop a sufficient number of self-storage units. The number of units should be appropriate to your available excess land, as well as local market demands for storage and the level of nearby storage competition.

For example, if there are self-storage properties close to the carwash which each have 300 or more storage units, a smaller facility adjacent to a carwash with 25 self-storage units would likely not compete well in that market. The average size of self-storage units is 100 square feet, with the average unit size increasing as you move away from urban and metro locations.

However, in this specific circumstance, outdoor RV and boat storage could be a viable alternative if that niche is currently an unfulfilled need in the local market. Many municipalities nationwide do not allow residents and businesses to park campers, boats and commercial vehicles on their properties. In addition, many service companies require ample overnight parking availability.

If you determine that RV and boat storage may be a profitable storage niche for your carwash property, it would likely require the least investment and may be the most compatible to your current business.

The key components would include having sufficient land for easy maneuverability by larger vehicles, and a safe and secure storage space. Partially enclosed or covered spaces are hard to find in many areas and are in great demand by people wishing to protect their large toys. The facility’s ground surface (paving or cement vs. gravel) changes the class of the rentable space and may also be determined by local market competition.

Traditional self-storage also can offer a relatively low management-intensive addition to your current carwash operations. Unless you are going to have a sizable storage facility with more than 20,000 square feet of rentable space, you will likely need little additional staff than your current wash facility. Self-storage operational costs on a standalone basis range from 30 percent to 40 percent of gross revenues, with the highest portion of costs associated with real estate taxes, on-site personnel and advertising.

Clearly, you would be at a competitive advantage if you could allocate some of these costs over more than one profit center, namely your carwash business and self-storage facility. Because self-storage properties rent individual units on a monthly basis, you can be flexible with rental rates based on market demand. Residential storage users rent for an average period of eight months, while commercial users average two years.

Minimal Investment

Many carwash owners purchase a larger property lot than needed to build their carwash facilities. This excess land is typically not suitable for retail or similar applications. However, one of the nice things about self-storage is that you can have odd-shaped or long narrow parcels that suit storage facilities. Further, a carwash owner may already have sunk costs in the land so the only additional investment would be in the construction and maintenance of buildings.

Most storage facilities today feature metal construction with metal roofs and metal roll-up doors. Some municipalities will require improvements to beautify the property such as split block facades and landscaping. Regardless, the financial development investment per square foot is less than building retail space. In addition, your lease-up costs are less than retail, and you can likely expect steady lease up of your storage space.

The prospect of customers in an ancillary storage facility using your carwash services is very real. We have all seen the loving care that RV and boat owners give their vehicles as they spend hours detailing their big toys. Building an oversized truck bay to serve the needs of your expanded RV/boat storage client base could lead to a very unique and desirable business combination.

Word-of-mouth advertising of an expanded customer base and traffic count also has an exponential effect, as vehicle owners may rent your spaces when not on the road or in the water and utilize your wash services between trips.

Adding a storage facility to your carwash business would require minimum increased management and oversight, so you could essentially spread the overall personnel cost over your two revenue streams of storage and carwash. Here’s how:

You may already employ on-site personnel at your carwash facilities. A typical self-storage property will average less than one new renter daily, providing periods of availability each day for an employee to address storage facility issues and needs in addition to carwash responsibilities. And like carwashes, on-site personnel can maintain the storage property’s upkeep.

While you will need to establish measures to collect monthly rental income and ensure tenants stay current with their payments, there are plenty of technologies and resources available today to help you automate these processes and minimize the need for additional storage staff.

Boosting Your Bottom Line

A typical operational break-even point for storage is in the range of 50 percent to 75 percent occupancy. By spreading costs between your carwash operations and storage facility, you can lower this threshold.

While SSA statistics exhibit the tremendous growth of self-storage and RV/boat storage in local markets nationwide, there are still many opportunities and niches that could be filled. Combined carwash/self-storage operations may give you a competitive advantage to attract new customers. In addition, your cost structure could be meaningfully less than traditional standalone self-storage competitors.

Storage has proven itself as a profitable operating business and solid real estate investment. And ultimately, when you are looking at the exit strategy for a combined carwash-storage investment, you potentially place yourself in a position of selling not only an operating business, but also a sustained income-producing real estate asset.

Bruce Bahrmasel is a real estate broker with the Argus Self-storage Sales Network and Landstar Realty Group. Based in Chicago, he specializes in the sale and disposition of self-storage properties and carwash facilities throughout the Midwest. He also serves clients in sales of all commercial property types. He can be reached at 312.518.3550 or bbbahr@aol.com.

Neal Gussis is a principal with Beacon Realty Capital, a Chicago-based commercial real estate financing firm, where he directs the company’s self-storage lending programs and supports self-storage owners nationwide with their financing needs. He can be reached at 312.207.8240 or ngussis@beaconrealtycapital.com.