BY ALEJANDRA ZILAK

BY ALEJANDRA ZILAK

or decades, Florida has been an attractive location for a wide array of demographics, such as transplants who never want to shovel snow again and tech companies. With the new residents comes self-storage, but the optimism that accompanies year-round summer may be quelched by a long list of development hurdles. Unfortunately, what you don’t know can cost you.

“The Florida market in general is one of the most attractive,” says Doug Ressler, manager of business intelligence at Yardi Matrix, a commercial real estate market intelligence platform. “It’s also one of the most challenging. The issue is not demand. They still have population growth, especially in metro areas such as Orlando, Tampa, and Miami. The challenge is building profitability. The influx in these large cities is still getting absorbed quite well, but the street rates have not shown a tremendous amount of growth because of the oversupply of self-storage facilities.”

Ressler points out that while smaller markets like Sarasota have an absorption rate of about 23 percent, Orlando’s is at 18 percent and Miami’s is at 9 percent. “The oversupply risk results in lower rental rates, and that’s one of the bigger challenges,” he says, adding that some locations offer a better market due to their circumstances.

“Jacksonville is different because of its proximity to academics and state government, so you have a much more mobile population, and self-storage tends to do well,” says Ressler, who notes that it’s similar in Gainesville because of the University of Florida. “Self-storage is much more prevalent in university towns; although this applies in places other than Florida as well.”

Cameron Paktinat, CEO and principal at Lindenwoods Capital, agrees. “With all the development that’s taking place—and not just in the self-storage industry, but the overall growth in Florida—it’s a challenge to find the right plot of land. There are markets where there’s a lot of residential growth. This attracts developers, and new supply is the Achilles’ heel of self-storage. Yet, trying to find parcels of land that allow for storage without having too many other projects within the surrounding three-mile radius is becoming increasingly difficult.”

Even if you hit that jackpot, some jurisdictions may impose additional restrictions. “In Miami, for instance, there’s a certain distance you have to keep between self-storage facilities, so it limits even more the areas that are feasible for a project,” says Paktinat.

Then there’s zoning. Ken Nitzberg, co-CEO of Inland/Devon Self-Storage, mentions that cities don’t tend to have much of a liking for self-storage facilities. “Cities, for the most part, live off sales taxes,” he says. “In all but a few small locations, we don’t pay sales taxes on leasing rents. That’s why when you go to Florida, most of what you see at major intersections are strip malls, maybe anchored by a grocery store. Things that generate sales tax.”

To add insult to injury, Nitzberg adds that storage projects don’t generate many jobs. “When we are finished with constructions, the site will have one or two managers, so the councilperson won’t be able to say in their re-election campaign how they created new jobs for the community.”

Something else that makes the battle an uphill one is perception. “When you walk into the planning department and you say you want to put a self-storage facility, what they see in their mind is a 1970s type of property with multiple rectangular buildings with cyclone fencing,” says Nitzberg. However, he’s quick to defend the Sunshine State. “This happens in Florida, but I’ve seen it happen in other states, too.”

To make the process go as smoothly as possible, Nitzberg recommends finding a local zoning and land use attorney. “It’s crucial to hire counsel who knows the lay of the land,” he says, “especially in the bigger cities or more affluent areas that don’t tend to want a self-storage facility in their neighborhood.”

Ressler highlights that the denser the area, the more hurdles you’ll find. “It’s more difficult to get zoning approvals in Miami because you have to do traffic studies, and they have much more stringent architectural requirements and extensive public hearings. It really depends on where you want to build, but the higher the population, the more controlled the process will be.”

Once you find a prime location, it’s time to be mindful of another one of Florida’s infamous traits: hurricane season. It runs from June 1^st to November 30^th, and the past two decades have brought larger storms. As a result, building any type of real estate in the peninsula has become significantly costlier.

“The building codes in Florida require that if you have outside units, all doors need to withstand winds of 140 miles per hour,” Nitzberg says, before once again mentioning that each location has its challenges. “California has earthquake requirements, so I don’t really hold it against Florida. Each state has its nuances.”

“Developers have to now design for higher winds and hurricane-resistant structures,” adds Ressler, noting that not only are these elements more expensive, but they also extend construction timelines. This can be problematic due to the nature of construction projects. “When you apply for a construction loan, you begin making payments when you’re approved, not when you start building, and usually these loans have between 7 [percent] and 9 percent interest rates.”

These costs come hand in hand with another consequence of hurricanes: insurance costs. “They are out of control,” says Nitzberg, “especially for wind coverage. You just can’t get it at a price that makes sense, but every lender requires it in order to issue a mortgage loan.”

The costs themselves, however, vary greatly depending on the location where you’re looking to develop your facility. “In Orange County, you might be able to find a policy for $5,000 a year, but as you get closer to the coasts, you’re going to pay a lot more,” Nitzberg adds. “In Ft. Lauderdale, it might be $50,000 a year.”

Other environmental factors that could impede development include marshes, swamps, mangrove forests, and the state’s low water table. “We did a conversion in Gainesville where we had a large property,” says Nitzberg, “but the back half was all wetlands. We couldn’t touch it. Thankfully, we had enough land in the front, so we were fine. But you have to watch that.” Although Devon Self-Storage was able to work around it, it’s possible for an entire property to be deemed a wetland. If such is the case, it would be extremely difficult—and equally as expensive—to get any kind of permitting. “And you might not ever get any permits for that location.”

For his part, Ressler cautions that if you’re developing lands near wetlands, you may be required to have stormwater retention or detention ponds. “The common consequence is reduced acreage, longer entitlement periods, and higher structure costs because of these environmental constraints.”

All things considered, Nitzberg still believes Florida is a good market. “Orlando and Tampa probably don’t need any more storage in the near future, but it’s a cycle. All the facilities in a given market eventually get filled and new ones get built. It takes several years to absorb that capacity, then we start cycling again.”

As the years go by, that cycle gets shorter and shorter. As Nitzberg explains, “20 years ago, only 6 percent of the population was renting storage. Today, it’s closer to 12 percent, so if an area is overbuilt, you’ll eventually see an increase in demand, but the operator must have the financial staying power.”

According to Ressler, that foreseeable growth still exists in Florida. You just need to be mindful of what the target market prefers. “Florida consumers increasingly want climate-controlled storage because of the heat and humidity, as well as enhanced security and modern digital access. It has become crucial. Many of the newer facilities aren’t manned by personnel. You pick up your keys via text message. That started out in small rural areas but is now gaining momentum even in larger communities. It’s done as a matter of cost reduction, too.”

Finally, Nitzberg asserts that Florida still has an influx of new residents and jobs, and with this growth, excess storage space will eventually be absorbed, and then the pattern will start again with new construction.