Harvey, Irma, and Self Storage Development.

What will Self Storage Development in Texas and Florida look like post Harvey and Irma?

By Tron Jordheim

Although self storage construction and development are not my areas of focus, I have been around long enough and have been on the peripheries of design, construction and conversion enough to have some opinions on how Harvey and Irma might impact the growth of new construction and conversion projects in the areas that Harvey and Irma visited.

The people who are so far along in the development and construction of new projects in Texas and Florida in particular that they cannot turn back or abandon the projects will have to find a way to move forward. They may find all sorts of obstacles. The rebuilding effort will likely mean that materials and supplies will be harder to get, will take longer to deliver, and will cost more. It is likely that construction crews, architects, and construction management people will be in short supply. Project promoters may have to bring in crews from other areas to be able to get the work done. This will mean higher costs and more delays. Inspectors, municipal boards, approval committees, and third party services will also be stretched incredibly thin causing more delays and higher costs. What will happen to the pro formas of projects if the costs go up by ten or twenty percent and take six or eight months longer to complete?

How will the population and demographics change post Harvey and Irma? Will people in the most affected areas rebuild and stay, or will they move to other parts of the country. We saw after Katrina that many people from New Orleans never returned. Many moved to the Houston area, where unfortunately some were also wiped out by Harvey. There is already talk of the how the population in the Florida Keys will change dramatically. Many of the homes that were destroyed or suffered the most damage were of older construction or were pre-fab or mobile homes. These were grandfathered in when building codes were updated to require some hurricane resistance. People who lived in these homes will not be able to rebuild homes that meet current code. Where will they go? Who will replace them, if anyone? How will that change in population and demographics change the demand outlook for future self storage development? How will the movement of displaced people change demand in other areas?

Future feasibility studies for future projects will have to factor in the changing population. But how soon will we be able to get a clear enough picture of how the populations are changing to be comfortable making big decisions about new builds or conversions? It could take years before those displaced by Harvey and Irma are settled where they will end up and become visible in the data.

Feasibility studies and due diligence reports will also have to change how risk is measured. In the past, people used FEMA data to see where flood zones were in order to make assessments as to the long term flood risks of any given project. You may not realize that FEMA was recently ordered by the executive branch to not use the most current flood data it has available for future reports. This order also limits FEMA from making any forward looking projections that involve sea level rise or storm intensity increase estimates. This means that the FEMA reports currently available and available in the future will reflect the risks of flooding as we understood them five years ago.

Where will developers of self storage go to get more current data and to be able to see a variety of future looking projections in order to make sound decisions? Some might argue that using the storm surge / flooding maps from Harvey and Irma would accurately reflect what future risk will look like. Others will say that these two events were such anomalies that one could not use them in their risk assessments. This may be a long process to figure out how to figure out what to figure out moving forward.

There will be some who have more money than sense who will look at the current situation and try to rush in to add new supply because so many facilities will be absolutely full with Harvey and Irma caused demand. Perhaps the construction and cost issues will keep some of them from making big mistakes.

From KHOU

What will happen to the approval and zoning processes in these areas? How will city planners, zoning committees, permitting agencies, and city councils feel about self storage in the future? Will the experiences of Harvey and Irma cause them to rethink how self storage fits into their communities, or how self storage should be built? Generally a trauma of the size and magnitude of these two storms cause a lot of people to rethink a lot of what they thought was “the way we do things”. On the other hand, we tend to have short memories and chase short term gain, so maybe things will “go back to normal” after the cleanup and the regulatory and entitlement environment will not change much.

What is going to happen to the commercial insurance markets in Texas and Florida? Rates will surely rise, especially for flood coverage. Will underwriting guidelines tighten up? Will insurers make demands about water retention, drainage and so on?

In any case, we are not going to be living in the 2017 and 2018 Florida and Texas we thought we were going to be living in. There will still be demand for self storage and there will still be opportunities to add new developments and conversions. How different things will be? That is yet to be seen.

Sparefoot's Storage Beat Blog did a good piece on this topic recently by John Egan that you can see at this link https://www.sparefoot.com/self-storage/news/5919-storage-operators-regroup-after-hurricanes-strike/

Tron Jordheim is the Business Development Manager for Store Here Management / RHW Capital Management Partners, and a consultant in sales, call center practices, marketing and management. He was formerly the chief marketing officer of one of North America's largest privately held self storage companies,  and director of the industry's largest outsource call center.  Tron has written three books, is a frequent speaker at global self-storage events and marketing conferences, and a contributor to industry trade journals. He started his first business in the sixth grade with a roll of paper towels and a can of window cleaner, put himself through college with a protection dog business, and ran North America’s most successful Culligan Bottled Water franchise. Tron was a pioneer in search engine optimization, digital marketing, and social media. Tron’s clients and employers have gained billions of dollars in asset value from what one self storage industry icon described as his “quirky brilliance”.