There's a gold mine in the barren ground stretching along the sides of the nation's metropolitan freeways, according to developers who say they have made lots of money building and operating self-storage warehouses there.
"I am getting $20 a month for a 3-by-4 square-foot closet. You can't get that kind of return for a penthouse on top of Knob Hill with gold toilets," said builder James Knuppe.
The San Leandro, Calif., businessman gave up home building in 1970 to erect miniwarehouses, and he has never regretted the decision.
"We recently financed our nine locations, with 14,000 units, and we picked up $5 million in cash," he said during a seminar on miniwarehouses at the Houston convention of the National Association of Home Builders last month.
High interest rates and construction costs have driven down the size of many homes and apartments, and the population has grown more and more transient in recent years, producing a big demand for rental storage space. In addition, office rent is higher than ever, making it impractical to store old files in downtown offices.
Fees charged by traditional moving and storage companies are higher when pick-up and packing costs most companies charge are considered, said one mini-storage owner. And, unlike self-storage units, which tenants can enter any time, the big companies do not allow access to the stored goods, he added.
As a result, the mini-storage business has grown into a billion-dollar-a-year business in the last 20 years, Buzz Victor, president of a mini-storage management and consulting company in Denver, said in a telephone interview.
The number of self-storage facilities in the Washington area has grown from 14 three years ago to about 60 today, according to Victor, whose company owns and manages warehouses here.
Many home builders seeking a haven from the volatile housing construction market have found miniwarehouses, which are fairly easy to build and operate, to be the easiest step into commercial development.
"Every . . . recession got worse," said Dave Miller, a former Washington area home builder, who began building mini-storage facilities two years ago. "If we happened to be in the wrong [construction] cycle, or had a lot of land, it was a very trying time."
Miller now has a 66,000-square-foot warehouse in Alexandria, and a larger storage complex in Hampton, Va., and is planning to build two more this year, in Prince William and Fairfax counties.
The cash flow from miniwarehouses "per dollar invested or per square foot of cost was among the highest I could find," Miller said. In the Washington area, the annual income from his storage units is about $8.50 per square foot, which adds up to more than $560,000 a year. In Hampton, where land and construction costs are lower, the income is lower, he said.
Units in his warehouses range in size from 5-by-5 square feet to 10-by-30 square feet, with a 10-by-10 square-foot unit renting for $75 a month in Northern Virginia, Miller said.
In general, the total cost of operating a self-storage warehouse will be from 25 percent to 35 percent of the gross receipts, Victor said.
Californian Knuppe reports even more impressive amounts. He said his firm's expenses amount to about 15 percent of receipts.
Knuppe's 3,000-unit warehouse in San Leandro, the largest mini-storage facility in the United States, has an annual income of $1.4 million.
One large source of income is late charges, required of tenants who don't pay their rent on time. Knuppe's firm got $480,000 in these charges in 1984.
Knuppe is going international, with plans to eventually operate 20 projects in the United Kingdom. A British businessman rents 200 units, the only ones on the market there, for 73 cents per square foot per week, said Knuppe.
The mini-storage mogul, speaking at the Houston seminar for home builders hoping to diversify into commercial construction, said a religious experience led him into the mini-storage business.
He began his career by building apartment houses, then turned to condominiums and custom-built houses.
Then, "I started building some single-family houses, and then I learned about call backs, about leaky roofs and so on. . . . "I learned about lawsuits" and home buyer complaints "about things beyond your control -- like, 'the grass didn't grow.' "
Knuppe said he then realized "there had to be another way."
Knuppe's storage buildings are located in heavily populated areas of California, with 6 million people living in his market area.
"My whole philosophy is to build in close-in, bypass locations and high-density areas," he said. The warehouses are easy to reach, and in many cities signs on them can be seen by thousands of commuters daily.
"Visibility is very important," agreed Buzz Victor. "It's responsible for 50 percent of a project's business. This is the kind of business where you can't generate a need."
In California, Knuppe said, 70 percent of his tenants are businesses. In the Washington area, Dave Miller said 60 percent of his renters are individuals who store personal property, and the remainder are businesses.
"We found out we turn over our projects . . . every seven months," Knuppe said. He sometimes rents one unit two, three or four times in one month.
Some tricks of the trade Knuppe ticked off:
* Be tough on tenants. "If they don't pay, we lock them out."
* Build concrete driveways because "they're cheaper than asphalt, and you're not held up by weather."
* Erect two-story warehouses and rent upstairs units for $1 less than downstairs units. His second-floor tenants can use the forklift for $4 an hour, Knuppe said.
* "Keep it simple." For example, Knuppe uses plain, hollow-core doors that cost $9.50 each and pays a workman $1 per door to hang them. He hangs 100 a day, according to Knuppe.
* "You don't have to go to 10-foot ceilings. Eight-foot ceilings get the same rent, and you get 20 percent more units."
* Wood is the cheapest construction material in his area, Knuppe said. He is building a new project now at a cost of $12.10 a square foot.
* Put in site improvements first, then build the storage units.
* Rent every possible square foot of space. At one of Knuppe's storage projects, he rents out unused parking spaces to boat owners for $50 a month. He rents space under stairwells for $8 a month.
While most mini-storage developers are enthusiastic about the low costs and high profits the business produces, there is a "downside," said Victor.
"It's the specter of competition. An area can get overbuilt," he said. "There's always the possibility that some idiot may build across the street from you and kill you both."