Selling Your Self-Storage Facility

By Michael L. McCune

Selling a storage facility is a complex task, and one that is not a frequent course ofbusiness for the average self-storage operator or owner. The process can be confusing,frustrating or even seemingly hopeless, yet, taking the right approach to preparingyourself for the selling of a facility can make all the difference in the world.

The selling process can be divided into four general phases:

1. Determining if you are a seller.

2. Finding the right value and setting the price.

3. Developing and executing a marketing program.

4. Getting organized for a sale.

Each step is an integral part of making sure the process works. Notice the adjective"smoothly" wasn't used to describe this process. There will always be somethingthat throws a plan off course, but by following the above steps, you will be betterprepared to handle the ups and downs of selling your facility. For instance, a seller whohas determined that he is serious will be able to handle a more drawn-out search andnegotiating process than an owner who is not quite sure if he wants to sell.

Are You Really a Seller?

An old Englishman once said, "Parting is such sweet sorrow," and nothingcould be more true when it comes time to sell your self-storage facility. The decision tosell a facility is not only one of the largest you will make economically, but also one ofthe most important you may make personally. Many people believe that the decision ispurely one of economics and that it is a rational process.

However, as any real-estate broker can tell you, emotions play a very significant rolein the decision to sell. For this reason, the first and most important decision is todetermine if you really are a seller.

A seller is someone whose rational reason to sell is stronger than his emotional desireto hold onto the property. Some of these rational reasons may be that the owner wants toretire and enjoy life, anticipates estate-tax problems, sees severe overbuilding on thehorizon, has a desire to diversify ones assets for greater security or simply wants tocapitalize on a good market.

Often, brokers will hear a potential seller say, "I will sell if I can get anabove-market price." It will then be clear that the seller does not really want tosell. In this case, the owner either wants an excuse not to sell or is simply deferringwhat should be a rational decision to the erratic nature of the market. It is importantfor a potential seller to be certain that he is really a seller before he gets seriousabout engaging in the selling process. As we will see later, putting your property on themarket without the serious intent to sell can actually hurt the property and your ultimateability to sell it effectively.

What Is It Worth in the Market?

The first step in selling your property, a perfectly rational one for that matter, isto find out what your property is worth in the market before you decide to sell it. Theimportant thing is to remember that the market determines what the project will sell for,not the seller. The potential seller can determine whether or not he will sell for themarket price, but he cannot change the market.

Buyers of self-storage projects are becoming more and more sophisticated. In fact, thevast majority of projects in recent years have been purchased by other self-storageowners. Thus, it is safe to assume that the buyer will have a thorough understanding ofmarket value. Although there is always a remote possibility that a property could sellsignificantly above the market price, most real-estate professionals would agree that theyhave never seen such a sale, particularly in a relatively small market like self-storage.Pricing the property incorrectly means one of two things: Either you lose money becausethe price is too low or the property just does not sell.

To find out what your property is worth, you may want to enlist the help of anappraiser. Appraisers use three approaches to determine the value of a property: income,replacement and market comparable. In a formal appraisal, each approach will indicate avalue, and each will reconcile to essentially the same value. In the real world of buyingand selling self-storage, the value of a property is almost always determined by using theincome approach; after all, that is why self-storage properties are bought.

This method makes use of a formula that capitalizes the income from a property todetermine its value.

Developing and Executing a Marketing Strategy

Now that you know you are a serious seller and what your property is worth, it is timeto determine how best to market the property. There are basically two choices: You cansell it yourself or hire a professional real-estate broker. Clearly, selling the projectyourself can be very difficult and time-consuming. Many self-storage operators simply donot have the contacts, experience, market knowledge or the network to be really effectiveat selling their project for the best price and terms. This is a specialized activity andis too important for on-the-job training. The mistakes can be expensive and are usuallyirreversible.

If you decide to hire a professional real-estate broker, there are three things thatyou want to accomplish:

Pricing: An experienced broker can help determine the right price for yourproperty. He will bring to the table all of the necessary elements to gather and evaluatethe data needed to price your facility correctly. If you hire a self-storage specialist,he should be well-equipped to compare your facility to others--nationally and locally.Since many properties are being sold to national buyers, the larger national perspectiveis very important in today's market.

Presentation and Exposure: To effectively market a project, it's best to have aprofessional, detailed and credible property presentation. Such a presentation shouldinclude the location of the project and its competition, pictures of the facility,demographics of the market area, financial information, loan information, unit mix, sitelayout and any other information important to the facility. With the professional propertypresentation completed, focus on maximum exposure becomes the paramount issue of themarketing effort. Quite simply, the more qualified prospects that are exposed to theproperty, the more likely the property is going to sell. The more avenues of exposure, thebetter--i.e., direct mail, Internet, magazine advertising, multi-list, conventionpresentations, network affiliations and cooperating brokers. Giving a facility the properexposure is the single most important thing a broker can do. A good broker will not resistspending money on maximizing the exposure. If a broker tells you that something generatingexposure is not worth the money, you know that he is watching his own interests and notyours. Exposure sells property.

Negotiation and Documentation: An experienced self-storage broker will be ableto help you in the negotiation of both price and terms. He will be able to tell you whatare usual terms in the marketplace and which buyer requests are out of line. Since thebuyer is likely to know that the broker is experienced in these transactions, he will knowhe cannot bluff the seller into agreeing to onerous terms. Although it's probably best toretain and use an experienced real-estate attorney to help with the sale, thebroker--whose experience may be helpful to the attorney--should also be prepared to helpin documenting the transaction.

Questions You Should Ask a Prospective Broker

1. Do you specialize in self-storage facilities?

2. Can you provide me with comparable self-storage sales data?

3. How much and what kind of exposure will my property get through mailings, Internet,self-storage publications, national self-storage conventions and local commercialmulti-list?

4. What is the nature of your national contacts, and how many of them have you donebusiness with?

5. Are you affiliated with other self-storage brokers?

6. Do you work regularly with lenders that can help my buyer finance the purchase of myproperty?

7. Would you refuse to take this listing if I wanted to raise the price 30 percentabove your estimated value? (This question would reveal someone desperate for a listing.)

A negative answer to any one of these questions should cause a negative response from aserious seller. There is simply no reason to compromise on the quality of the broker. Youwouldn't do this anymore than you would compromise on the price simply because the buyeris a "nice person."

Getting Organized For a Sale

There are several more things that a seller should do before selling a property.

He should make sure that any differed maintenance items are corrected. Everyone knowsthat clean property sells better, but it also usually makes the negotiations easierbecause the buyer is not worried about hidden defects. Any maintenance or repairs that arenot corrected will cause the buyer to inflate the costs to complete these items tocompensate for the risk and the inconvenience of having to repair them.

Second, make sure that your rental rates all consistent with your stated rents and themarket. Many times rates vary from customer to customer for the same size unit. Byadjusting your rate you will be able to maximize your income and, in the end, your saleprice. Also, clear up any long-term delinquencies.

Lastly, take a look at the financial records and make sure that they are in good orderfor at least the last three years. Your accountant may be able to help you make therecords presentable. Not only will the buyer be intensely interested in the accuracy andcompleteness of the records, but the buyer's lender will also request this information.Have an explanation for every unusual transaction that appears in the books. The lack ofaccurate and complete records is the single greatest reason for a contract of sale failingto turn into a closed deal.

Summary

Selling your self-storage facility is an important and complex activity. It requiresboth conviction and planning to achieve the desired goal of selling it for the maximumprice in a reasonable time frame. This is not a process amenable to shortcuts. Likewise,the successful sale will usually be the result of generous applications of planning,experience, hard work and goodwill. There is a rule in real estate that luck followseffort. Good luck in your sale.

Michael L. McCune is president of Argus Real Estate Inc. Based in Denver, Argusoperates and manages the Argus Self Storage Sales Network, the nation's only network ofbrokers dedicated to the buying and selling of self-storage facilities. For moreinformation, Mr. McCune may be reached at (800) 55-STORE.