Assembling Due-Diligence Documentation: Self-Storage Sellers Facilitate the Close With Detailed Financial Records
Copyright 2014 by Virgo Publishing.
By: Stephen Grossman
Posted on: 12/03/2010


Organizing and professionally presenting a self-storage facility’s due-diligence documents always enhances a seller’s chances of consummating a sale. More than ever, lenders and appraisers are scrutinizing and analyzing all aspects of this documentation as well as the personal financial strength of the buyer.

The recent lending paralysis that virtually shut down commercial lending and investment seems to be easing. Recourse loans, which were unheard off in the past decade, are now commonplace and play a firm role in the new lending landscape. Moreover, higher loan-to-value deals are part of the transaction process. Lenders want more of the borrower’s “skin” in the game to reduce the risk factor of the loan.

Financial records for self-storage properties must corroborate and confirm adequate cash flow, steady occupancy, comparable market strength, and historical financial stability. Without these general factors intact and certifiable, the buyer’s ability to secure financing is extremely limited if not impossible. Without the possibility of seller financing, accurate due-diligence documentation will help make the deal.

Required Documents

Many successful storage properties share some basic characteristics. These features include a strong retail drive-by location, a carefully planned unit mix, ease of access, ample parking, and market-focused onsite management. Astute buyers will immediately notice these traits, but be prepared to review your property with the buyer to conduct a thorough due diligence.

The creation of a document binder is a recommended step in the process. The binder should contain all the necessary documents a potential buyer and lender will need during the evaluation period. This will expedite the document-review process and flush out potential problems. If possible, the information should also be saved electronically for ease of transmission to associated parties.

A list of due-diligence information that may satisfy a prospective investor’s requirements should include but is not limited to:

  • Bank statements (two years)
  • Real property-tax invoices (two years)
  • Rent roll including term and payment history
  • Tax returns (three years)
  • Insurance policy (including riders, risk assessments and carrier affidavit)
  • Deed
  • Bank statements (12 months)
  • Personal property
  • Utility bills
  • Income statements (current yield-to-date and last two full years, both detail and summary information)
  • Occupancy reports (current yield-to-date and last two full years, both detail and summary information)
  • Service agreements (cancellation rights/penalties)
  • Environmental reports and surveys (phase one)
  • Preliminary title report and legal description
  • Site plan
  • Lot size and zoning information
  • Architectural drawings
  • Narrative sections of the most recent appraisal
  • Capital expenditures (detailed of last three years, current and planned)
  • Government inspection reports (description and status of any violations)
  • Licenses (description and name of licensed entity)
  • Lease(s), sublease(s) and/or operating agreement(s)
  • Natural hazard disclosure report
  • Ground lease (if applicable)
  • Employment agreement

Confirmation Checklist

As with any financial transaction, unnecessary holdups with information can delay or kill the deal. The investor needs all due-diligence information within the prescribed schedule, which is normally documented in the purchase agreement. This will ensure the property doesn’t remain off the market for an extended period of time in the event the investor chooses to forego the purchase.

Provide the buyer with a detailed checklist of documents and have him sign a receipt certifying and confirming acceptance. The due-diligence period will normally start at this point in the transaction. The checklist should include a short description of each document and the source of the information (i.e., public records, tax assessor, court, etc.).

Also include contact information, e-mail addresses and phone numbers as necessary. In the event a document is not included, provide an explanation for the omission. This disclosure will prevent unnecessary delays during the due-diligence review.

Remember, any inaccuracies in the information will cast doubt on the transaction and may lead to uncertainty on behalf of the buyer, which could lead to a lower sales price or cancellation of the transaction. In fact, a cautious and knowledgeable investor will be looking for document omissions or errors. If he finds them, he may find more time evaluating and analyzing the deal.

It’s always a prudent for the seller to disclose all aspects of the property. Not doing so could lead to post-closing issues, which could result in legal action and monetary damage.  

I recommend the seller and buyer consult with legal and financial advisors to review all documentation and confirm that legal and financial standards have been satisfied. By following the recommendations above, you’ll provide a smoother transaction for you, the buyer and the lender.

Stephen I. Grossman is a senior vice president with NAI Capital Self Storage Investment Group in Newport Beach, Calif. The company specializes in self-storage brokerage in California and Hawaii. Mr. Grossman has been responsible for the sale of more than 800,000 buildable square feet of entitled self-storage land and the sale or escrow of more than 3 million square feet of existing self-storage facilities. For more information, call 949.468.2394; e-mail .