By Michael L. McCune
Selling a storage facility is a complex task, and one that is not a frequent course of business for the average self-storage operator or owner. The process can be confusing, frustrating or even seemingly hopeless, yet, taking the right approach to preparing yourself 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 something that throws a plan off course, but by following the above steps, you will be better prepared to handle the ups and downs of selling your facility. For instance, a seller who has determined that he is serious will be able to handle a more drawn-out search and negotiating 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 nothing could be more true when it comes time to sell your self-storage facility. The decision to sell a facility is not only one of the largest you will make economically, but also one of the most important you may make personally. Many people believe that the decision is purely one of economics and that it is a rational process.
However, as any real-estate broker can tell you, emotions play a very significant role in the decision to sell. For this reason, the first and most important decision is to determine if you really are a seller.
A seller is someone whose rational reason to sell is stronger than his emotional desire to hold onto the property. Some of these rational reasons may be that the owner wants to retire and enjoy life, anticipates estate-tax problems, sees severe overbuilding on the horizon, has a desire to diversify ones assets for greater security or simply wants to capitalize on a good market.
Often, brokers will hear a potential seller say, "I will sell if I can get an above-market price." It will then be clear that the seller does not really want to sell. In this case, the owner either wants an excuse not to sell or is simply deferring what should be a rational decision to the erratic nature of the market. It is important for a potential seller to be certain that he is really a seller before he gets serious about engaging in the selling process. As we will see later, putting your property on the market without the serious intent to sell can actually hurt the property and your ultimate ability 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, is to find out what your property is worth in the market before you decide to sell it. The important 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 the market price, but he cannot change the market.
Buyers of self-storage projects are becoming more and more sophisticated. In fact, the vast majority of projects in recent years have been purchased by other self-storage owners. Thus, it is safe to assume that the buyer will have a thorough understanding of market value. Although there is always a remote possibility that a property could sell significantly above the market price, most real-estate professionals would agree that they have 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 because the 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 an appraiser. Appraisers use three approaches to determine the value of a property: income, replacement and market comparable. In a formal appraisal, each approach will indicate a value, and each will reconcile to essentially the same value. In the real world of buying and selling self-storage, the value of a property is almost always determined by using the income 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 to determine 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 time to determine how best to market the property. There are basically two choices: You can sell it yourself or hire a professional real-estate broker. Clearly, selling the project yourself can be very difficult and time-consuming. Many self-storage operators simply do not have the contacts, experience, market knowledge or the network to be really effective at selling their project for the best price and terms. This is a specialized activity and is too important for on-the-job training. The mistakes can be expensive and are usually irreversible.
If you decide to hire a professional real-estate broker, there are three things that you want to accomplish:
Pricing: An experienced broker can help determine the right price for your property. He will bring to the table all of the necessary elements to gather and evaluate the 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 perspective is very important in today's market.
Presentation and Exposure: To effectively market a project, it's best to have a professional, detailed and credible property presentation. Such a presentation should include the location of the project and its competition, pictures of the facility, demographics of the market area, financial information, loan information, unit mix, site layout and any other information important to the facility. With the professional property presentation completed, focus on maximum exposure becomes the paramount issue of the marketing effort. Quite simply, the more qualified prospects that are exposed to the property, the more likely the property is going to sell. The more avenues of exposure, the better--i.e., direct mail, Internet, magazine advertising, multi-list, convention presentations, network affiliations and cooperating brokers. Giving a facility the proper exposure is the single most important thing a broker can do. A good broker will not resist spending money on maximizing the exposure. If a broker tells you that something generating exposure is not worth the money, you know that he is watching his own interests and not yours. Exposure sells property.
Negotiation and Documentation: An experienced self-storage broker will be able to help you in the negotiation of both price and terms. He will be able to tell you what are usual terms in the marketplace and which buyer requests are out of line. Since the buyer is likely to know that the broker is experienced in these transactions, he will know he cannot bluff the seller into agreeing to onerous terms. Although it's probably best to retain and use an experienced real-estate attorney to help with the sale, the broker--whose experience may be helpful to the attorney--should also be prepared to help in 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 commercial multi-list?
4. What is the nature of your national contacts, and how many of them have you done business 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 my property?
7. Would you refuse to take this listing if I wanted to raise the price 30 percent above 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 a serious seller. There is simply no reason to compromise on the quality of the broker. You wouldn't do this anymore than you would compromise on the price simply because the buyer is 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 knows that clean property sells better, but it also usually makes the negotiations easier because the buyer is not worried about hidden defects. Any maintenance or repairs that are not corrected will cause the buyer to inflate the costs to complete these items to compensate 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 the market. Many times rates vary from customer to customer for the same size unit. By adjusting your rate you will be able to maximize your income and, in the end, your sale price. Also, clear up any long-term delinquencies.
Lastly, take a look at the financial records and make sure that they are in good order for at least the last three years. Your accountant may be able to help you make the records presentable. Not only will the buyer be intensely interested in the accuracy and completeness 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 of accurate and complete records is the single greatest reason for a contract of sale failing to turn into a closed deal.
Selling your self-storage facility is an important and complex activity. It requires both conviction and planning to achieve the desired goal of selling it for the maximum price 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 follows effort. Good luck in your sale.
Michael L. McCune is president of Argus Real Estate Inc. Based in Denver, Argus operates and manages the Argus Self Storage Sales Network, the nation's only network of brokers dedicated to the buying and selling of self-storage facilities. For more information, Mr. McCune may be reached at (800) 55-STORE.