The first thing is to decide whether you’re going to try to sell your property yourself or enlist the help of a broker. The following suggestions assume you are working with a professional; if you intend to sell your property yourself, assume the broker’s responsibilities as described here. If you decide to use a broker to represent you, be sure to select the right agent—somebody who knows the self-storage business, knows your local market and has a track record of helping other owners.
Preparation will be your friend, regardless of whether you go for broker or the do-it-yourself route. Here is a five-point tip list on moving forward intelligently with your self-storage sale.
1. The right broker will establish realistic expectations of what the property will ultimately sell for and set an appropriate asking price to ensure you achieve that goal. By setting the asking price too high, you run the risk of not selling at all, thus missing the opportunity to achieve optimum value. Set the asking price too low, and you run the risk of leaving a lot of money on the table. In this market, one-quarter of 1 percent on the cap rate could cost you more than $150,000 on a property with a net operating income of $200,000.
2. The right broker will advise you which, if any, deferred maintenance issues should be dealt with before marketing the property. Unless your property is new, the buyer should not expect it to be in “like-new” condition. Therefore, it may not be necessary to spend much improving the property’s physical condition prior to sale. You should take the time to replace burned-out light bulbs, fix minor damage to doors and metalbuilding corners, replace faded or missing unit numbers, and generally clean up the appearance of the property. Have a seal coat applied if the asphalt is showing signs of deterioration.
If some aspect of your property’s condition might enhance rental rates or the marketability of the property, it should have been addressed long ago and probably isn’t cost effective to tackle at this point. In other words, property value is mostly a function of current income, not what the income could be if you repainted all the doors, installed new landscaping or remodeled the office. Spending a lot on issues like these now is not likely to translate into a substantially higher sales price; it takes time for these kinds of improvement expenses to show up as increased revenue.
The most cost-effective way to achieve optimal value for your property is simply to be sure it is clean. The most you should have to do is a seal coat on the asphalt. The bottom line is your property’s income is achieved because of its appearance—or in spite of it. Many buyers look specifically for fixer-up properties because they believe they have a better chance of growing the income than with a newer property in perfect condition.
3. Inform the on-site manager. Sellers are divided on the subject of whether to inform their managers the property is for sale. Those who choose not to tell management are either afraid the managers will begin looking for other employment or they don’t want to unnecessarily upset them.
You can’t expect to keep your manager in the dark very long when you have countless buyers, brokers, lenders, appraisers, insurance representatives and engineers visiting the property, pretending to be interested in renting units and never actually doing so. The fact is your manager will figure it out sooner or later, and it’s best the news come from you. Also, if you keep the manager in the loop from the start, you can enlist his help in accomplishing a sale by making sure the property is presented in its best possible light.
Assure your manager the great majority of buyers won’t seek a replacement. If the manager is not to be retained, explain you will provide a severance package, allowing him time to secure new employment. It is much better to have managers on your sales team than to keep them in the dark and run the risk they could harm a potential sale. You should, however, instruct your managers to direct all prospective buyers’ questions concerning the financial aspect of the property to you or your broker. You should also ask them to be completely honest when answering questions about physical aspects of the property.
4. Prepare for due diligence. Negotiating contracts can be time-consuming and expensive. Therefore, be prepared to respond to any offer you receive with a contract prepared in advance by your attorney or broker. You should be familiar with the contract, and it should allow for minor changes presented in your counteroffer. Request the buyer use this same agreement if negotiations are to continue.
Any contract will contain a list of items to be delivered to the buyer for review during the contingency period. Those items should be prepared in advance and delivered to the buyer quickly to minimize the time required for due diligence. Items typically included are:
- Last two years’ and year-to-date income and expense statements
- Most recent real estate tax bill and notice of valuation.
- Current rent roll.
- Most recent ALTA Survey and Phase I environmental report. (If you don’t have these, get them done before marketing begins. Each respective engineer should understand the reports will be updated for the buyer’s benefit at a nominal charge.)
- Building plans, if available.
- Service agreements and contracts, including Yellow Pages, insurance, computer service, and any other agreements with outside companies.
- Preliminary title report.
- Copy of loan documents for the existing financing.
5. Prepare for financing. You should know whether your sale will require the buyer to secure third-party financing. If an existing loan can or must be assumed, you should know what it takes to accomplish that and be prepared to share the information with the buyer. If an existing loan must be paid off, you should know the cost, if any, and be poised to deal with it as well.
Considering today’s low interest rates, your buyer will likely want to put a new loan on the property. You or your broker should contact a number of prospective lenders and be ready to furnish whatever documentation they may require; this will facilitate the buyer’s loan application. The probability of a smooth and timely closing will be improved if you can provide your buyer with specific interested lenders’ names and phone numbers.
Although there may never have been a better time to sell a storage property, it is still important to plan the process and follow the plan.
Bill Alter has been a self-storage facility sales specialist with Rein & Grossoehme Commercial Real Estate since 1986. He has been responsible for the sale of more than 80 storage facilities totaling more than 4,500,000 square feet and more than $120 million. Mr. Alter can be reached at 602.954.0217 or firstname.lastname@example.org.