First, decide whether you’re going to try to sell your property yourself or enlist the help of a broker. All the following recommendations assume you’re working with an agent, so if you’re going it alone, transfer to yourself all the responsibilities assigned to the broker. If you decide to use professional representation, be sure to select the right one—someone who knows the self-storage business, has a proven track record of helping owners, and knows your market.
The broker will establish realistic expectations of what the property will sell for and set an appropriate asking price. Set the price too high, and you run the risk of not selling at all, thus missing the opportunity to achieve optimum value. A low asking price could leave 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.
Deferred maintenance issues should be dealt with before marketing the property; but unless your facility is new, the buyer should not expect it to be in like-new condition. It may not be necessary to spend much on improving its physical condition. Simply take the time to replace fizzled light bulbs, fix minor damage to doors and building corners, replace faded or missing unit numbers, and do some general clean-up. Apply a seal coat if the asphalt is showing signs of deterioration.
If improvement of some aspect of the property might enhance its marketability or increase rental rates, then it should have been addressed long ago. Now isn’t the time to take on major enhancements. In other words, property value is mostly a function of current income, not what profits could be if you repainted all the doors or remodeled the office. Spending a lot now is unlikely to translate into a substantially higher sales price because it takes time for improvement expenses to show up as increased revenue.
The most cost-effective way to achieve optimal value is simply to be sure the facility is clean. Many buyers even look for properties in need of upgrades because they believe they have a better chance of growing income than with a newer property in perfect condition.
Manager in the Loop
Sellers are divided on the subject of whether to inform the on-site manager that the property is for sale. Those who choose to keep quiet are either afraid the manager will begin looking for other employment, or they don’t want to unnecessarily upset him.
You can’t expect to keep a manager in the dark for long when you have countless buyers, brokers, lenders, appraisers, insurance representatives and engineers visiting the property. He’ll figure it out sooner or later, and it’s best that the news come from you. Let him know at the beginning of the marketing process so he can assist you in presenting the property in its best possible light.
The majority of buyers will want to maintain management continuity—let your employees know this. Also assure them that if they are not retained, you’ll provide a severance package that will give them time to secure new employment. It’s much better to have staff on your sales team than to keep them uninformed and run the risk of harming a potential sale.
Instruct all employees to direct any and all questions concerning the financial aspects of the property to you or your broker. You should also tell them to be completely honest when answering questions concerning the physical aspects of the property.
The negotiation of contracts can be time-consuming and expensive, so be prepared to respond to offers with a contract with which you are familiar, one prepared in advance by your attorney or broker. It should allow for minor changes to fit your counteroffers. Request the buyer to use your contract if negotiations are to continue.
Any contract will contain a list of items to be delivered for the buyer’s review during the contingency period. These documents should be prepared in advance and given to the buyer quickly to minimize the time necessary for due diligence. They typically include:
- Year-to-date income and expense statements
- Income and expense statements for the past two years
- Most recent real estate tax bill and notice of valuation
- Current rent roll
- Most recent ALTA Survey and Phase I environmental report
- Building plans, if available
- Service agreements and contracts with outside companies including Yellow Pages, insurance, computer service, etc.
- Preliminary title report
- Copies of loan documents for existing financing
If you don’t have the most recent ALTA Survey and Phase I, get them done before marketing begins. Make sure each engineer understands his reports will be updated for the buyer for a nominal charge.
Prepare for Financing
Find out if 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 information with the buyer. In cases where an existing loan must be paid off, educate yourself on what it will cost (if anything) and be prepared to deal with that as well.
With current low interest rates, it’s likely your buyer will want to put a new loan on the property. You or your broker should contact several prospective lenders so you’re poised to provide the documentation they need to quickly process the buyer’s loan application. The probability of a smooth and timely closing will be improved if you can furnish your buyer with interested lenders’ names and phone numbers. There may have never been a better time to sell a storage property, but it’s still important to plan the process and follow the plan.
Bill Alter has been a self-storage sales specialist with Rein & Grossoehme Commercial Real Estate since 1986. He has been responsible for the sale of more than 90 storage facilities totaling more than 5 million square feet and $150 million. For more information, call 602.315.0771; visit firstname.lastname@example.org.