Many storage owners choose to manage the sales process themselves, capitalizing on their existing business relationships. But the industry has changed significantly over the last 10 years. More and more buyers have entered the market, and it’s no longer the tight-knit group it once was. Several years ago, approximately 20 buyers were involved in 75 percent of transactions. Now there are about 2,200 buyers actively seeking storage investments.
Furthermore, the typical self-storage buyer is a whole new animal. Not only are his expectations higher, he tends to focus on a more complicated matrix comprised of capitalization rate, internal rate of return, stabilized yield, cash-on-cash return and the FFO (funds from operations) contribution. To get the best price for your facility, you need to know the right combination of return thresholds and your property’s ability to achieve them.The Role of Broker
As the seller, your challenge is to find the right buyer in the crowd and make sure he gets adequate information about your property. If you’re uncomfortable navigating the intricacies of a sale on your own, consider the services of a professional real estate broker.
You can always hire locally, but to ensure the highest exposure, consider a national firm with a local sales representative as part of its team. This will help you reach the entire self-storage market and create the best financial model. At the same time, you’ll know your advisor has local market knowledge and licensing issues are well-handled.
You should be assured that your broker can answer buyer questions and anticipate concerns, incorporating them into a comprehensive marketing plan. But site promotion is just part of the advisor’s contribution. He’ll also perform pre-market due diligence to uncover potential problems, examining such items as facility rental rates, occupancy, advertising, expenses and real estate taxes.
Your broker will also help determine buyers’ sincerity by tracking their activities prior to making an offer. He’ll pay attention to who takes property tours, who asks detailed questions, buyers’ existing portfolios and their overall reputations. Seldom does a seller take an offer based solely on price. His best choice will be an attractive combination of price, likelihood of closing, pre-offer due diligence and other intangibles.
Finally, the broker will help buyer and seller set realistic expectations of the sale. Rarely does a seller’s trailing 12 months of income match a buyer's pro forma. It's helpful to work with a professional who understands the differences and their impact on value.
Benefits for Hire
The services of a real estate advisor don’t come free. However, the benefits far outweigh the costs when you choose right professional for your team. Consider the following:
- Industry expertise is critical. Without it, an advisor will manage the transaction but contribute little else. You want a broker who can tailor his approach to the self-storage market, anticipate property-specific issues and head off problems early.
- A broker who has been recently active in self-storage is better equipped to assess the large number of current buyers, their backgrounds, ability to close, etc.
- Real estate firms should work with a local broker to ensure market- and property-specific issues are considered. Local expertise can also bring the community’s non-storage investors into the field of prospects.
- Some large firms offer capital-market execution (specifically third-party debt), which gives a seller access to more options in the capital-rich self-storage sector. If the firm plays a role on the buyer’s side of the acquisition, the seller enjoys greater transaction management.
A real estate advisor not only assists during the sale, he can be an invaluable resource in determining whether or to sell in the first place. Most top advisors offer initial valuations at no cost, so they’re a resource well worth using. Plus, some firms have capital-market capabilities; if the decision is between selling or refinancing, an unbiased advisor will make the best recommendation.
Without a doubt, the self-storage market is enjoying high activity. Now is an excellent time for owners to assess their position in the market and explore options.
Aaron A. Swerdlin is director and senior vice president of the CB Richard Ellis Self Storage Advisory Group, a nationwide practice solely focused on the brokerage and financing needs of the self-storage industry. In recent years, the group has bought, sold, brokered and financed more than $900 million in self-storage real estate. For more information, call 713.436.4870; visit www.selfstoragegroup.net.