The Sales Team
Let’s begin with your sales team. First, you’ll find a qualified real estate broker with knowledge of the self-storage industry. He’ll help set a fair market price for the property, offering suggestions to increase facility value and generally assisting you throughout the process. Once you have an idea of what the property is worth, you’ll consult with a tax advisor and explore the tax ramifications of the sale. He should be able to estimate how much will be left after Uncle Sam takes his share and recommend strategies to reduce or defer tax payments. Finally, you’ll consult your legal counsel, who will tell you how your estate will be affected.
Once the sales team is on board, you and your broker will set an asking price. This important step will determine whether your property gets a lot of market activity in the first 30 days or sits ignored because of an inflated price tag. In addition, your agent may have recommendations to standardize or increase rents, minimize delinquent tenants, streamline expenses, and correct any deferred maintenance items, all of which will help increase value.
Before you begin marketing and showing the property, you and your broker will conduct a walk-through of the site, noting things a buyer may question or find objectionable. You’ll correct as many of these items as possible, cleaning up trash, fixing dents, patching and sealing pavement, mending fences, scrubbing floors and de-cluttering the office to give the site a “good as new” appearance. For items that can’t be remedied, you’ll provide a sufficient explanation.
You’ll also have a meeting with staff members before putting the property on the market to let them know you’re selling. They’ll figure it out as people tour the facility anyway, and it’s better to keep them informed so they can assist in your sales efforts.
Your broker will prepare a marketing plan, which lists the sources he’ll use to locate and inform the pool of buyers about your property. He’ll also assemble an “offering memorandum,” or marketing package, which contains all the information a buyer needs to make an offer. It generally takes a week to gather the materials, and you’ll review several drafts to make sure the package accurately reflects the facility.
Hopefully, within a few weeks of contacting potential buyers, you’ll receive requests for showings. These will be conducted by your broker and possibly another representing the buyer. Ask your agent if your presence is advisable at these meetings. Some personalities mesh, and others are like oil and vinegar, so let him determine the best course.
Your broker should give you regular updates about the progress of the sale. Generally, you’ll be updated verbally once a week and receive a written report monthly.
Offers and Negotiations
If a buyer is interested in your property, you can generally expect an offer shortly after the showing. Offers typically come in two forms: a letter of intent (LOI) and a formal sale agreement.
Before going through the trouble and expense of submitting a formal contract, a buyer will sometimes submit an LOI, which is non-binding and lays out the major terms under which he would be willing to purchase the property. If you agree to his price and terms, he’ll have his attorney draft the formal version for both of you to sign. Make sure you review this document carefully, as it spells out all terms and conditions of the sale and is legally binding.
The sale agreement will generally allow for a 30- to 45-day period of due diligence. During this time, you’ll provide the buyer with detailed financial information and reports on the real estate and improvements, such as environmental audits and surveys. He’ll use the records to ensure the property was correctly represented in the marketing materials and there are no conditions to hinder the sale. At the end of due diligence, the buyer will tell you he is satisfied with all contingencies and his deposit will become non-refundable; or he’ll say he no longer wants to buy, and a deposit return will be generated.
Assuming the buyer moves forward with the sale, he will have already received preliminary loan approval from his lender—pending the presentation of a few final items. For example, a financial institution won’t approve a loan without an appraisal. At this point, you or your broker will be contacted by an appraiser to schedule a physical inspection of the property. You’ll also need to update your Phase I environmental audit if one hasn’t been completed in the last 12 months.
During this last stage, you’re expected to operate the property as usual, leasing spaces, collecting rents, etc. If anything out of the ordinary arises, you should consult with the buyer as to how to handle the situation. Sometimes this is done as a courtesy, sometimes it’s actually required as part of the sale agreement. After all, it will be the buyer’s issue shortly.
The closing is generally scheduled for 30 to 45 days after the due-diligence period ends. Your legal counsel will need to prepare a deed and other documents required by the sales agreement. He’ll also need to contact the buyer’s attorney to work out details for closing day. He should do this well in advance, as some of the necessary items could take time to procure. You’ll get a list from your broker of things you need to bring to the closing and any last-minute preparations you need to make.
Closing day is usually very exciting and just a matter of signing final paperwork and shaking hands. The signing typically occurs at the buyer’s attorney’s office or a title company, but sometimes the parties don’t even meet—everything is handled by express mail and wire transfers. In either case, if you’ve done your homework and worked closely with your team of experts, you should experience a smooth, successful sale.
John H. Gilliland is president of Investment Real Estate LLC, which provides brokerage, construction and property-management services in the mid-Atlantic states. He is president of the Pennsylvania Self Storage Association and serves on the board of directors for the national Self Storage Association. For more information, call 717.779.0804; e-mail firstname.lastname@example.org.