Five Steps to the Best Self-Storage Facility Appraisal

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Also, you may need to point out differences in management styles. For instance, perhaps you offer a discount to fill vacancies on a particular size of units to fill them. Otherwise the appraiser may assume the level of rent you are collecting is the best you can do.

You also need too address the issue of existing tenants paying below current market rental levels. Perhaps you have not pushed rental increases to existing tenants as much as you should. Point this out. That additional income is referred to as “hidden NOI” because it drops directly to the net operating income line on the financial statement.

Tip: If you know you will be applying for a loan in the next few months, start increasing the rent to existing tenants paying below market rates now so you don’t have to deal with the issue later.

Make sure the appraiser understands that, nationwide, currently more than 65 percent of all facilities offer potential tenants some form of concession or discount. It has become a way of life for this industry. The appraiser should not become alarmed when learning the competition offers concessions.

Instead, take the time to explain how you use concessions or discounts to drive revenue and occupancy. Remind the appraiser that discounts result in renting a unit you may not otherwise have filled, and to a tenant who typically stays longer than intended.

Step 5: Share Your Knowledge of Current Market Conditions

The appraisal process involves the use of historical data, including sales. The expansion and contraction of mortgage capital impacts value and, in the case of self-storage, that means there have been fewer sales. For that reason, the appraiser may need to explore other neighborhoods or markets to find evidence of investment parameters such as the price per square foot of net rentable area and cap rates.

Tip: If you have the opportunity to review the appraisal, make sure the sales used were recent and from comparable markets reflective of the level of demand found in the facility’s neighborhood.

The self-storage industry will soon start to transition from a weakened market to an improving one, and reliance upon older sale prices could cause the appraised value to trail (or lag) the market. For this reason, it is a good idea to provide the appraiser with some current listings if possible.

Part of your job is to make sure the appraiser understands how well self-storage is performing despite all the bad news in today’s economy. If you are like most owners, your net income has either slightly declined or not at all. Make sure the appraiser knows self-storage values have not declined like the many other types of real estate because most facilities are performing well.

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