For anyone developing a self-storage facility or currently operating one, it is never too early to think about the day you sell your property. In planning your exit strategy today you will not only be rewarded by operating a better investment in the present term, but you will also be handsomely rewarded in the future when the property is sold.
In other words, the more cash you generate during the time you own your facility, the more money you will make when you sell. The key to reaping these rewards is planning. The planning principals in this article relate to structuring your current loan, creating good financial reporting and detailed property records, and proper tax planning, all of which needs to take place before the benefits can be realized in the future.
Although the pace of self-storage facility sales has recently diminished considerably, it is anticipated that sellers will continue to enjoy great opportunities well into the future. Over the past several years the availability of substantial amounts of capital at attractive terms has fueled incredible opportunity for those selling their self-storage facilities at premium prices.
In the midst of the present severe contraction of credit for real property in general, including self-storage properties, there are still many reasons to be optimistic about the self-storage industry. Plus, there are still a reasonably large number of self-storage properties being sold today using more creative means to get deals completed.
Your Current Debt Structure
Having the right financing in place is more important now than ever before. Structuring your current loan properly can make your facility far more attractive to potential buyers. The wrong type can make it expensive to sell and will eat into your profits.
The commercial mortgage-backed securities (CMBS) loans that were so prevalent in the past several years provided substantial penalties to those seeking to sell or refinance their properties prior to the expiration of the loan term. On the other hand, those same CMBS loans were assumable to purchasers of the underlying real estate.
In the current lending environment, having an assumable loan can be a major benefit to a buyer and seller. Currently, lender requirements call for buyers to have as much as 35 percent equity in a project. These high down-payment levels shrink the pool of qualified buyers and limit the cash-on-cash returns a buyer can expect to achieve.
If you are in the market to finance a new project or refinance an existing one, consider asking the lender to allow for a loan assumption provision. It is important that you fully understand your current loan and the implications of that loan when you are ready to sell.