Inform Your Managers
Sellers are divided on the subject of whether to inform their onsite managers the property is for sale. Those who choose not to inform management are either afraid the managers will begin looking for other employment or simply don’t want to unnecessarily upset them. You can’t expect to keep your manager in the dark for long when countless buyers, brokers, lenders, appraisers, insurance representatives and engineers visit the property pretending to be interested in renting units and never actually do so. The fact is that your manager will figure it out sooner or later, and it’s best that it comes from you.
Also, by informing your managers at the beginning of the marketing process you can enlist their help in accomplishing a sale by making sure the property is presented in its best possible light. You can also assure your managers that a majority of buyers will want to keep them, and if they are not retained, you will provide them with a severance package that will allow them time to secure new employment.
It is much better to have your managers on your “sales team” than to keep them in the dark and run the risk that they could actually harm a potential sale. You should, however, tell your managers to direct any and all prospective buyer’s questions concerning the financial aspect of the property to you or your broker. You should also instruct your managers to be completely honest when answering questions concerning the physical aspects of the property.
Prepare for Due Diligence
Negotiating contracts can be time-consuming and expensive. You should be prepared to respond to any offer you receive with a contract prepared in advance by your attorney or broker. That contract should allow for minor changes to be made to fit the particular counter offer you make to the buyer, and you should request the buyer use that contract if negotiations are to continue.
The contract will contain a list of items to be delivered to the buyer for review during the contingency period. Those items should be prepared in advance and delivered to the buyer quickly in order to minimize the length of time required for due diligence. The following items are typically included:
- Last two years and year-to-date income and expense statements
- 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
- Preliminary title report
- Copy of loan documents for the existing financing
Prepare for Financing
You should know whether your sale will require the buyer to secure new financing. With all the turmoil in financial markets today, require your buyer to demonstrate his ability to actually obtain the financing needed to close the deal. You may want to accept a lower offer if it’s all cash or if the buyer can prove his ability to get a loan.
You or your broker should contact a number of prospective lenders so you are prepared to provide whatever documentation a lender may require in order to process the buyer’s loan application as quickly as possible. The probability of a smooth and timely closing will be improved if you can provide your buyer with specific lenders’ names and phone numbers.
If there is an exiting loan that can or must be assumed, be prepared to share that information with the buyer. Assuming a securitized loan is also difficult these days. Find out what is involved and make sure your buyer is informed. If there is an existing loan that will have to be paid off, be prepared to deal with that as well.
Although there may have never been a better time to sell a storage property, it is still important to map the process and follow the plan.
Bill Alter has been a self-storage facility sales specialist with Rein & Grossoehme Commercial Real Estate since 1986. He has been responsible for the sale of nearly 100 facilities totaling more than 5.5 million square feet and more than $175 million. To reach him, call 602.315.0771; e-mail email@example.com.