Closing the Deal
The next step in buying a property is meeting with a banker or mortgage broker who specializes in self-storage to ensure there is money to borrow. You can’t simply assume there will be money available for a purchase. We’re seeing short amortizations and terms, and rigorous value underwriting—12 months trailing income, 60 percent to 70 percent max loan-to-value ratios, full recourse, real net worth.
In this market, having your financing relationships tied down is probably the single most important thing you can do, for yourself and to convince the seller you have the capacity to do the deal. It will make negotiations easier and the deal close faster. Once you have this data, you can run your numbers and develop values you think are appropriate.
We’re seeing deals in cap-rate ranges anywhere from 9 percent to 11 percent, and more in some instances. Give yourself a little room because the current market is so unique and volatile that there are very few sales for which an exact cap rate is easily determined.
Choose your properties and rank them according to preference, then start calling the listing brokers for more information. When talking to a broker, tell him all you can about your experience and financial capacity and let him know you’ve studied the information and are a serious buyer.
Next, visit the property, reviewing everything available. Ask questions, and then make a formal offer in writing. Ask to meet the broker (and owner, if possible) so you can explain how you arrived at the offering price. Both will appreciate you being forthcoming about your methodology and may even see that either the market has changed or their original valuation was off the mark.
These are difficult decisions for a seller, too, as many owners have strong emotional ties to a property. Therefore, give the seller a reasonable time frame to agree to the deal, a reasonable due diligence time frame in the contract, and as short of a closing as possible to get the loan done. Very likely, the owner will counter with a higher price (this should be expected).
If you get a reasonable counter, then counter back. You may, however, decide you are too far apart on price to counter, in which case, you should say, “I really like the property and would like to buy it, but this is the price I can pay.”
Tell him you will leave the offer open for another week or two if he changes his mind. The seller may reconcile the reality of selling the property at your price or choose to not sell it at all. If he doesn’t want to sell, move on to the next property on your list. Always have a property on your list so your desire to do a deal doesn’t compromise your financial or quality goals.
Michael L. McCune is the president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE.