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Your Self-Storage Exit Strategy: It's Never Too Early to Consider Your Options

By Ben Vestal Comments
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What a great time for the self-storage industry! We’ve experienced a record number of transactions over the last several years, and each year we seem to improve with regard to capitalization rates, rental rateS and net operating income (NOI), per-square-foot sale prices, and actual value for every dollar of NOI. Many are calling it a generational high in facility value.

The contrarian in me can’t help but think now may be a good time to take some chips off the table. It’s clear that some of the “smart money” has taken steps to pull out profit and hedge their bets by selling and repositioning their self-storage assets. Below are a few approaches facility owners might consider as they assess their own exit strategies and investment objectives.

Outright Sale

An outright sale is the most clear-cut and absolute path for an owner to take when considering an exit strategy, as it provides the greatest liquidity and certainty. Today, self-storage owners are reaping the benefits of strong market fundamentals, a fluid lending market, and an immeasurable amount of equity from willing and able buyers looking to invest in the industry.

Determining if you’re a “real seller” is the single most important decision any owner can make. A real seller is someone who has a defined reason to sell and is willing to price his property at a reasonable level for the market.

Serious buyers want serious sellers. When a buyer discovers a seller isn’t realistic about selling because of price, timing or market conditions, he’ll seldom get interested in that property again.

Overpricing a property isn’t harmless. The result is the seller offends his best prospects—and they’ll remember!

Refinancing

Many owners don’t think of refinancing as an exit strategy, however, you may want to run some numbers and talk with your accountant. Due to the dramatic increase in self-storage property values (we’ve seen a 20 percent to 50 percent increase over the last three to seven years), many owners have the option of refinancing most or all of their equity out of an asset, all while continuing to own and operate the property in a profitable way.

So, let’s do some math. If you bought a property in 2010 for $2.5 million and have experienced a 35 percent increase in value, your property is now worth $3.37 million. If you refinance the property and achieve a 75 percent loan-to-value, your total new loan amount would be $2,531,000. This scenario would allow you to pull out all or most of your equity from the property and still own it. Refinancing proceeds are tax-deferred and allow you to invest in other avenues to maximize your overall return on investment.

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