Get Ready Sell!

Everybody contemplating selling a facility should follow a value-enhancing checklist, regardless of how well the store has been run. The two basic areas to address are a facilitys physical aspects and financial recordkeeping.

If you developed your facility on raw ground, youve been through a lotzoning, permitting and construction. Next came the lease-up phase, which included marketing and more marketing. During this entire process and even after occupancy stabilized, there were insurance issues, software decisions, possible unit-mix changes, auctions, security issues, legal items, etc.

At some point during ownership, you found it prudent to establish an exit strategy. This should entail a specific hold period or range, tax considerations, how the sale fits in your estate planning and whether it makes sense to defer your capital gains taxes via IRS Code Section 1031.

If youve dealt successfully with all these responsibilities, youll be well prepared to sell your facility at the trigger date identified within your exit strategy. However, there are still steps you can take to maximize the value of your facility and ensure a smooth transaction.

Lets Talk Physical

How a property shows is of great consequence. First impressions are just as important to prospective tenants as they are to buyers. Making a positive impact goes a long way toward securing qualified offers. Given the importance of a facilitys physical components, nothing should be overlooked.

Many of the following tasks should be common practice for day-to-day operations, but when youre ready to sell, they become imperative. An obvious lack of routine maintenance sends a message to buyers that bigger problems may emerge once they begin due diligence and have a complete inspection performed by a third party. Perceived neglect can equate to a tangible reduction in value.

Deferred maintenance hurts your potential sales price, so make repairs when theyre needed. Regularly police the grounds for trash and personal items. Maintain landscaping according to a preset schedule. You or staff should conduct a general property inspection to eliminate or at least reduce surprises when the eventual buyer completes his own tour.

The basic inspection list includes:

  • All exterior surfaces 
  • Roofs 
  • Doors and windows 
  • Gutters and downspouts 
  • Fencing 
  • Gates 
  • Signage 
  • Lighting 
  • Paving 
  • Drainage 

The checkup should be property specific and not limited to the above items. An owner knows his facilityand its problem areasbetter than anyone.

After inspecting your entire property, a punch list of repairs needs to be developed. Complete the easiest jobs first to quickly reduce the number remaining. If fixes arent feasible because youre short on time or money, then document them with cost estimates.

Vacant units should be checked on a regular basis and the management office should be clean, functional and professional.

Its always good policy to confront obvious or potential issues early rather than waiting for buyers to discover them during their due diligence. Problems tend to be viewed as less severe when addressed quickly.

All these practices will enhance your property for prospective tenants as well as buyers. Never lose sight of daily operations as you work toward selling your facility. Efforts to retain and attract new tenants will bode well for your sales efforts. More than ever, now is the time to maintain andif at all possibleincrease occupancy As youll see, a common byproduct of successfully preparing for sale is that existing operations tend to improve.

Financial Reporting

Buyers decisions to move ahead are predominantly based on a facilitys past and present performance. Future performance, which is typically outlined in a pro forma, is an interesting factor; it helps gauge potential returns at some point in the future, but more important to buyers is todays performance. Therefore, a buyer and his lender will want to see numerous financial reports, very similar to those that facility owners supply when refinancing.

As a seller, you should have the following documents ready even before a purchase agreement has been signed; the time frame within the contract for sellers to supply information is typically short.

Most buyers financing arrangements will include a contingency: Once a facility is under contract, a buyer will usually stipulate the loan application wont start until you supply all historical financial data. Its in your best interest to compile the material beforehand and hand it over as soon as a purchase agreement is executed. You want to get the clock started on the financing contingency.

A typical buyer will require the following to underwrite an acquisition:

Financial Reports

  • Income and expense statements for the prior two years 
  • Year-to-date income and expense statement 
  • Occupancy history for previous two years 
  • Current rent roll 
  • Current occupancy/vacancy report 
  • Bank statements and deposit slips for the past six months
  • Tenant delinquency reports for the last three months 
  • Capital expenditures for the last three full years 
  • Utility bills for the last 12 months 
  • Current real estate tax bill 
  • Insurance documents and latest premium notice

Property Documents

  • Copy of existing survey and legal description 
  • Copy of environmental reports 
  • Copy of certificates of occupancy 
  • Site plan and as-built drawings, if they exist 
  • List of personal property included in the sale 
  • Existing title policy 
  • Confirm existing zoning and landuse permits 
  • Aerial photograph (if available) 
  • Flood-zone certification 
  • Copy of a form of all leases in effect with tenants 
  • Copy of any service contracts such as Yellow Pages ad, credit card machine, etc.

The above lists may not be complete since buyers and lenders differ, but compiling this material will go a long way to satisfying a buyer. In many cases, this will suffice for the financial audit and underwriting.

When youve collected the required financial statements and documents and addressed all your facilitys physical issues, youve properly prepared for the sale. Remember, preparation is the key. Spend a little time on the front end, and youll greatly increase the likelihood of obtaining the highest possible price for your propertywith no surprises during the transaction. 

Rob Schick is senior vice president of Revel & Underwood Inc., established in 1973 and specializing in the disposition and acquisition of self-storage facilities. Mr. Schick has more than 17 years of experience in investment real estate sales and represents self-storage buyers and sellers throughout the United States. For more information, call 317.818.1448, ext. 106; e-mail [email protected]

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