The most common question novice developers ask is Where do I start? Following is a partial list of necessary tasks common to new development, conversion or the purchase of an existing site:
- Land survey
- Environmental site assessment
- Title search
- Market survey
- Competition study
In the case of a new development, youll also need to evaluate the following:
- Architectural design
- Impact fees
- Utility connections
- Traffic study
- Bugs and bunnies, turtles and trees
Finally, if youre purchasing an existing property, youll need to look at all the books and records, business-license requirements and the structural report.
If you attempt to go the DIY route, you can probably compile a lot of the information. The problem is you may not have the expertise to decipher it. For example, consider issues related to environment, survey and title, which require specialized knowledge and skills.
Many of the above tasks require the assistance of professionals. The time to assemble your due-diligence team is before you find a property, not while the clock is ticking. There are some industry consultants who can walk you through the entire process, or you can shop the services separately. Following is a list of experts you may want on your team (some are specific to development projects only):
- Civil engineer
- CPA/tax attorney
- Environmental consultant
- Feasibility consultant
- General contractor
- Insurance agent
- Land planner
- Management company
- Owners construction representative
- Property-tax consultant
- Real estate attorney
- Real estate broker
- Soils engineer
- Title company
- Traffic engineer
- Marketing advisor
Make sure all hires have self-storage experience. If they dont, understand there will be a learning curve. A seasoned expert is well worth the cost, especially when it comes to your broker, consultant, land planner and real estate attorney.
An experienced architect and general contractor will also be worth their weight in gold. No matter how many projects these people have completed, lack of industry expertise will cost you time and money. On the other hand, someone who knows the business will help you cut costs and minimize errors. Just remember that even specialists are human, so be patient and diligent with everyone on your team.
Keep It Organized
Many a 5-by-5 unit could be filled with the paperwork from a good acquisition. Much of it you may want to save for a subsequent sale or refinance. These days, you can digitize your records, but youll still have to deal with a trees worth of paper. This is why organization is critical in due diligence.
To minimize expenses and create a logical flow, tackle tasks in a precise order. For example, the survey must be ordered before the title work can be done. Before you order the survey, you need to know the requirements of your financier and the legal owning entity. This will help establish the scope of work for the surveyor and the certification to avoid additional charges and delays in closing. The same is true for the environmental reportsthe reliance language, parties and the scope should be defined in advance of the engagement.
Challenges Along the Way
Not every seller is going to be cooperative during the due-diligence process. Sometimes a seller is reticent to provide complete financial records or even basic information. Other times, he may exert pressure on the buyer by insisting on a short due-diligence period. This increases the cost of the transactioneverything you spend on services is at risk because the deal may never close.
In either case, it may be best to walk away from the purchase. Compromising here could have consequences down the road if you decide to refinance, for example. Unless you have very deep pockets, its best to let some Mr. Megabucks take on the risk instead.
How Much Should You Expect to Spend?
Depending on how much time and expertise you have to handle some tasks on your own, you can expect to spend to spend $25,000 to $45,000 on due diligence for the acquisition of an existing property (less title insurance) and $60,000 to $90,000 for a new development (less fees for the general contractor and architect). This is what you should expect to pay before the closing , which means risk is involved. Good stewards will watch the timing and release of professional authorization to minimize damage on deals that dont close. Start with a good real estate broker, and then use a good real estate attorney.
RK Kliebenstein is president of Coast-To-Coast Storage, a self-storage consulting firm. Approximately 80 percent of the companys business comprises due-diligence services on behalf of its clients. For more information, call 561.963.4004, ext. 81; e-mail [email protected].