There could be any number of reasons why you’re ready to sell your self-storage property. No matter the motivation, you likely want top dollar at the closing table. So how do you get what you deserve for your facility? Here are five operating strategies that will put a smile on your face on settlement day.
1. Implement a Revenue-Management Program
In the past, perhaps you’ve only raised rates on tenants when you increased your vacant-unit pricing, or maybe you’ve never raised them at all. Now’s the time to reconsider that strategy. Implementing rate increases on a schedule can significantly improve your bottom line. Increasing rates just $5 on 300 units will result in an $18,000 annual revenue gain. When you apply an 8 percent capitalization (cap) rate to that gain, you get a $225,000 increase in facility value.
2. Reduce Delinquency
All self-storage operators have past-due renters, but it’s damaging to the business to be too lenient. Not only are delinquent tenants causing you a headache, they’re taking up valuable space you could be renting to a paying customer. You might normally pass an overlocked unit, sigh, and mentally write off the $120. But at an 8 percent cap rate, you’ll lose $1,500 in facility value for every month that unit goes unpaid! How much are you prepared to lose? Get delinquents to pay, and you’ll improve value.
3. Improve Occupancy
The goal is to fill units and increase your number of paying renters. Here are four quick ways to boost physical occupancy:
- Improve your facility’s Web presence and search engine optimization.
- Implement a referral program, and perhaps a discount for new customers.
- Create a revenue-based incentive programs for your facility managers.
- Enhance your facility’s curb appeal.
4. Reduce Expenses
Every dollar you cut from your expenses adds exponential value to your property value and, therefore, sale price. For example, at an 8 percent cap rate, each dollar in expenses saved translates to $12.50 in additional facility value. Here are a few examples of costs you can easily eliminate:
Dumpsters. Unless this is a selling point for your tenants, why would you allow them to eat into your profit by filling your dumpster? Either put a lock on it or switch to a municipal waste-collection program that gathers only your manager’s office waste.
Employee hours. Do you have more than one employee running your property? Are there ways you can implement technology to reduce staffing needs? There are now many solutions in the self-storage industry such as call centers, online rental programs and kiosks, all of which reduce the need for customers to meet with an onsite employee.
Utilities. If you’re paying for high-speed Internet, a phone plan with unlimited data or—worst of all—cable or satellite television at your facility, now’s the time to cancel some services or renegotiate packages and fees. For example, perhaps you can downgrade your Internet plan. If you can cut that bill by $50 per month, that’s $600 per year in expenses saved, which translates to $7,500 in property value at an 8 percent cap rate.
5. Improve Curb Appeal
Enhancing your curb appeal shows potential buyers you care about your property. A dilapidated facility, on the other hand, sends a red flag to most buyers. When they see minor aesthetic issues neglected, they’ll immediately wonder if more serious maintenance has been deferred, such as leaky roofs or faulty HVAC systems. Here are some pointers to improve the look of your facility:
- Landscaping. All your landscaping and grass should be trimmed, neat and clean. Cut or remove any oversized plants, especially any that are blocking visibility from the road. Add fresh annuals to your flower beds.
- Signage. First and foremost, signage should be visible from the road frontage. If it’s a little worn, now’s a good time to replace or upgrade it. Additionally, it should be well-lit (ordinance permitting).
- Office. Since this is the hub of your facility, you’ll want it to be presentable. The office should be freshly painted, free of clutter, well-lit and clean. Retail-sales inventory should be dusted and organized. The restroom should be thoroughly cleaned and fresh-smelling.
All this work reflects pride of ownership and signals to buyers that you’ve taken excellent care of your facility. That first impression gets them talking to your broker about the financial side of the property—and potentially making an offer. Whether you’re a few years away from selling or ready to take advantage of the market’s current low cap rates, this checklist covers the most cost-effective ways to boost facility value.
Isaac Rothermel is a broker advisor at Investment Real Estate LLC, which has provided brokerage, construction, management and development services to self-storage owners and investors since 1998. For more information, call 717.779.0804; e-mail [email protected]; visit www.irellc.com.