Getting Your Self-Storage Facility Ready for Sale

There are several things self-storage owners should take into consideration when they decide to put their facility on the market, including the physical plant, financial operation, due-diligence preparation and general sale preparation. Here are some simple tips for getting your property ready for a sale.

For the seller of a self-storage facility, it's all about getting top dollar for the property. For the buyer, it's about purchasing a facility that looks great and operates well.

When it comes time for you to sell, you need to consider several areas, including the physical plant, financial operation, due-diligence preparation and general sale preparation. Here are some simple tips for getting a storage property ready to put on the market.

Physical Plant

First, lets talk about curb appeal. Whats the first impression a buyer has when he sees your self-storage facility? Is his first thought, This is a nice property. I would like to own this one! Or does he not give it a second glance? Here are some guidelines to boost your property's allure:

  • All of your landscaping and grass should be trimmed, neat and clean.
  • Cut or remove oversized plants. Add fresh annuals to your flower beds.
  • Your signage should be clean, up-to-date and well-lit.
  • The office should be freshly painted, clean, well-lit and free of clutter!
  • The retail sales inventory must be fresh, clean and dusted.
  • Clean and deodorize the office bathroom.
  • All light fixtures must be working, in the office and around the property.
  • Remove all garbage from the roofs, and fix downspouts and gutters.
  • Fix all bollards and dings in building panels.
  • Fix any asphalt or concrete driveways and add fresh seal coat.
  • Pick up all trash, especially around fences.
  • Aisle ways and hallways should be clean.
  • All maintenance issues should be completed including broken door springs, bad hasps, fence damage, gate, etc.

These items reflect pride of ownership, and buyers will pay more for a property that doesnt require substantial capital expenditures. Its a good idea to bring in a friend or someone who doesnt frequent the property and ask him to critique the condition and cleanliness of the site. Your visitor may see things you overlook every day. Managers from other stores as well as your real estate broker are also great people to ask to review the condition of the property.

Financial Operation

Now lets discuss the financial portion of the transaction. At least one year prior to putting the property on the market, make sure all the income from the property is recorded on the profit-and-loss statements (P&Ls) so a buyer can verify the amount collected and back it up with deposit statements from your bank. On the expense side, its helpful to record only expenses that are directly related to the facility. If there are expenses that could be allocated to other businesses or personal accounts, clearly mark them as such. Also clearly delineate any expenses that are capital vs. operating for tax purposes.

Buyers and their bankers will base their offering price on the trailing 12 months of income and expenses ( known as the trailing 12 or T12.) Most financial software, such as QuickBooks, can run this report in a matter of minutes. If you have a manual system, youll need to have this prepared each month your property is on the market.

You should be raising rents on every tenant every year. Carefully review your management reports, specifically the rent roll, to determine the rent variance, which is the difference between your standard rental rate per unit and the actual rent being paid by a customer. Dont let customers get a bargain rate any longer. Try to increase those tenants to the standard rent. Do this at least a year prior to selling. If you do it right before you go to market, buyers will not give you the dollars you deserve since the new income is not part of your trailing 12.

Its also important to reduce your delinquencies. Your manager needs to be diligent about making collection calls. Try to maintain the delinquency rate below 5 percent, move on the lien process right away, and dont accept partial payments. In a typical sale, the seller will not receive any credit for delinquent rent that is past due more than 31 days. Remember a buyer would rather have an empty unit ready to rent than one with a delinquent tenant who may never pay.

Due-Diligence Preparation

When an offer is presented, a due-diligence document list will be part of the sales agreement. As a seller, you want to have those documents ready and waiting to be delivered to the buyer so the transaction can occur in the shortest possible time. Here are the documents you should have prepared at the time of sale:

  • Any surveys, drawings, plans/specifications, engineering and/or architectural studies, grading plans, topographical maps, or similar data
  • List of all licenses, permits, certificates of occupancy
  • All environmental reports, tests and/or studies
  • Any standard form leases, subleases or other agreements affecting the property
  • Tax returns for the most recent three years
  • List of personal property owned or leased by seller used in connection with the property
  • Onsite computer monthly occupancy summary reports for the past 12 months
  • Current rent roll listing tenants, rates and deposits
  • A list of accounts more than 30 days past due with aging history on each
  • Unit-mix report listing occupancy and current rates
  • Operating account monthly bank statements for past 12 months
  • Monthly P&L statements for past two years
  • Current insurance policies and claim histories
  • Utility bills for previous 12 months
  • All contracts and agreements related to the property
  • A copy of the title search from the last transfer of the property

General Preparations

Another chore is to clean out and organize any company units and eliminate any personal units if you can. Remove any personal items from the office so what the buyer sees is what he gets at settlement. Typically, items used in the daily operation of the business are included in the sale.

All buyers are going to want to see the property survey. Its always helpful to be able to identify the property corners. Have your surveyor mark them or find the markers and put some fresh paint or ribbon on them to a make them visible

Obtaining approvals to expand will really improve the value of any additional land you may have on the property. If you enjoy a high occupancy rate but do not have the time, money or energy to add more units, at least obtain the municipal approvals to expand. Buyers will only pay for extra land if its approved and occupancy is above 80 percent.

If you own a unique property that includes your home, rental homes, a side business or office space and you prefer to retain that portion of the real estate, have subdivisions in place. Likewise, if you require an easement over the property youre selling, get it approved. Completing this ahead of time will make the sale process cleaner and simpler.

The sale process is potentially a lot of work for a seller. You may need to spend some money, and youll definitely expend some time in preparation. Your real estate broker goes through this process every single day and can be the best source of information and advice. Use him to your advantage.

The goal is to get the most money for your property in the least amount of time. Following the above tips will go a long way toward making that a reality. Remember, having your self-storage property in good physical and financial condition at the time of sale could mean hundreds of thousands of additional dollars in your pocket at the end of the day.

John Gilliland is president and CEO of Investment Real Estate LLC in York, Pa. The company specializes in sale of self-storage facilities in the northeast and mid-Atlantic states. To reach him, e-mail [email protected]; visit www.irellc.com.

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