By Colliers International Self Storage Group
Now’s a great time to sell your self-storage property. Pent-up buyer demand is significant—in other words, there’s more cash available in the market than properties. Interest and capitalization rates are also at an all-time low, allowing investors to be as aggressive in their pricing and purchase of a property as ever before.
If you’re interested in selling your facility, do it now while buyers are buying. Here are some tips on preparing for that life-changing event.
Facility Value and Brokerage
First, how do you know the value of your property or portfolio? The best advice is to engage a broker who specializes in self-storage to provide you with a broker opinion of value (BOV). A well-done BOV will establish realistic pricing expectations based on real-time market conditions.
The right broker will consider all aspects of the investment market, which is particularly important with so many non-traditional storage buyers recently entering. He’ll evaluate the positive features of your property, mainly its current and projected financial performance relative to the market metrics. Finally, he’ll close the transaction effectively using all tools of experience, including inside knowledge of the buyer.
The Proactive Seller
To prepare your property for sale, ensure you’re operating with industry-current management software, your financials have been prepared using standard accounting procedures, and your facility is operationally efficient, well-maintained and in good condition. Taking the proactive approach on these items is going to bring incrementally if not significantly higher pricing to the transaction at closing.
Here are some financials you should be prepared to provide:
Income and expense statements. Three years of statements can show established financial trends and allow the buyer to make a quick analysis of the property’s performance. Income and expenses should be itemized in as much detail as possible. Capital expenditures for major replacement or repair, i.e., HVAC units, asphalt, fencing, video cameras, etc., are typically of a nonrecurring nature and shouldn’t be included as operating expenses. Presenting this information in Excel format will allow those analyzing the deal to do so more quickly.
Be prepared to present your profit-and-loss statements on a trailing 12 months (T-12) from any month within the year. This will take into account any recent rent increases that could show an improved net operating income.
Management summaries. A T-12 management summary will offer the buyer a quick look at information he’ll find useful, including monthly and year-to-date move-ins, move-outs, security deposits, delinquencies, unrentable and vacant units, total bank deposits, etc.
Rent roll. A true rent roll provides a tenant roster at the end of each month including the unit-mix dimensions, actual rent charged vs. advertised rent, rent paid, and length of stay. Again, present it in Excel format.
Third-party contracts. Landscaping, maintenance, advertising and other contracts should be cancellable at or prior to closing or shortly thereafter. Buyers may not be interested in your contractors, and any contract continuation could cost you an early-termination fee or require you to pay on your obligation beyond closing.
Other important items. You’ll want to disclose any other information it would be important for the buyer to know. Are you current on your financial obligations such as real estate taxes, mortgage and other bills? Are there any liens on your property? Is your mortgage pre-payable without a penalty, or is there any yield maintenance or defeasance costs?
How’s your curb appeal? Women represent the majority of the self-storage tenant base in most markets, and they prefer (if not require) that their choice of facility be clean, safe, accessible, well-lit and well-maintained. Below are a few important items that require your attention before selling. You need to be proactive on at least the following:
- Repair damaged or dented buildings and doors.
- Ensure utilities are functional, including lights, mechanicals, etc.
- Switch outdoor lighting to LED.
- Freshly paint the fences, doors and bollards.
- Ensure all driving surfaces are in good repair. If necessary, resurface or reseal, and repaint any parking stripes.
- Ensure all cameras, monitoring equipment and gate-access systems are in good working order.
- Ensure any elevators are functional and current on inspections and maintenance.
- All individual door alarms should be in good working order.
- In general, show the property has been well-maintained.
Making Your Sale Experience a Success
There’s a lot to consider before putting your self-storage property on the market. First, you want to hire a good broker with industry experience and ask him to provide a BOV. Next, answer the question up front: Should you sell, or hold and refinance? Your broker will help you determine the best course of action.
If you decide to move forward with a sale, before the process begins, know which will work best for you: paying tax on your sale proceeds or deferring proceeds to a tax-deferred structure. Also identify any revenue-generating opportunities for your business such as rent increases, site expansion, insurance penetration and truck rental. These things are a path to a higher rate of return for the buyer.
When it comes time to market the property, your broker will know the appropriate buyer pool to target to bring in the best price and terms of sale. At this point, he should know your facility better than anyone, but you’ll work together to proactively market its features and benefits as well as those of the surrounding market to ensure you get the best deal.
The authors—Gary Cooper, Tom Gustafson, Chuck Mills and Jeff Shouse—are the national directors of investment sales, debt-equity placement and valuation-advisory services for the Colliers International Self Storage Group. For more information, call 916.724.5500; visit www.colliers.com.