Republished with permission from Argus Self Storage Advisors
The self-storage market is white-hot! With billions of dollars of equity looking to deploy in the industry, many owners are receiving unsolicited offers from buyers who are aggressively looking to acquire assets off-market. In fact, it isn’t uncommon to receive three to 10 calls per week. Most of these callers don’t even have any property-level information.
At first glance, these offers may seem too good to be true—high valuation, relatively quick closing and no broker commission. The fact is they are! The reason a buyer approaches a seller directly is they want to tie up the self-storage property before fully analyzing the asset or submarket. They ultimately try to buy the asset at a below-market price in an uncompetitive environment. This is putting many owners in a very bad situation and costing them millions of dollars.
The biggest mistake a potential seller can make is to forego working with a professional self-storage broker. Why? The only way to know the true market value of your asset is to market the property to the greatest number of qualified buyers and follow a well-defined process that allows you to compare offers side by side and select the most qualified buyer and highest value. It isn’t uncommon for a professionally marketed property to sell for 10% to 25% more than what the owner saw in an unsolicited offer. Below is some insight as to why.
Understanding Valuation Today
The reality of any self-storage real estate transaction is that while the “sticks and bricks” will be transferred by the deed, it’s the income that creates property value. The valuation process is focused on price per square foot, sales comparisons, net operating income and the potential for future growth of the income stream. With very strong market fundamentals and the amount of new equity looking to be placed in self-storage investments today, that last item needs to be the main focus in valuing an industry asset.
The investment market is very strong today, but finding a greater fool who’ll pay an outsized price for your self-storage property is a game that ultimately leads to seller disappointment. There are many subtleties you need to consider when selling. For example:
- Is there an opportunity to add new income streams such as tenant insurance?
- Is there new competition coming into the submarket?
- Has the current rent roll been maximized?
- What’s the age of the construction?
- Is there embedded value in the current tenant base, or is the submarket growing?
These are just a few considerations. An experienced self-storage broker will be able to look at the facility and submarket and make recommendations to increase valuation and position the asset for maximum return. It’s clear that buyers are willing to pay on future income. A few small tweaks to your operation and proper marketing can lead to big gains.
The Sales Process
In self-storage, like any other real estate business, exposure sells. The only way to guarantee that you maximize property value is to ensure the most qualified buyers are aware of the opportunity and have the proper information to evaluate it. When you consider going to market, assess the marketing channels and strategies your broker is proposing and how they’re going to give your property the best promotion. Also, understand the timeframe for the marketing and closing process (usually 60 to 120 days).
These days, brokers often suggest taking a property to market unpriced and setting a call-for-offers bid date. This involves providing the qualified buyer pool with all the necessary information to professionally underwrite the property. It allows the market to set the price, not the broker; and the seller will have the luxury of evaluating all offers side by side. Sometimes an owner will get several offers that are similar. In that case, the broker can choose to run a “best and final” round with a small group of bidders to give the seller a second bite of the apple and ensure they’re maximizing the value of the property.
An experienced self-storage broker will be able to provide you with a value range for your property, a detailed outline of their marketing platform, and a timeline for their proposed process from start to finish. They’ll have access to all the tools, industry knowledge and relationships to ensure maximum value and the highest degree of success.
Tying up a self-storage property with an unsolicited offer only benefits the off-market buyer and often leads to a renegotiation of the price or terms that aren’t favorable to the seller. As an owner, you’ve likely spent years building the value of your asset. There’s no need to shortchange yourself and settle for less at closing. Don’t fall for the oldest trick in the book and accept an off-market or unsolicited offer. You’ll regret it!
Ben Vestal is president of Argus Self Storage Advisors, a national network of real estate brokers who specialize in self-storage. The company provides brokerage, consulting and marketing services to buyers and sellers via an extensive marketing platform. Property listings and informational resources can be found at the company website. For more information, call 800.55.STORE; email [email protected].