Don’t Be Hasty!

Posted by msmessenger on Sep 1, 2017 12:00:00 AM

The Best Pre-Sale Preparations 

Opting to sell your self-storage facility is not a decision to take lightly. There are many factors and options to consider that should be discussed with your business partners, accountants, and/or financial advisors before you decide to sell. While some storage owners and operators look to cap rates, interest rates, and other market indicators for guidance as to whether the time is “right” to sell, the choice should be based on your personal and professional objectives—not the potential sales price.

Choosing A Broker

Once you’ve decided to sell, it’s time to select a broker who can assist you with developing and executing a plan for selling your asset. Denise Nunez, senior vice president of NAI Horizon’s National Self Storage Investment Group, states that experienced self-storage brokers who are working exclusively with self-storage transactions have more to bring to the table.

“Self-storage brokers are engaged and in tune with REIT activity, what is happening in the capital markets as it pertains to funding for self-storage, and new development coming on line which may affect existing operations,” she says. “They are knowledgeable when it comes to occupancy and rental rate trends, and typically are tracking new development within their own market areas.” 

According to Michael A. Mele, senior managing director investments and senior director for the National-Self Storage Group of Marcus & Millichap’s Tampa office, hiring an experienced broker with a proven track record of selling self-storage is especially critical now that the market has begun to slow down.

“It’s harder to sell,” says Mele, “so you need a firm with a good plan for marketing.” He adds that national exposure and good marketing can create competition and bidding wars for self-storage facilities.

What’s more, Chris Weismiller, vice president of SkyView Advisors, reminds owners and operators to choose a trustworthy broker with a good reputation and the ability to deliver on their promises. And, considering that the entire process could take up to a year or longer, Weismiller says that compatibility with the brokerage firm is a must.

All Aboard!

Although self-storage owners and operators may be hesitant to inform their property managers about their intent to sell, the storage brokers interviewed for this article advise sellers to notify them. “Don’t keep them in the dark,” says Mele, who warns sellers that not preparing employees for the sale could end up hurting the deal. “Dishonesty could come back to haunt you.”

Nunez agrees, stating that it’s usually advantageous to engage managers from the get-go. “Communicate it up front,” she says, adding that this helps the sale go smoother.

According to Nunez, it’s best to let property managers know what’s happening and that they could be retained by the new owner(s). She also mentions that plenty of non-REIT buyers want to keep the current managers as they have built rapport with the current tenants.

One way to ensure that managers are motivated to keep the facility in tip-top shape throughout the entire process is to provide incentives. Nunez suggests that sellers offer bonuses to managers for their cooperation and assistance.

“The property manager can show the facility in the best light,” says Weismiller, who notes that it’s in the seller’s best interest to provide the manager with a financial incentive. “Buyers love to speak with the manager, and 80 percent have a fair opportunity to stay on board.”

Spruce It Up

Managers who are on board with the sale can be especially beneficial to the upkeep and maintenance of the facility for the duration of the sales process. For starters, keeping on top of daily cleaning tasks should be a priority. And, while they should already be performing routine and scheduled maintenance, there are other items that could likely stand some attention.

“You might consider seal coating and stripping the asphalt,” says Mark Floria, self-storage real estate advisor for Farmington Hills, Mich.-based The Pogoda Group. He also advises sellers to repair and paint the roll-up doors, replace old signage, mend the fencing, and ensure all the lights are working. “Lastly, a clean professional office is a must,” he says. “I was recently in a storage office and the manager was rolling her own cigarettes—not good.”

Speaking of the office area, Mele mentions that it should be tidy. This means removing the clutter and ensuring that the paperwork is filed in a timely fashion instead of left in huge stacks on the desk.  He also reminds sellers to fix pot holes and be attentive to the landscaping, since first impressions are usually formed from the parking lot. 

“Anything that can be fixed easily should be,” adds Nunez. “Deferred maintenance can add up quickly as a deduction against the sales price.”

Look At The Books

In addition to the facility’s appearance, sellers need to prepare the required documents and ensure that their records are in order. Having all your ducks in a row, so to speak, will help expedite the process of getting your property on the market. “Make sure your financial and property records are in impeccable shape,” Floria says. “Nothing makes a sale harder and opens up more questions than poor record keeping.”

The necessary forms, reports, and documentation include profit and loss (P&L) statements for the past two years, a year-to-date P&L statement, a trailing 12-month P&L, a unit mix report, occupancy and rental rate reports, environmental reports and land surveys, information on demographics, and a competitive survey.

“The broker will also conduct a market analysis, which would include rent comp analysis and possibly a supply/demand analysis,” says Nunez. “… an owner typically knows what is occurring in their local market. Anything they are able to share, good or potentially negative to a sale, is better communicated prior to the marketing of the property as opposed to a potential discovery during the due diligence phase.”

A feasibility study may be beneficial as well, especially if the property has unused land. Weismiller states that a market analysis or feasibility study could show opportunities for expansion in the form of additional storage units or RV storage spaces—a bonus for potential buyers who may be inclined to develop the site.

Improving Income

After a detailed look at the facility’s financials, sellers may notice areas ripe for improvement. For instance, perhaps the rental rates need to be raised, there are too many concessions/discounts being offered, or the facility’s expenses are out of control. Making adjustments to any of those items will enhance the property’s net operating income (NOI). “Look at expenses and make cuts,” says Mele. “It all adds up and improves the value.”

And, don’t forget about cracking down on delinquencies and uncollected debt. “Showing an excess of debt over 60 days shows you are not on top of the most important job you have,” says Floria, “which is to collect money.” 

While owners and operators should certainly try to improve their income, they should be seeking additional revenue streams as well. “Ancillary income generators are great for the bottom line and valuation,” Weismiller says. Before you sell is a great time to expand the facility’s retail area with a wider range of moving supplies, establish a tenant insurance program, and/or offer rental trucks. Although there are countless possibilities, only choose the ancillary products and services that will be successful in your local market.  

You can also improve the facility’s income by adding new security features, which would justify higher rental rates. Moreover, Nunez suggests updating the facility’s management software and utilizing new technologies—both of which could enable the self-storage facility to operate more efficiently.

Last but not least, Weismiller urges sellers to review their marketing plan and improve their search engine optimization efforts. “More than 50 percent of the population goes to the internet,” he says, which means having a solid web presence is critical. Furthermore, good marketing in general can result in higher rates and increased occupancy.

Before You Sell

Keep it mind that selling is a process that could take six months to a year or longer from start to finish. And, as Weismiller says, “There are no certainties.” For that reason, he advises against having a fixed sales price in mind.

Mele agrees, urging sellers to close with caution. “In a market like this, you will get several offers, but not all offers are created equal. Do your research. Look at the track records of the buyers and their intentions.”

Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.