What to Prepare When Selling a Self Storage Facility
By: Andrew Burachinsky, MBA, Advisor
Self-storage owners have varying motives that influence their decision to sell. The decision to retire, investment portfolio diversification, or estate and tax planning are some of the typical reasons owners choose to sell. Whatever the catalyst, there are items that need to be addressed prior to the decision to sell.
Maintenance & Repairs
A clean well-kept facility produces a higher value and allows the owner to have more negotiating power when trying to achieve their asking price. Basic maintenance and cleaning make the property more presentable. Eliminate unnecessary items, remove the trash, and address any landscaping needs. Repair any safety concerns such as broken lights, cracks in sidewalks, etc., and replace damaged locks, doors, and signage. Although you may not want to invest a large amount of capital into your facility before selling, important items that impact income need to be addressed. One item many owners often ignore is a significant difference between buildings built at different times. If you have added onto your property make sure there is not a stark difference between older buildings and newer ones. If you do have a budget for capital improvements some to consider are:
- Security Upgrades (gates, fences, cameras, lighting)
- Self-Storage Management/Communication Software
- New roof (if needed)
Your rental rates need to be comparable with the market. To evaluate your facility accurately you will need to prepare a rent-roll. This will be used to determine the current rents received and allow for more realistic projections of future income. Remember to clear up any long-term delinquencies and work at managing these delinquencies to stay within the industry’s norms.
Once you have your property’s rental rates, it needs to be compared to the market. Our company offers complimentary Rental Summary Reports to owners interested in selling their facility because it is the only accurate way to determine if your rent rates are comparable. If the analysis reveals your rental rates are not comparable, raise unit rents appropriately. Rental rates allow prospective buyers to determine if your facility is able to successfully compete in its market. Having a breakdown of all of your unit sizes and features should be included in this report.
Ideally, you have financial records in order for the past three years, but more often than not you will be required to provide a 12-month trailing financial statement. These are easily attainable if you are already utilizing accounting software. For all unusual transactions, there should be an explanation; all buyers will be interested in accurate and complete records. This is the most common reason to inhibit a deal from closing. When we present a property for acquisition, we require the owner to provide us with the following reports:
- Management Summary
- Occupancy Statistics Report
- 12-Month Trailing Profit & Loss Statements
- Current and Projected Real Estate Taxes
Request a Business Valuation
Understanding your market and the value of your property can best be accomplished by receiving a professional valuation of your asset. Even if you receive what you believe to be an accurate value from a broker it is important for you to do some of your own research. Brokers who list facilities will often provide you with a price that may be acceptable to you but not realistic for your market. The best way to determine a realistic value is through analyzing the capitalization rate and price per square foot for your market. This is why The Storage Acquisition Group provides storage owners with transparent pricing based on what industry experts have verified as accurate data.
The decision to sell is never easy. Setting aside the complexity of the transaction, simply walking away from a business can be a difficult decision. For many owners, storage ownership has been a continuous process of designing, building, maintaining, and improving the asset. As a company, we appreciate the hard work, sweat equity, financial and emotional risk that goes into this. We want to make the process smooth and help you make the right decision, so we’re here to help with questions regarding market dynamics, capital gains, 1031 options, and other issues that may affect the decision or timing of a sale.
Andrew Burachinsky spent the majority of his career working as an accountant for a private equity fund manager focused on institutional-quality real estate investments in Latin America. He utilizes his knowledge and experience in Finance & Accounting to provide an edge in the constantly changing self-storage industry. Andrew holds an MBA with a concentration in Management from Centenary College. If you have further questions about selling your self-storage asset, please reach out to Andrew directly at [email protected]