The self-storage real estate investment trusts (REITs) are in the market for storage facilities, but before you put your business up for sale, make sure you’ll be getting your property’s full value.
REITs often deal in cash and can complete their purchases quickly, according to Mel Holsinger, owner and president of Professional Self Storage Management LLC. Holsigner works with self-storage facilities in California, Arizona, Texas, New Mexico and Colorado.
“They have the money,” Holsinger said of REITs. “They can close quickly. The individual investors, it will take them longer to line up funds.”
While cashing out of your business may sound appealing, be sure you’re looking out for your own best interests. Here’s a checklist of five things small owner-operators should do before selling their self-storage facilities to REITs or other investors.
1. Find an Experienced Broker.
Holsinger said the best way to get top dollar is to hire an experienced real estate broker. A good broker can help you determine what your facility truly is worth and how best to market it. Make sure you find a professional who has experience in the self-storage market. Holsinger recommended interviewing at least three independent brokers and asking each of them to come up with the potential market value of your facility.
Don’t forget to ask for references. Find out what previous customers have to say about the brokers you’re considering.
2. Organize Your Business Records.
Once you hire a broker, you’ll need to provide him or her with records that establish your facility’s annual income. Offers are based on the amount of business that a storage facility generates.
Many buyers in the self-storage market are savvy. If they don’t think your records are accurate, your chances of selling to them will plummet.
“You need to have your books in order,” Holsinger said. “You are going to be asked to verify your income. You are going to have to provide documentation of expenses. The better your recordkeeping is, the easier it will be for you to sell. If you claim you bring in $20,000 a month and spend $3,000 a month, you had better be able to substantiate it.”
3. Spruce Up Your Property.
Buyers will find your property more appealing if it’s clean and well-maintained. If any lights are broken, replace them. If trash is scattered around the parking lot, pick it up. First impressions count.
“You want to make sure weeds are pulled and there are no junk cars on the property,” said Jeffrey Gorden, a real estate broker in Phoenix. “You want to do simple things that you can do inexpensively to present the property in its best light.”
4. Consider Improvements.
While you should be cautious about investing time and money in a property you plan to sell soon, upgrades sometimes can add market value, said Jerry Jones, a CPA who works with self-storage facilities. One way to bump up the value: Examine your Internet presence.
“Do you have a website?” he said. “Social media is as important with self-storage as anything else these days. If you don’t have that, it’s a problem.”
Jones says buyers also favor properties equipped with good security systems.
“Do you have security cameras? Do you have a security gate that people can’t get into unless they punch a code?” he said.
Your broker can help you decide whether spending money on upgrades makes economic sense.
5. Set a Reasonable Price.
It’s important to set a realistic price for your facility, Gorden said. Take stock of your facility from a buyer’s perspective, looking at all the pluses and minuses.
“You can price the property too low and leave money on the table,” Gorden said. “Alternately, you can price it too high. It is difficult to get people to take a second look at a property if they think it is grossly overpriced.”
Arizona real estate broker Bill Alter said the average unit size can be a factor in determining the sale price. The most desirable facilities offer units that best suit customers’ needs. For example, tenants in residential neighborhoods typically want units around 110 square feet, he said. In urban business districts, Alter said, “there is a greater demand for smaller units.”