When is the right time to sell your storage facility?

April 8, 2014 2
When is the right time to sell your storage facility?

Should you sell your self-storage facility?

While the answer ultimately comes down to individual circumstances, a handful of market factors—including supply and demand, financing rates and consumer mobility—are highly likely to sway your decision.

These days, all of those signs point to sell.

It’s a ‘Seller’s Market’
High demand combined with a shallow inventory of storage properties for sale has created a classic “seller’s market,” meaning you can expect to receive top dollar for your facility–presuming business is good and you’ve kept the place in good condition. Equally encouraging, interest rates remain at rock bottom, and Americans once again are on the move, chasing jobs in the recovering economy.

“Very high occupancies, little new construction during the last five years but a lot of construction in the pipeline, and historically low interest rates lead us to believe that we’re at extremely attractive numbers right now,” said Mike Mele, first vice president of the Mele Group at Marcus & Millichap Real Estate Investment Services of Florida.

“The REITs in particular have done extremely well; they’re loaded with cash. So if you have a REIT-quality property, there’s a good chance they’re going to be quite aggressive in wanting to buy your property,” Mele said. “It’s not unusual for us to have 10 or 15 offers today, depending on the property.”

Jim Chiswell, a veteran storage consultant in Winchester, VA, agreed: “In my opinion, there will never be a better time in the next 10 years to sell your store.”

cash cow

Should You Keep Your Cash Cow?
For the undecided, the same market conditions that tempt sellers also make a strong case for holding onto that cash cow for another year. Or two. Or three.

“You want to sell when business is good. That sounds easy enough, but it’s actually a hard point to get across,” Mele said. “Back in 2008 and 2009, everybody wanted to sell, but their properties weren’t worth what they had in them. When I talk to them now, they say, ‘I’m doing well. Why would I want to lose this income stream?’”

Life Events Affect Decision to Sell
Fred Steingold, a real estate attorney at law firm Hamilton Judge Schroer & Steingold in Ann Arbor, MI, said life events, rather than market timing, most often prompt decisions to sell a storage facility. These include:

  • Retirement: “You may have good people working for you who want to acquire the business. That might be a win-win situation where you could finance the sale,” Steingold said.
  • Partnership change: Divorce or a business partnership split frequently forces a sale.
  • Relocation: Another state or region appeals to you.
  • Career change: Better or different job opportunities await elsewhere.
  • Health problems: “Something unexpected may come up where you may face surgery or lack the energy or ability to continue,” Steingold said.
  • The thrill is gone: “When it gets to the point where it feels like drudgery, it may be a good time to think about selling,” he said. “Life’s too short to do stuff you don’t like doing.”

In all of these scenarios, Steingold recommended against holding out and trying to time the market. “It’s a gamble,” he said. “You’re only going to get top dollar when the business is doing well.”

exit sign

What’s Your Exit Strategy?
Chiswell said the best time to think about selling is before you even enter the storage industry.

“If you think through with your family, partners and other advisers about what your exit strategy is, you’re going to make completely different decisions along the way,” he said.

Here’s a case in point.

“I had this chat with two attorneys who were partners. They had their eye on a beautiful site, and I asked them, ‘OK, what’s your exit strategy?’ When the one guy says he wants to flip it as soon as it’s built and the other partner says he wants his grandchildren to inherit the cash flow, I knew we had a problem,” Chiswell recalled. “I left them to hash it out, and when I want to meet them the next day, there was just one buyer—he’d bought the long-term guy out of the deal.”

A Taxing Situation
Chiswell said the immediate decision to sell or hold comes down to two words: estate planning.

“The biggest question is: What would a sale do to you tax-wise?” he said. “If you sell, once you pay the tax man and have this pile of cash, what are you going to do with it? Where are you going to get the kind of return you’re getting now?”

In today’s self-storage market, that’s a great problem to have.

Interested in putting your storage facility on the market? Check out The Storage Facilitator’s five-point checklist for selling a facility.

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  • Sharon Tzib

    I sold a very lucrative business (not storage) in 2010, at the height of the economic crisis at the time. It’s a little known fact that when the economy is in the toilet, people start looking for businesses to buy. So selling during a seller’s market isn’t the only option. We had two offers on our business within six weeks of listing. Go figure!

  • carwash1

    the best returns