When considering selling your storage site, there are checklists that need to be completed to maximize your sales price and proceeds. Generally, the net operating income (NOI) is evaluated by your self-storage broker for a sales price. This is price is based on current closed sales, revenues, economic occupancy, debt, expense categories, location, class type, and physical condition. All these items are evaluated to generate a sales price at a certain cap rate that will be discussed with you by the broker.
Helpful hint: Use a professional self-storage broker (not your cousin at the local real estate company) as self-storage is a unique asset needing specialized help. The checklist will help for evaluating multiple areas; this is not a complete list, but it will help to assess the areas that make money. Remember, during the buyer’s due diligence is when consultants look for items to reduce the sale price from deferred maintenance to bad operational procedures. Deferred maintenance is always costly; if ignored, you will pay for it one way or another.
This is probably one of the biggest sales price reducers. Why? Deferred maintenance requires the new buyer to fix items and thus reduces the sales price. It is always wise to pay for these repairs yourself. This may include repairing or replacing leaking roofs, painting, installing new doors, repairing/sealing asphalt, and updating or installing security features such as cameras, keypads, DVR (or cloud recording), automatic gate, and fencing.
All units, including both covered and uncovered RV spaces, should be swept, cleaned, and clearly marked with a unit number. All landscaping maintenance should be done, including the removal of dead trees, shrubs, and weeds. Adding colorful flowers and shrubs improves the site’s appearance and creates a better first impression for the due diligence team.
If the seller chooses not to pay for the work, it is almost guaranteed it will be removed from the sales price and at double the price for correction. Some sellers do not want to deal with these repairs; that’s fine, but they should not be surprised when the buyer demands a price reduction.
When the buyer is evaluating the site’s office equipment, they are looking to see if it is from the ice age or updated. Office equipment includes the computer, printer, storage software (and whether it can be transferred), phone systems, and security monitors. Is the office inviting? Does it need a fresh coat of paint, modern furniture, or storage cabinets?
Make sure all merchandise is professionally displayed and balanced to the computer inventory. If you are leasing or trading space for office equipment copiers, coffee service, or water coolers, cancel them. In most cases the buyer will be cancelling them, so bank the extra cash. Eliminate all free units to friends and family, especially if units are in high demand; re-rent them prior to the sale. Make an inventory list of all office equipment with brand and serial numbers.
If applicable, make sure the apartment shows well and all appliances/fixtures are in working condition. Replace the flooring, especially carpet that is worn, smelly, or matted. Replace broken floor tiles floor; replace torn or stained linoleum. Make sure there are no pests or rodents living in the space. You would be surprised by what I have seen on due diligence inspections.
If the air conditioner and heater have not been serviced, get it done. Change all air filters and inspect ducts for cleaning. Hire a professional cleaning service to clean the apartment and kitchen, if necessary. Make a detailed list of all apartment appliances by brand and serial number. I have seen managers switch out new appliances with old worn ones hoping the seller does not notice.
Have your manager put together a comprehensive list of all site tools and equipment (hand tools to the golf cart) and their condition. Any tools to be transferred to the buyer should be on the list. Make sure the golf cart is clean and in working condition; repair torn seats and polish it up. Verify the battery’s age and replace it if necessary; evaluate the tires for replacement. Have the golf cart title ready to be transferred to the new owner upon sale. Discard any broken tools, ladders, unused paint, and fluids according to local regulations. Donate or sell non-operating vehicles and site equipment.
The buyer is unlikely to give the seller credit for these items; it is better to liquidate and pocket the money. All merchandise should be inventoried and ready for transfer upon the closing for credit.
This is a very important area. All leases and addendums must be audited to ensure nothing is missing (completed, signed, and dated by tenant and manager). The unit leases must balance to the computer walkthrough report, or there is a problem that needs to be investigated.
Do not be a seller who throws locks on vacant units and says they are rented; sophisticated due diligence teams will sniff this out quickly and it may kill the deal. Unsigned leases by a tenant are worthless and non-enforceable, so they must be resolved quickly. All forms used previously should be available for the new buyer to examine.
This area is often negotiated. Buyers do not want to buy bad debt, and the seller wants to be paid. The seller should do everything in their power to get the delinquency decreased, from selling units to discounting balances owed to vacate prior to sale. Being aggressive in reducing bad debt will generate money for seller to pocket. Engage your manager with a bonus to reduce all debts over 30 days old to as low as possible. Do not expect an experienced storage buyer to pay the seller for the bad debt.
There’s generally a standard of documents that a buyer requests for due diligence. This is a basic list that can be modified as necessary. These documents include:
This category is one of the most important. A buyer will want to acquire all rights to websites, domains, phone numbers, trade names, computer and security log in and password information, software transfer information, and more. It is the seller’s job to have all passwords and transfer paperwork ready at the closing table to give to the buyer. These items in today’s world are the lifeblood of any professional site.
Delays in the transfers of important information can affect the buyer’s ability to run operations and subject the seller to a breach of contract.
Make sure all this information is gathered 30 days prior to the sales date and it’s immediately available on the close date. Utility companies should be contacted to understand transfer procedures to the new buyer at closing, so no shutoffs occur.
Being in the storage industry for 31 years, I have been involved in many sales and acquisitions. One thing that I do not understand is sellers being tight with stay-on manager bonuses. I have seen deals blow up as the seller is pennywise and pound foolish with bonus money. What they soon find out is their manager is looking for a new job instead worrying about the property sale. Believe me, if a seller keeps the sale from the managers, they will find out and leave. The manager leaving prior to the sale causes a quagmire for all parties. It’s wise to offer two bonuses: a delinquency reduction bonus and retention and rental bonus of $2,000 or more, depending upon the size of the site, which is paid after successful recording. This is the smartest money a seller can ever spend; if you do not believe me, try it the other way and find out what happens.
In conclusion, sellers are a big part of the success of a storage sale. Their efforts directly benefit their pocketbooks. Following these checklist tasks and your professional self-storage broker’s additional guidance will make the transaction smoother.
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Andrew Kelly has been in the storage industry for 31 years and is experienced in all areas of storage. He owns Sierra Self Storage Consulting, LLC and A B Kelly Realty, LLC. He writes a LinkedIn blog called “Self Storage Soup of the Day.” He can be contacted at (520) 323-6169 or sierraselfstorageconsulting.com.