As commercial real estate brokers, when we exclusively represent a seller, it’s our job to get them the absolute highest price possible for their property. In order to do that, you first have to decide on a list price that is financeable, while allowing the buyer to achieve returns consistent with the respective market/asset class.
A mismanaged, 60% occupied, 15k NRSF storage site in an underserved tertiary market will get you greater returns than a REIT-managed, 93% occupied, 100k NRSF site located 5 miles outside of downtown Philadelphia. If you own a self storage facility and are considering selling OR are a buyer looking to negotiate a deal, consider these 5 essential factors before moving forward.
- Make Sure The Deal is Financeable
- Not every deal is a simple 60 – 65% LTV conventional loan. There are deals that might be light on income for 2-3 years after acquisition, due to lease-up or construction, and will require an ‘interest only’ period. There also may be deals in areas where land is more expensive, and require you to put 45-50% down for the bank to achieve a 1.2 – 1.25 Debt Coverage Ratio. If there isn’t potential to achieve a 1.2-1.25 DCR within 2-3 years of acquisition, the deal is overpriced!
- Make Sure There Are Comps to Support Price
- Always be sure to look at recent comps, or have your trusted self storage advisor find properties that support your sale/acquisition price.
- Make Sure Your Operating Statement is Accurate
- As a seller, make sure you or your broker include accurate expenses in the operating statement, or pro forma of your marketing package. While you may plow the snow and do the landscaping yourself now, the next owner may not, and would potentially incur additional expenses. This will affect the bottom line, and therefore, impact the price an interested buyer would be willing to pay. By understanding that buyers will have different operating statements than you, it will provide more realistic expectations on selling your facility.
- As a buyer, make sure to do your own underwriting, on top of the broker/seller provided operating statement. Understand clearly what expenses you will eliminate or incur differently from the current owner.
While these tips may be helpful, I recommend both buyers and sellers use a trusted self storage advisor, when acquiring or selling a property. It’s important to have the right team lined up, and ready to capitalize when the right opportunity presents itself!
