Southeastern Business Intermediaries, LLC
                   3605 Sandy Plains Road, Suite 240-195
   Reduced price. This could be a short sale or just a huge discount for a seller that is
    behind in payments to the c...
Georgia, North Florida, SC, AL, and TN Affiliate
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Buyers For Self Storage 01 13 2010


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What Buyers Are Looking for When Acquiring Self Storage Facilities

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Buyers For Self Storage 01 13 2010

  1. 1. Southeastern Business Intermediaries, LLC 3605 Sandy Plains Road, Suite 240-195 Marietta, GA 30066 Ofc: 678-264-8414 Fax: 770-592-2515 BUYERS FOR SELF STORAGE IN TODAY’s MARKET Opportunities within self storage acquisition or sales primarily fall into 5 categories:  Existing Self Storage Facility older than 2 years and have begun to stabilize  Existing Self Storage Facility still in rent-up mode (generally under 2 years and 40 to 50%)  Raw land available for self storage development and previously approved for self storage (may or may not be permitted)  Raw land suitable for self storage  Self Storage facility under development and willing to sell before completion Given the opportunities in today’s market to sell, the above also serves as the order of preference for buyers. The add-on interest is a lot of buyers are looking for “underperforming properties”. This could mean a property in rent up mode, a property that has seen occupancy drop due to the economy, properties that could benefit from renewed energy in marketing and sales with a “fresh eye” to creating opportunities, properties due to drop in value and rent might be losing money to pay the note, properties in default, properties heading in that direction. Naturally there are other reasons as well that would be the same regardless of the economy: health, retirement, lack of interest, economic change in current income, other investment or business opportunities. These will always remain in play and depending on the income or amount necessary might create the need/interest in selling. Given today’s lending environment (or lack of) the traditional acquisition with 10 or 20% down is extremely hard to find and put together. Generally lenders are looking for 30 to 40% minimum down in order to fund an acquisition and even that might be difficult depending on financial parameters of both the buyer and the existing property. In my opinion the deals that are getting done right now involve creativity of financing. This could be:  Seller financing- basically the seller acts as the lender and therefore can make his/her own determination of dollars necessary down and what terms are acceptable. This certainly could get a deal done and is obviously a bit more risky but certainly a worthwhile option to explore in the right circumstances.  Lease to purchase. Master Lease Option. We have completed deals and buyers that are active in this area. Basically the MLO buyer will sublease your property for an agreed upon amount and also provide a guaranteed purchase option to take effect in 12 to 24 months. The MLO will take over full P&L responsibility for the lease period and then provide a full cash settlement on the agreed upon purchase price. Under the MLO it is vital that the seller & his agent understand it is important to investigate the buyer as to his/her ability and/or track record in managing a self storage facility. This has many benefits to the seller as well as for the buyer. Please call and I can certainly provide additional details.
  2. 2.  Reduced price. This could be a short sale or just a huge discount for a seller that is behind in payments to the current lender Now, how do we address market valuation in today’s market? As we all know the days of proforma at 85% occupancy are long gone and unfortunately the days of 7 or 8% CAP rates are also behind us. There are always exceptions to every rule, but in general buyers today are looking at a minimum 9% CAP rate and in many cases 10% or higher are more the norm than the exception. There are many ramifications to waiting on a sale, detrimental tax issues (capital gains), commercial market still decreasing (you might be chasing a downward spiral in market valuation for your property), change in market climate that might affect occupancy and economic occupancy (reduced rental rates or more incentives to maintain existing occupancy). With all the above being said, if you are comfortable with the existing cash flow and can handle a drop of say 10 to 15% in revenue and are still comfortable with cash flow (NOI) then you might be better off holding onto the property and “see what happens” or wait for the market to start improving. Don’t expect the same real estate appreciation that we all experienced in the past. We would suggest you working with your bookkeeper or CPA to maintain the proper records so when the time does come to sell, the process is that much smoother. If there is an interest in selling or exploring the market then in general you would need to provide the last 12 months (month by month) P&L, the latest balance sheet, and the last 12 months management /occupancy reports (also month by month). Ideally these should be maintained for just the self storage facility and not comingled with other business enterprises that you may own and operate. The properties that are selling are also those that have the best identifiable and verifiable P&L statements. The buyer gets a strong sense on the property as well as a faster analysis on whether there is a match or not. Please feel free to contact me if I can be of assistance. Thank you for your time. Regards, Harold Kolbe President-Southeastern Business Intermediaries, LLC
  3. 3. Georgia, North Florida, SC, AL, and TN Affiliate