By John Barry
If you plan to sell your self-storage facility in the next year or two, there a plenty of things you can and should do to maximize your ultimate sales proceeds. Some require additional capital expenditures, while others just require a little time and effort. Just fresh paint can add tremendous showing value to a home, simple improvements can make a big difference at your self-storage operation. Lets talk about what you can do to increase the value of your facility before you go to market.
1. Raise Rents
Carefully review your management reports, specifically the rent roll, to determine the rent variance, the difference between your standard rental rate per unit and the actual rent being paid by customers. Dont let customers get a bargain rate any longer. Try to increase those customers up to the standard rent, and you should make thousands of dollars more per month and, of course, annually.
Since the average customer stay is about 10 months, try increasing the rent after six, then annually thereafter. If you miss the six-month opportunity and the customer stays for 10 months, you never get the opportunity or the benefit. Do this at least a year in advance of selling. If you do it right before you go to market, buyers will not give you the dollars you deserve, since the new income is not part of your trailing 12 months of revenue.
Result: An additional $3,000 per month at a 10 percent cap rate equals $360,000 in property value.
2. Reduce Delinquencies
Late fees are great if customers ultimately pay, however, I would rather have the rent when it is due. Your manager should be diligent about making collections calls. This may be the worst part of his job, but it can pay off more than you think.
Try to maintain the delinquency rate below 5 percent. You will find more cash in the bank, and your manager will have more time for marketing and leasing units without the albatross of deadbeats hanging over his head. If payments do not come, move on the lien process right away. Do not accept partial payments, or you will be required to start the lien process over from square one.
Result: A reduction in delinquent customers from 15 percent to 5 percent can mean thousands more in rent in the bank this month instead of hundreds in late fees.
3. Appeal Real Estate Taxes
It's almost contrarian to think that in a soft economy local tax-appeal boards would actually reduce property taxes, thus reducing revenue for local municipalities. The truth is, market values do decrease during significant recessions, and a tax decrease is possible. Call your taxing municipality for details on how to tackle this effort, and consult with a self-storage expert or your attorney. They will prepare you for the three-minute presentation you make before the tax-appeal board.
Result: A $10,000 reduction in property taxes increases your property value by $100,000.
4. Reduce Operating Expenses
Most self-storage owners closely monitor expenses, but some are not aware of the additional value that can be captured. For example, shop your property insurance annually. Shop energy providers annually (they will usually call you). Keep close watch on snow-removal and landscape bills so you are not double-billed. Reduce Yellow Pages advertising to the bare minimum and replace it with marketing dollars for the Internet.
If your facility is 40,000 square feet or larger, a 5 percent to 6 percent third-party management fee will be added to your expenses when you sell. If you use a management company now, hold it accountable to the budget and arrange to sign off on all expenses over a certain dollar amount.
Your total operating expenses should typically be in the 25 percent to 35 percent range of total revenue. If yours are higher than that, you have room to manage expenses down.
5. Make Minor Repairs
If your facility has dented panels, downspouts and gutters, have them repaired now. Make sure all the lights are working, the paving is good, the gate has been serviced and the fence is in good shape. These items reflect pride of ownership, and buyers will pay more for a property that does not require substantial capital expenditures.
6. Optimize Unit Mix
It can be easy and inexpensive to move metal wall partitions to adjust unit sizes. If you have too many small units, remove some walls and create larger ones. Adjust the balance of unit inventory to meet your markets specific demands. This will increase your occupancy and property value.
7. Expand if Possible
Buyers today will not pay for vacant space. If your facility occupancy rate is above 80 percent and you cannot meet current demand by adjusting unit sizes, add more units if you can. Any small expansion you can complete in the following year will definitely add facility value.
8. Obtain Approvals to Expand
If you enjoy a high occupancy rate but do not have the time, money or energy to add more units, at least obtain the municipal approvals to expand. Buyers today will not pay for extra land to expand, approved or not, if occupancy is below 80 percent or so. If your occupancy rate is 90 percent, you will receive some extra dollars.
9. Have Subdivisions in Place
If you own a unique property that includes your home, rental homes, a side business or office space in addition to self-storage, and you prefer to retain the other real estate while selling the storage business, subdivide the parcel now. Likewise, if you would require an easement over the property you are selling, get it approved. Completing this ahead of time will make the selling process much cleaner and simpler.
10. Maximize Ancillary Income
In addition to self-storage rental income, you should be receiving revenue from other sources. Retail sales, tenant insurance, truck rentals, billboards, and cell towers are excellent ways to increase your facility value. Obtaining approvals for billboards and cell towers if not already present on your property may be time-consuming or impossible, but selling retail items, tenant insurance and truck rentals is easy to do.
This may not be an exhaustive list, and maybe you've already tried each of these suggestions. But several of these items should spark ideas as you plan that big step to sell your self-storage business. Hopefully, they'll help you squeeze a few more dollars from your years of hard work.
John Barry is the vice president of brokerage at York, Pa., based Investment Real Estate LLC, which specializes in self-storage brokerage in the northeast and mid-Atlantic states. For more information, e-mail [email protected] ; visit www.irellc.com .