What Buyers Are Looking for When Acquiring Self Storage Facilities

1. Southeastern Business Intermediaries, LLC
3605 Sandy Plains Road, Suite 240-195
Marietta, GA 30066
Ofc: 678-264-8414 Fax: 770-592-2515
hk@sebusiness.net www.sebusiness.net
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.  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

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