Selling your self storage facility is a big decision. It takes years of weighing up the opportunities against the risks, the realisation against the potential, and the reward against the security.

There is an inherent fear of misjudgment, mistiming, and missing future gains. There is excitement, worry, nervousness, and yearning.

It can take months, and sometimes years, to become ready to sell the business that has been meticulously planned and delicately grown. The business that has supported the family financially; while providing focus, reward, and purpose.

At Four Leaves Property, we regularly observe the analysis and contemplation that comes with the journey of divestment. Here are the top 10 things you need to know when selling your self storage facility:

1) Understand The Market

Whilst self storage is described as a defensive asset class that appears to be immune to down cycles, all markets are cyclical. There are macroeconomic factors that influence the strength of investment markets. Some examples include interest rates and the cost of debt; trends in the way people live and work; and the strength of the investment landscape in terms of the activity and strategy of major investors. Knowledge is power, and this knowledge is available. Attend conventions, read articles, and engage with experts. Understanding the broader market will help you with the deliberation of deciding whether you should sell, and choosing the right time to sell.

2) Get Professional Advice For Selling Your Self Storage Facility

When investors “buy well”, it is typically without the involvement of a real estate agent or advisor. The buyer may offer what seems like a good price, but is it the best price? The only way to ensure that the price is the highest price achievable is to engage the services of a specialised and experienced self storage real estate agent.

At Four Leaves Property, we have a long-standing background in self storage valuations. We continue to value self-storage facilities. We sell more self storage facilities than any other agent in Australia and New Zealand. We are therefore the most experienced and informed team to ensure that you achieve the best price.

Engaging a real estate agent does not mean that you must have a public marketing campaign. It will usually be the opposite. Most self storage facilities sell off-market, to protect sensitive information and to avoid disrupting customers. By having a real estate agent act on your behalf, you can ensure that your asking price is reasonable. Engaging an agent allows for a smooth and transparent process without the stress of the sale. It allows you to continue to focus on running your business.

By engaging a professional you will have access to performance benchmarks which could in turn lead to a higher sale price. Four Leaves Property offers an optimisation review that assesses the performance of your facility to determine whether enhancements can be made before going to market to maximise the sale price.

The biggest regret of a vendor is not getting the right professional advice.

3) Get Your Documents In Order

The new owner will need records of all Council approvals, building certifications, compliance documents, building plans, service contracts, asset registers, warranties, consultancy reports, liabilities, and outstanding claims (if any).

It can take several weeks to obtain older documents from local authorities. Start this process early and allow enough time to receive the documents. Create a list of all buildings and trace documents back to before the building was approved for construction. The more information you can provide the purchaser upfront, the greater the chance of a successful sale.

If your land has any environmental risks, such as contamination potential or asbestos, these should be disclosed upfront. The purchaser will most likely uncover them as part of its Due Diligence in any event. It is best to have consultant’s reports available for prospective purchasers to review and understand ahead of the sale being agreed subject to Due Diligence so that the chances of the sale falling through can be mitigated.

This takes time!

4) Consider Any Unpermitted Areas

It is not uncommon for extra storage units to be installed in surplus areas over time, or rooms to be created for staff amenities / living (caretaker) accommodation. It is also not uncommon for some of these ‘minor’ upgrades to be completed over the years without Council approval.

For any unpermitted areas, consider whether a retrospective planning approval can be obtained from the Council, particularly for any areas that are income-producing. Some purchasers won’t be able to include revenue from illegally erected areas and this can result in an adjustment to the agreed sale price, or a sale falling through in Due Diligence – which is frustrating for all parties involved. A sale falling through in Due Diligence can also impact the perception of your asset in the market and it could reduce demand if reoffered to other purchasers.

Whilst seeking to obtain a retrospective planning or building approval can take several months, it is time well spent to avoid any of the potential consequences of the unpermitted area at critical moments of your sale.

5) Tidy Up Your Operating Expenses

Self storage is a small business. Like any other small business, it comes with the perk of running some expenses through the business that are not directly related to everyday trading. Of course, this will be done within the guidelines of the ATO/IRD, however, it is not uncommon for some expenses to be inflated as a result. This may include phone bills, motor vehicle expenses, entertainment, and wages and salaries.

Sit down with your accountant to adjust the business Profit and Loss Summary (P&Ls) to remove any inflated or personal expenses. Keep it clear and simple. At least three years of P&Ls will be shared with prospective purchasers, so do this for the most recent three years, and year-to-date. The purchaser is most concerned with the facility’s Net Operating Profit in arriving at how much they could pay for your facility.  The Net Operating Profit is also known as EBITDA, that is Earnings before Interest, Tax, Depreciation, and Amortisation. Your accountant will assist you in adjusting the P&Ls to ensure that the EBITDA can easily be extracted by the purchaser.

6) Clean Up Your Debtors

It is good practice to regularly ‘clean up’ bad debts, particularly those over 90 days. The standard storage agreement protects significant bad debt levels being incurred.

Review your facility’s bad debts and write off any that are not going to be recoverable. Once you decide to sell, focus on collecting as much of the aged debts as possible as this is your revenue. At settlement, the new owner will only pay you for revenue that is almost certain to be collected, and in some cases no more than 30 or 60 days overdue. Arrears over 60 days are considered to be at risk of recovery. The new owner may not be willing to pay you for this ‘risky’ revenue, even though it was charged during your ownership.

Follow our advice and limit aged debts in the lead-up to the sale, and more importantly, settlement, to ensure that you don’t lose revenue that is yours.

7) Clean Up Your Facility

Literally and figuratively! First impressions count, for customers and buyers. Does the façade need a wash down or repaint? Are the gutters clean? Is the landscaping neat and attractive? Do the storage unit doors need to be hosed? In the housing market, the term “kerb appeal” suggests that purchasers will decide on a home based on how well it looks from the kerb. Consider this for your facility. A tidy-up and coat of paint can go a long way.

It’s also worth decluttering the customer office and storeroom and limiting the number of family member units in the facility (aim for two or fewer).

Clean up the business too. Ensure all records are filed in logical order making them easy to find. Pay any outstanding invoices. Check employment contracts and keep a record of wages, salary increases due, and salary accruals. If you have a management company agreement, understand the payout costs. Have current statutory charges/notices easily accessible. Ensure maintenance records and statutory inspections (e.g. fire services) are up to date. Everything associated with the operation and upkeep of your facility should be readily available for the new purchaser.

8) Marketing Preference For Selling Your Self Storage Facility

Self Storage is somewhat unique in so far as the majority of sales occur off-market. There are several reasons that off-market is generally preferred:

• Sensitive trading detail is kept confidential.
• Customers are typically unaware that the facility is being sold, resulting in less chance of an impact on trading.
• Staff only need to be informed when the sale is certain and new employment contracts can be offered. This avoids the risk of staff looking for an alternative role due to uncertainty.
• The sale price can be withheld – protecting the sensitive details of the transaction.
• If the sale ‘falls over’ through Due Diligence, it does not need to be publicly known. This enhances the opportunity of sourcing an alternative purchaser.
• Off-market campaigns are targeted and can achieve great sales results without the usual disruption, costs, or stress caused by a public marketing campaign.

At Four Leaves Property, we run both targeted off-market campaigns and full marketing campaigns. We will guide you to the right strategy that will best suit your particular needs.

9) Understand Your Tax Liability

It is important to understand the tax implications of selling your self storage facility. Most notably regarding Capital Gains Tax (in Australia) as this liability can be significant. Your accountant will be able to give you a Capital Gains Tax estimate once we provide you with the achievable sale price. Allow time to consider your options after you get this advice. As your self storage facility has most likely been your primary source of income, you will need to weigh up the pros and cons of selling your self storage facility for a lump sum with Capital Gains Tax applied, versus continuing to generate earnings from the business.

Consider whether you have a succession plan – is there someone who will take over the running of the business to allow you to move on or retire? Do you have a plan to replace your investment that will better suit your desired lifestyle? The answers will be specific to your situation. Your accountant, your advisor, your family, and some “thinking” time will help you. Doing this informed of your likely net proceed position from a sale will help you make the right decision.

10) Don’t Overthink Your Exit

Selling your self storage facility can be one of the biggest decisions of your life. However, when the time comes, try not to overthink it. Investments are made for wealth creation and selling realizes that wealth. It is a reward at the end of a business journey, like no other.

Allow for the time it will take to decide selling, and for all of the considerations mentioned in this article. Some clients of Four Leaves Property take several months, sometimes years, to decide to sell. It is a personal and business decision that will take time to make. Surround yourself with people who are informed, and people you can trust.

And if you want to stay invested in self storage post divestment, we have several options available at Four Leaves Property. Contact us at info@fourleaves.property and we will talk you through your options.