Inside Self-Storage

JAN 2019

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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W e've all heard of the principle "caveat emptor," or "let the buyer beware." It means the buyer is responsible for checking the quality and suitability of goods before making a purchase. Still, it amazes me how many self-storage buyers have more money than common sense when spending millions of dollars to purchase a facility. They get excited about an accepted contract and leave due diligence at the door. Although you may want to trust all the facts provided to you by the seller, you need professional help when evaluating a potential asset so you're not stuck with an expensive "ugly duckling" that'll never grow into a swan. Statements and facts that aren't verified through a review of the market and competition, physical plant, facility finances, and overall operation can result in an unhappy purchase. This article will cover a few points you and your team of qualified professionals can use to ensure that what's presented on paper is accurate and your quest for information is fulfilled. Your Team First, you need to assemble your professional acquisition team. This should include: • A real estate attorney and broker, both experienced in self-storage transactions • A certi€ ed public accountant (CPA) or € rm with extensive experience in real estate transactional accounting review • A reputable construction company or engineer • A quali€ ed self-storage consulting or management company with due-diligence experience Tips for a smooth due-diligence process By Andrew Kelly Jr. An experienced self-storage attorney can help you avoid legal terms that often are inserted into the purchase contract to protect the seller rather than the buyer. The attorney and broker will also help you when requesting items that will be added to the contract. These include but are not limited to: • Phase I environmental report • ALTA (American Land Title Association) survey of property lines and easements • Flood zones that affect the subject property • Vacant land that could face challenges due to protected riparian zones or soil issues • Fire inspection of extinguishers and suppression systems One of the biggest and most important purchase factors is the Certificate of Occupancy (CO), which states the site complies with zoning and other city and county requirements. Not having a CO is a red flag that should be investigated. Although very rare, it can occur, especially in smaller towns. Also, what zoning area is the subject site located in, and could this affect future development or expansion, unit sizes, vehicle storage, or barriers to entry for future competitors? All these items can affect site performance. Your professional acquisition team will cost money upfront but will offer you a better understanding of hidden or misrepresented issues in the market, physical plant, facility accounting and overall operation. Some items may even warrant a reduction in the sale price. Market/Competition Review All buyers should conduct an extensive due diligence of the local competition including curb appeal, occupancy, specials and rental rates. The research, done within a three- to five-mile radius, will allow you to see how the subject site truly stacks up against the competitors in the market. It's amazing what you can uncover by talking to managers at nearby facilities. In one purchase for which I conducted due diligence, a site that looked perfect had flooded every summer due to rain, according to a competitor. This important information led us to hire a restoration firm to evaluate the property, which revealed hidden damage that had been covered up. This fact alone led to a large reduction in the sale price as well as a solution for the property. DODGING THE Ugly Duckling LEARN MORE Learn more about the due-diligence process in the videos "Tips for Buying and Selling Self-Storage in an Ever-Changing Market" and "Can You Make Money in Self-Storage? Market Feasibility and Due Diligence," both available in on-demand and DVD formats exclusively at iss-store.com. 34 ISS I January 2019 www.insideselfstorage.com

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