Successfully selling or buying your self-storage facility always comes down to transaction management. It is critical to know the transaction process, move it through the difficult stages, and make sure that everyone is moving in the same direction. The best way to manage a transaction is to have someone on your team dedicated to it. Otherwise, there can be confusion regarding whose responsibility it is, or you may be trying to do too many things at once, which could cause you to miss something crucial. This can be the difference between successfully getting to the closing table or not.
To manage your transaction
successfully you must follow these five steps:
Negotiate your contract carefully. You should hire an attorney to help you review the contract very carefully. In the event you choose to handle this yourself, it is important you read through every section of the contract and understand exactly what will be required to close the transaction. The contract will spell out what are the sticking points with the other side and what truly is negotiable. Both sides are trying to get the most favorable contract for themselves; for example, the seller wants the highest price and the buyer wants the lowest price. There is always a good middle ground. In the self-storage industry, there are certain contract terms that are specific to this industry. Make sure you have someone on your side who understands the unique aspects of the self-storage industry. Knowing your contract inside and out can also help stop a price reduction or avoid delays in the process. Sometimes a buyer or seller will try to pull a fast one, but if you know it wasn’t required by the contract you will be able to say no confidently. Ask yourself: When can a buyer or seller just walk away? What are the critical points of the transaction? Do you have enough time to accomplish everything you need to?
Track and ensure all parties adhere to deadlines. Once the contract has been executed, there are multiple deadlines to track for both the seller and the buyer. This period covers a specific number of days; however, it is easy to get confused and for people to not be on the same page. Do weekends or holidays count? If a deadline lands on the weekend, does it move to the Friday before the weekend or the Monday after the weekend? To ensure that everyone is on the same page, send out an email to all parties with all the important deadlines, such as:
When all the documentation is due.
When the escrow deposit is due.
When the due diligence period expires.
When is the closing date is.
It is good to have someone take responsibility to keep everyone on track to hit the deadlines and monitor when they are completed. Missing a deadline can cancel the contract with no financial obligations. This means lost money and time for both the buyer and seller.
Know what is required for due diligence. The due diligence period is the time when the buyer analyzes the property with a “fine tooth comb”. Contained within a contract are the various due diligence requirements that can make or break a deal. You must track what documents were delivered and when they were received. The buyer must also be sure to schedule inspections with enough time to obtain the results before the end of due diligence to make an informed decision. As a seller, if you miss any deadlines the buyer can cancel the contract or extend the due diligence period, which extends the closing. Once an owner decides to sell their property, they should begin gathering all of these materials ahead of the contract execution. Not only does this decrease the level of stress, but there may be some documentation required that will take more than the three to five days you are given to obtain. It is typical once the contract is signed you have only three to five days to deliver close to 100 different documents and reports depending on the buyer. As a buyer, if you are missing a document and don’t realize it until after the deadline or schedule an inspection too late, you are on the hook for your deposit regardless of what comes out after due diligence.
Communicate frequently with the other party. Communication is key to any transaction. It is especially important that both parties are in frequent contact with each other. Do not assume the other party is doing their part. There is no way of knowing what someone else is thinking or if things are moving forward if you are not in frequent contact with them. A transaction generally lasts between 45 and 90 days, so it is easy to assume the other person is doing their job. However, people get distracted, move on to other projects, or just don’t know how to do what they need to do. By communicating frequently, you avoid confusion, miscommunication, and the potential for missed deadlines. This will ensure your transaction closes on time.
Anticipate and resolve any issues. In any situation, it is better to be proactive than reactive. By being familiar with your contract, your requirements, the deadlines, and the process you have a better chance of anticipating any issues. Additionally, in order to anticipate issues, as discussed prior, you have to be in regular communication with the other party or you will not know that there is even potential for the issue. For example, an inspector is delayed returning important results due to weather, which in turn threatens to delay the due diligence deadline. How will you handle this problem? When you anticipate an issue, you can decide before hand what you are willing to do to resolve the issue instead of being caught off guard. Very few transactions go smoothly from beginning to end, but if you can anticipate the issues they are mere bumps in the road instead of massive road blocks.
Transactions are unpredictable
because you have a lot of people involved—from the buyer and seller to the
attorneys, surveyors, inspectors, and title companies—all with very different personalities
and opposing goals. It can be useful to have someone in your court to serve as
an intermediary and to take the burden of managing the transaction off of you. Prior
to deciding to hire a broker, ask the following questions:
Do they have a specific process to get you to
the closing table?
Who is responsible for ensuring that deadlines
are met and you reach the closing table?
How do they manage and log your due diligence
What is their relationship to the buyer and
By asking these questions, you
are ensuring that you actually get to the closing table as easily as possible.
A bad broker, a broker without self-storage experience, or a broker without a proven
process can be worse than having no broker at all. You need to be able to trust
your broker to take care of all the details for you as their interest is
aligned directly with yours.
Jay J. Crotty is a managing partner with BayView Advisors. He provides a range of advisory services to his clients, including acquisition, disposition and recapitalization strategies, asset valuation (BOV), JV structures, and debt & equity financing strategies. Throughout his career, he has completed over $1 billion of transactions and has been quoted in numerous publications, including the New York Times.