Property Maintenance & Return on Investment

With self storage facilities being traded all over the region, real estate prices continuing to rise and self storage properties selling at record low cap rates, how can you ensure your facility will be worth its maximum value when it comes time to sell up. One of the major factors affecting the value of your property is its physical condition and presentation. This makes your property maintenance program extremely important.

Any prospective purchaser of your site is obviously considering what works will need to be done in order to get the site up to standard before putting their name on it. The cost of completing this maintenance will be deducted from the perceived value of the site. Things like the condition of the roof, driveways, security system, doors, signage, and paintwork can all make a huge impression on any potential buyers, not to mention your customers.

Often savvy buyers will insist on an engineers report for a potential site which helps identify any structural and environmental issues, including previous site uses, and importantly compliance with the relevant fire safety regulations. It is possible to tell a lot from a site just by looking at how well the maintenance has been handled. Sites that are presented well show buyers that they have been managed well and there is less chance of some problem hiding under the surface. In saying this, it is also easy to pick those sites that have had a mad fix up just before going on the market, the key is to continually perform regular maintenance. Even small items like faulty light fittings, or blown globes, indicate to a potential buyer that the premise does not have a good maintenance program.

Implementing a maintenance plan and completing on-going, regular maintenance is the best way to ensure that your site is looking its best. Regular inspections and small fixes can often delay or even prevent the need for major works further down the track. This will definitely save you money in the long run. Don’t wait for things to breakdown, check out your facility regularly and complete preventative maintenance measures.

Malcolm Collins for Collins & Associates says that any astute buyer will consider the capital works required on a facility and factor this into the purchase price. “As a valuer I don’t make outright deductions for capital expenditure, but it will definitely affect the yield of the property valuation. Self storage is a mix of property and business valuation, and the business is the most important. However, any good manager will ensure that their site is properly maintained and looking great, thus increasing the value of the entity as a whole”.

Roofing is probably the most critically reviewed area of a self storage building. Roofing repairs can be costly, inconvenient and time-consuming. Asbestos is obviously a concern, particularly in retrofitted buildings, but if it is inert, well maintained and there are records of regular inspections then it may not be an issue. If a prospective purchaser has any doubts about the integrity of the roof, then they will be significantly discounting the purchase price to cover the potential cost of repairs.

Cheap driveways are another area that potential buyers find disappointing. Someone may have tried to save a few dollars when laying the pavement but in the end it could cost them a lot more as buyers factor in the replacement cost. It is often difficult for a prospective purchaser to detect underlying problems in paved areas, without extensive testing. This means that if there is any suspicion of foundation problems or movement, the purchaser is likely to consider the worst-case scenario when determining the value of the business.

Your preventative maintenance program should include taking the time to closely examine the facility; at least once very 3 months. Inspect the roof, doors, weather seals, access control, security systems and lighting. Try to look at the parts of the facility that you don’t see every day, and those areas you do see – look at them from a different angle (sometimes literally). Remember it is always better to get onto maintenance immediately rather than let the problem develop further. Even if it is a major job that will require some time before funds, workmen or materials are available, it is better to start planning for the work now, rather than be faced with major work that needs to be completed at short notice.

Of course the question often arises ‘I am looking to sell my facility and am not sure whether to fix all the structural issues now, or just place the business on the market and let the new owner worry about it’. There is no right or wrong answer to this, and it will depend on the individual property. Just remember that you can pay to get the items fixed now, or you will likely lose money on the eventual sale price. If you are thinking that one of the large chains might by your facility, then repainting it in your colours may not be a wise investment as they will need to repaint again in their colours. On the other hand, if you can complete the maintenance jobs at a competitive price, using your own skills and contacts, it may be better to do it yourself than have a purchaser deduct a higher cost off the price.

For example, if your business has a net income of $400 000, and is sold at a 9% cap rate you will receive $4.44 million. If however, there are some property maintenance issues and the cap rate is increased to 9.5%, this reduces the return to $4.2 million. That $240 000 that you could have spent on capital improvements that has been deducted off the sale price.

Regular maintenance should be an important part of any self storage business and will affect the return that you can demand on your product. It is particularly important if you are looking at selling your business, so make sure you have a maintenance program that is regularly visited. Keep your site well presented, don’t let paintwork and signage face or become stained, keep your gardens tidy, inspect your buildings and security regularly, and make sure you site is presenting to the best of its ability. It will definitely pay off in the long run.

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