You’ve located the ideal self storage facility for your investment portfolio. You’ve analyzed the work involved and feel assured this property meets your investment objective. And you’ve decided you want to purchase this self storage asset. So, what’s next?
Let’s review the timeline of a transaction so you can be prepared for each step and close the deal timely.
Submit a Letter of Intent for a Self Storage Property.
The letter of intent (LOI) initiates the transaction. Normally only a few pages, the LOI spells out the basic terms of your offer – price, deposits for due diligence, and who pays the storage broker’s commission. Other elements may include a financing contingency, and an agreement that upon acceptance the seller will not negotiate with other potential buyers. The final element of an LOI is an expiration date; a stipulation that if the LOI is not agreed to by a certain date, it will be retracted.
LOIs are not considered legally binding; but you should consult a real estate attorney before submitting one. The attorney should be able to provide you with a form as well as customize it to your terms of the deal.
Negotiate a Purchase and Sale Agreement (PSA).
After the LOI is signed by both buyer and seller, the buyer’s next step is to deliver a Purchase and Sale Agreement to the seller. This is a legally binding agreement that memorializes the terms in the LOI and elaborates on them in more detail. It also outlines due diligence periods, the documents required, seller’s obligations in the sale, and the terms and conditions under which the agreement would be invalidated, terminated or breached.
The PSA outlines the details of what the buyer and seller are each responsible to deliver, and makes the agreement between the parties legally binding. The PSA can range from 10-50 pages and should be reviewed by counsel.
Work through Due Diligence.
Characteristically, due diligence runs for 30 or 45 days after the PSA has been signed. This enables the buyer to tour the physical self storage property, review financial records of the business and tax records for the property, as well as study the market. Getting comfort from this data will provide insight on what will be involved to take over the property upon closing. Your self storage broker can explain what’s considered normal due diligence and guide you through this process.
Obtain Financing in Closing Period.
Most buyers shop for financing during due diligence. Typically, a deposit is made when due diligence begins and again during a period established in the PSA. It is customary for the due diligence deposit to be refundable if the deal falls through; but after the closing period both deposits become non-refundable.
After a due diligence and closing period, most PSAs call for settlement within 30 days, provided the buyer’s lender can provide financing during that period. However, some lenders may require a phase one environmental study to be completed during due diligence. If so, get started early because these can take several weeks. Once the study is completed, banks need a few additional weeks to complete the underwriting. If you have an established relationship with a lender, ask them to order an appraisal right away and find out if an environmental study is necessary.
Nearly all self storage properties our team sells have multiple buyers interested, with competitive offers. Adhere to the deadlines established in the PSA to ensure your offer is the one that makes it through. A seller may terminate the transaction if a buyer fails to uphold their end of the agreement. For many buyers and sellers, a self storage property represents more than an investment; it’s also a retirement fund, a family business or a community staple. Emotions can hijack a transaction, so aiding sellers and buyers through conflicts is a key service that a self storage broker provides.
Meet at Closing Table.
You’ve made it to the closing table. Congratulations! All that’s left now is to sign the final documents and get the keys from the seller.
Here’s a quick recap of the timeline:
By following this transaction timeline, you will be prepared for the known elements, as well as what may come up at each step along the way. Knowing the details ahead of time and having the right team in place will get you from submitting an LOI and PSA to the closing table and self storage ownership in a timely manner.
Our team of self storage brokerage advisors are happy to aid in your investment objectives. If you are ready to buy a self storage property, you can reach out to our brokerage team, based out of our home office in York, PA. He will gladly have a discovery conversation with you to determine if you are looking to purchase self storage in Pennsylvania, Maryland, Virginia, West Virginia, New Jersey or other states in our market in the Mid-Atlantic and Northeast. Let our team help get you on a path to success!