Organizing Due Diligence in the Self Storage Industry: A Comprehensive Guide to Effective File Management and Cross-Departmental Coordination

In the highly competitive self-storage industry, due diligence is one of the most critical phases in any acquisition. This process requires meticulous organization, cross-departmental collaboration, and forward-thinking strategies to ensure the property is well-positioned for future success, including potential resale, if that aligns with the investment strategy. Whether you're handling the acquisition or managing operations post-acquisition, effective due diligence management is key to minimizing risk, optimizing performance, and securing long-term returns.

This article outlines best practices for organizing online due diligence files, coordinating cross-departmental efforts, and ensuring seamless transitions from acquisition to operations. We will also cover how these efforts lay the groundwork for potential resale.

1. Organizing Due Diligence Files Online

The days of physical file storage are gone. Efficient due diligence in the self-storage industry demands a robust, digital organization system that enables easy access, collaboration, and version control.

Centralized Online Repositories: All due diligence documents, from purchase agreements to environmental studies and financials, should be stored in a centralized online repository. Cloud-based solutions like Google Drive, SharePoint, or specialized real estate software can facilitate access for all relevant parties. Labeling and organizing files by category (legal, financial, property-specific, leases, environmental, etc.) will streamline the review process.

File Versioning and Permissions: During due diligence, documents are often updated or require collaboration from multiple departments. Utilizing file versioning software can help track changes over time and ensure that the latest versions are being reviewed. Additionally, permissions should be clearly defined—only authorized personnel should have editing rights, while others can view or comment as necessary.

Naming Conventions: Establishing a consistent, well-thought-out naming convention helps ensure that files remain organized and accessible without running into Windows’ limitations, ultimately making collaboration smoother and more effective. Including the property name, document type, and date within each file name allows for quick identification. For example, files could be labeled: "XYZ_Storage_T12_P&L_Aug2024" or "XYZ_Storage_Phase_I_Sep2024."

Keep in mind that Microsoft Windows enforces certain restrictions on folder and file naming, including a 260-character path limit and the prohibition of symbols like \ / : * ? " < > |. These constraints can make organizing complex data challenging, particularly during due diligence processes that require clear, detailed file names. It’s essential to strike a balance between being efficient and descriptive when naming folders and files. Overly long or vague names can create confusion or lead to errors, while concise yet clear names allow for easy navigation and retrieval of important documents.

2. Cross-Departmental Collaboration in Due Diligence

Due diligence is not just an acquisitions task; it requires coordinated input from various departments such as legal, operations, finance, marketing, investor relations, and IT. Here's how to ensure that everyone is aligned throughout the process:

Acquisition Stage: During the acquisition phase, the due diligence process requires contributions from multiple departments, each with its own perspective and expertise. It's important to hold cross-departmental briefings regularly to ensure all stakeholders are on the same page.

• Acquisitions Team: The acquisitions team is responsible for leading the due diligence process. They ensure that the property meets investment criteria and that all documentation is gathered for review. They work closely with legal and financial departments to identify risks.
• Legal Team: The legal team plays a critical role in reviewing contracts, non storage leases ensuring regulatory compliance, and identifying any potential disputes or liabilities tied to the property.
• Operations Team: Operations professionals should assess the property's management, maintenance protocols, and staffing needs. They will also need to evaluate vendor contracts, as well as existing tenants and leasing structures.
• Finance and Accounting: The finance team reviews historical financials, rent rolls, tax assessments, and operational expenses. Accounting should assess any potential liabilities and ensure that all financial documentation is accurate and complete.
• Marketing Team: The marketing team evaluates the property's marketability and ensures it aligns with the company’s brand and promotional strategy. This includes reviewing signage, digital presence, and any marketing efforts post-acquisition.
• Investor Relations: Investor relations focuses on how the acquisition will be communicated to stakeholders, considering the impact on investor sentiment, financial returns, and future investment prospects.
• IT Team: The IT department must ensure that existing software and systems at the property can be integrated into the company's platform. This includes evaluating security, surveillance systems, access controls, and any other technology-related elements that affect the property's operations.

Post-Acquisition Stage: Once the acquisition is complete, cross-departmental coordination is essential to properly onboard the property into the company's portfolio. At this stage, regular meetings should be held between departments to ensure a smooth handoff of information and responsibilities.

• Operations and Asset Management: These teams will oversee the day-to-day management and long-term strategy for the property. Information gathered during due diligence (e.g., lease terms, vendor contracts, and maintenance schedules) must be passed along from acquisitions.
• Accounting and Finance: These teams will take over financial reporting and budgeting. It’s essential that they have a deep understanding of the property's financial history, including any key financial metrics or agreements discovered during the due diligence process.
• Legal and Compliance: Any ongoing legal matters, including tenant disputes or pending environmental issues, should be carefully tracked and monitored. The legal team must be kept in the loop on any issues that might affect the future resale of the property.
• Marketing and Investor Relations: Marketing efforts and investor communication must align with the acquisition strategy. Investor relations teams ensure transparency about the property's performance and its impact on broader investment goals, while the marketing team focuses on tenant outreach and branding efforts.

3. Preparing the Property for Future Sale

If the investment strategy includes an eventual resale of the property, setting up post-acquisition due diligence processes with that goal in mind is crucial.

Documenting Improvements and Operational Metrics: A potential buyer will want to see clear evidence of improvements made to the property and how those improvements have affected operational performance. Regular documentation of property upgrades, capital expenditures, should be maintained. Asset management teams should continually assess the property’s performance against key metrics like occupancy rates, rent growth, and NOI (Net Operating Income).

Tracking Lease Terms and Escalations: If the property has commercial or other non-storage leases (such as billboards or cell towers), keeping a detailed record of lease terms and escalations is vital. These leases can have a significant impact on property value and should be managed carefully.

Technology Integration and IT Readiness: A key factor in any future sale will be the property’s technology infrastructure. Buyers will be interested in the efficiency and sophistication of the systems in place, including customer interactions, automated payment systems, and security features. IT teams should continuously update and integrate systems to ensure they remain relevant.

Vendor Contracts and Ongoing Service Agreements: Long-term vendor contracts can also affect property valuation. These contracts should be reviewed annually, and opportunities to renegotiate terms to improve operational efficiency or reduce costs should be identified.

1. Cross-Departmental Briefings: Handing Off the Property

The transition from acquisition to operations is critical in ensuring the ongoing success of the newly acquired property. To facilitate a smooth handoff, companies should establish a regular schedule of cross-departmental briefings, where each department provides insights and updates.

• Handoff from Acquisitions to Operations: This briefing ensures that the operations team understands the nuances of the property, including any deferred maintenance, ongoing capital improvements, or tenant relationships that may require special attention.
• Operations to Finance: Finance teams need updated revenue projections and detailed operational plans. This includes financial assumptions made during the acquisition that now need to be verified post-acquisition.
• IT and Operations: IT integration should be a priority in the first 90 days post-acquisition. Both teams should collaborate to ensure seamless implementation of the company's technology systems without disruption to tenants.
• Legal and Compliance: The legal team should ensure that any ongoing legal matters, such as tenant disputes or regulatory compliance issues, are well-understood by the operations team. This includes reviewing key contracts and any pending legal obligations that could impact property management.
• Marketing and Operations: Marketing efforts should align with the operations team’s needs, especially concerning tenant outreach and occupancy strategies. The marketing team should collaborate with operations to ensure that property branding and advertising efforts are consistent with the company’s overall goals for the newly acquired property.

By maintaining strong communication through these cross-departmental briefings, companies can ensure a smooth transition, minimize operational hiccups, and ensure long-term success for the newly acquired asset.

Conclusion

Effective due diligence in the self-storage industry requires an organized, well-documented approach and seamless cross-departmental collaboration. By establishing a centralized online file system and maintaining clear communication between teams, companies can minimize risks, streamline operations, and set the stage for future success. Whether the goal is to hold the property for long-term cash flow or position it for resale, thorough due diligence and continuous documentation will ensure that you are well-prepared for all future plans.