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Reviewing a Letter of Intent

Written by: Steve Mellon Posted: 12/28/2016
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With many new investors entering the self storage industry for the first time, sellers should understand a Letter of Intent (LOI) and the person/entity behind the piece of paper before putting their property under contract.

Here’s why: Once the property goes under contract, you’re effectively taking it off the market and tying it up for two months or more as the buyer conducts their due diligence. If the buyer cannot realistically get to the transaction’s finish line, then you’ve wasted valuable time and possibly lost some long-term leverage with more legitimate investors.

Start your homework by closely scrutinizing every LOI. Which of the prospective purchasers have truly examined the deal before submitting a LOI? Did they contact you or your real estate broker for further details or to ask follow-up questions after receiving the offering package? Did they visit the property or properties?

Next, consider the reputations of the potential buyers who submitted a LOI. Your real estate broker should have a good handle on the reputations of most legitimate investors active in the market. If they do not, ask that they draw upon their network to gather this critical intelligence about the investor.

Finally, pose plenty of questions to the most promising prospective buyers. The following will get you started:

  • What is your history of self storage property purchases?
  • What is your source of debt and/or equity funding? How will it be structured?
  • Will you require financing to close the transaction? If so, then follow up to ascertain their lending assumptions.
  • How will you conduct your due diligence once the property goes under contract?
  • Will you need approvals from others, such as partners or board members, in order to proceed?

Before tying up your property for months in due diligence, be sure to research not only the terms of the LOI, but person/company who is signing the LOI.

About the Author

Based in Houston, Steve Mellon is a Managing Director of the National Self Storage Team at JLL. He can be reached at 713.425.5835 or Steve.Mellon@am.JLL.com.

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