Access to loans for the self storage industry appears to be improving. Sources of capital that were extremely difficult to obtain during the recent recession seem to be alive again. According to CMBS money, which provided nearly $3 billion in self storage loans in 2006 and 2007, the lending market for self storage has as started to rebound. CMBS provided approximately $1 billion in 2012. That compares with just $106.7 million for all of 2010!
Self Storage – Loan to Value Ratios Improving
CMBS typically offers competitive rates and higher leverage at about 70 percent. Life insurance companies are being aggressive on rates but are known for being more conservative with loan to values around 55 percent to 65 percent. Banks remain the favored source for smaller transactions and construction financing.
Self Storage Construction Loans – Still Difficult
Construction loans remain tough to get, as banks are wary of the risks and are stringent on underwriting. A borrower must offer a significant amount of liquidity and net worth to qualify for that type of loan. Borrowers that do qualify typically are securing full-recourse loans at 50 percent to 60 percent loan-to-cost. Full recourse loans generally are backed by a borrower’s corporate assets or personal guarantee. In addition, the majority of loans are being made in major urban markets. These types of guarantees are difficult for some borrowers.
The availability of construction financing over the past four years was completely gone, so the fact that lenders are looking at the self storage industry again is a good sign!
This is good news for an industry that is poised for growth over the next 12 months. Without financing, sales and new construction are impossible.