Self Storage Financing ? Tips For Getting Self Storage Commercial ...

Commercial real estateinvestors looking for more-attractive forms of investment often neglect self-storage as an investment property or business. This particular asset offers unmatched possibilities for great total return in addition to lasting, positive income with low loan losses.

The self-storage business is still the fastest-growing industry of commercial real estate in the U.S. in the last 30 years. According to the nonprofit Self Storage Association, it took over Twenty five years for the self-storage industry to develop its first billion square feet of space; the following billion square feet was made in just 8 years ? from 1998 to 2005. Even in recent times of? economic decline and capital crisis, self-storage sector has always been basically strong ? indicating it?s mainly recession-proof.?

These days, debt and equity capital is back in the self-storage asset class, resulting in a growth in sales and decline in overall capitalization and yield rates. The sector?s strength isn?t the sole reason investors should think about this property type as a real estate investment. The self-storage property type meets the objectives an investor must have of a core asset class and it surpass a number of the objectives.??

Now with each of the stability and steady cash flow that self storage assets generate, getting self storage financing hasn?t been simple especially in these past few years of capital crunch.? Self Storage facilities are considered as special purpose properties and are not favorable in the eyes of lenders.? Special purpose assets are only usable for one type of industry or business and can?t be used for other things.? So if your lender takes over a self storage property via foreclosure, they won?t have the ability to effectively manage the business as they can with other asset classes like multifamily properties or retail centers.??

Nevertheless, there are a few portfolio lenders and regional banks that provide traditional self storage?loan but at lower loan to value (typically 50-55% LTV) plus they require higher occupancy ratio (85% or higher). However there are a few regional lenders that fund higher leveraged loan as much as 70% to 75% LTV but they are very rare.? So investors or operators of self storage properties that don?t have larger down payments commonly depend on seller back financing and most sellers offer that carry back financing because of lack of financing. This is only possible when the property is stable at 85% or even better occupancy rate.?

Now if owner operators are looking to find opportunistic investment with underperforming or below stabilized self storage property, they need to have a minimum of 40% equity injection and should get private money or bridge loans for buying self storage properly.? The goal of the private money loan is to purchase the asset, stabilize it and refinance the loan since these loans are quite expensive and could eat up almost all your cash flow.??

But there is good news for owner operators for this asset class.? Small Business Administration has approved this type of real estate asset class and now you can get mini storage loan through SBA and can leverage up to 85% with 1.25 x debt service coverage ratio.? If you can?t inject the 15% down, you may be able to get 10% seller carry back and finance the real estate through non bank SBA lenders and/or several regional lenders.? With this lending product, experienced owner and operator of mini storage facilities can take advantage of the opportunities in the market and expand their business and investment with low down payment.

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