Discover the Loans Available in Self Storage

Authored by The BSC Group, a provider of financial and loan advisory, mortgage brokerage and loan workout solutions to commercial real estate property owners and investors, with a special emphasis on the self-storage market.

If you are ready to use debt to purchase a new facility, or refinance the debt on an existing self-storage property, now might be the time to review the loan options available to you. The following overview will summarize the alternatives as well as their pros and cons.

Commercial Mortgage-Backed Securities

Commercial mortgage-backed security (CMBS) lenders are back with revised loan programs that still feature long-term fixed rates up to 10 years. Loans are also non-recourse, with the exception of environmental hazards and fraud. Generally speaking, these loans are best suited for stabilized, class-B and better properties in major metropolitan areas.

Most lenders prefer loans greater than $3 million, which will limit eligible properties. There are few options for loans less than $3 million, with only one or two lenders offering programs. Borrowers need to have significant liquidity in the neighborhood of 10 percent of the loan amount, with net worth equal to the loan amount.

Pros

Cons

Insurance Companies

Insurance-company lenders are, in many ways, similar to CMBS lenders in that they specialize in long-term, fixed-rate loans to high-quality facilities in major metropolitan areas. Most insurance companies will not lend less than $5 million, with many having minimum loan sizes of $10 million, making it very difficult to qualify for all but a few self-storage properties.

Similar to CMBS loans, insurance-company loans are generally made on properties that are stabilized or near stabilization with strong cash flow. Borrowers need to have significant net worth and liquidity. Insurance companies often offer non-recourse and recourse loan options.

Pros

Cons

Small Business Administration (SBA)

SBA loans can offer self-storage owners a wide array of options including short-term loans through the 7a program and long-term options through the 504a program. SBA lenders can also offer fixed and floating rates through both programs.

The SBA programs offer the highest advance rates available of the major loans programs-in some cases, up to 90 percent. However, these loans are not meant for all owners. As the name would indicate, these loans are focused on active business owners and operators, not passive investors.

Pros

Cons

Banks and Credit Unions

Bank and credit-union loans offer the widest variety of terms and rates. In fact, banks may have more than one of the above-mentioned loan programs in addition to their commercial real estate loan platform. Generally speaking, bank and credit loans are considered short- to medium-term loans from one to seven years that can have a fixed or floating rate or, in some cases, a combination.

Interest rates are typically some of the most competitive available. However, in exchange for access to this money, these institutions want a deeper relationship that may include deposits, lines of credit or additional lending opportunities.

Pros

Cons

Private Lending

Finally, there are private lenders, which include hard money and bridge lenders. This type of lender offers the most flexibility, as they are willing to lend on non-cash-flowing properties, properties in leaseup, refinance of discounted payoffs, and mortgage-note purchases.

In exchange for this flexibility, interest rates are typically between 10 percent and 15 percent. Due to the high cost, these loans are typically measured in months rather than years. Loans are also typically fullrecourse obligations and may require additional collateral to be posted.

Pros

Cons

How to Choose?

The current interest-rate environment makes this one of the most desirable times to be looking for a loan. While there are many options available, the difficulty arises in selecting the right type and then pushing through to receive the actual capital. Hiring a mortgage professional to help navigate these choices and determine the preferred solution can help ease the process. Whichever option you choose, this primer offers a starting point for successful banking.

Noel Cain is a Vice President at The BSC Group, LLC where he provides mortgage brokerage, financial consulting, and loan workout solutions to self-storage real estate owners nationwide. He can be reached through the listing here.

The BSC Group, LLC was formed in 2009 and offers financial and loan advisory, mortgage brokerage and loan workout solutions to commercial real estate property owners and investors, with a special emphasis on the self-storage market. Through its capital source network, The BSC Group provides clients with access to debt and equity financing for commercial real estate investments nationwide. For more information visit click here.

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