Self Storage Financing

Bridge Capital Commercial Mortgage

Changing times in the Self Storage Industry

Things to consider when it comes to investment and financing alternatives.

These continue to be volatile times for commercial real estate investing. Overbuilt markets are showing their weaknesses, capitalization rates are making cyclical moves; many major lenders are temporarily out of the market or at least tightening their underwriting standards. On the positive side seasoned investors know that a good “credit crunch” and a market shift represent new opportunity. Those of us with a background in real estate analysis and underwriting actually think that it’s about time to get back to the fundamental economics of “the deal”.

The more things change…

Cushman & Wakefield in their 2007 Self Storage Survey report overall capitalization rates stabilizing at 7.19 percent nationwide. I for one say that it is about time since the 2002 survey indicated an overall capitalization rate of 9.52 percent. An investors greatest concern is now related to financing and the cost of capital. If interest rates creep up capitalization rates will rise and values will fall. Today interest rates are holding in the high 6% to mid 7% range for a 10 year term and a 25 year amortization with 1.25 debt coverage ratio. The C&W survey concludes that self storage investments remain a winner in terms of comparatively high returns accompanied by low loan loss ratios

Analyzing the self storage property whether for acquisition, refinance, or sale requires a closer look at the key ingredients of the investment – market vacancies, historical performance, and market conditions. Most of the aggressive conduit lenders in recent years are on the sidelines, but life companies, commercial banks, and specialty lenders are still a dependable choice for putting loans together on a “make sense” basis.

Today’s options…

As noted this current market correction represents a great opportunity for the Buyer. Even a seasoned self storage investor/owner can benefit from today’s historically low interest rates. But all parties need to be aware of the new realities of today’s market. The transaction may be dependent upon the lender’s ability to deliver the deal rather than the cheapest loan offered. It is always prudent to work with a lending source that can offer two, three, or more options for your consideration. Remember markets have not shut down. We are just back to basics and your due diligence and a cautious game plan will pay off.

For a no obligation quote please review the Self Storage Questionnaire Form then email or call me.

T. Budd Fletcher (831) 239-8504

bridgecapital@gmail.com