On the investment side, highly leveraged investors with short-term debt positions maturing in the near term are also at a disadvantage. These investors may find their equity has evaporated and lenders are unwilling to refinance or extend their loans.
Investors hoping to capitalize on aggressive market conditions by fully leveraging transitional or lease-up assets to refinance and cash out in the short term may also find themselves in trouble, especially if these properties have not performed as expected. Borrowers will likely find that loan servicers?particularly those acting under obligation from a commercial mortgage-backed security execution?will not be willing to work out loans, and may choose instead to foreclose on a property to minimize losses for the trust.
On the flip side, these new market conditions could present strategic buying opportunities for well-positioned investors with strong equity positions and healthy balance sheets. Investors who have seasoned loans with large equity positions available for refinance may consider cashing out some of their equity to build cash reserves and be in position to capitalize on market opportunities.
Accordingly, investors with assets that are well-placed and who enjoy strong local or regional market share due to owning a portfolio within a specific market may still be able to achieve pricing near 2007’s peak levels. While the pool of buyers has certainly decreased, investors’ acquisition appetites for this type of portfolio product remain strong. We expect buyers using low leverage and all cash will become active in 2008.
Even though the playing field has become more challenging, there are still numerous options available for self-storage owners looking to finance, acquire or sell. The key is recognizing the new rules of engagement and keeping your balance. Proper technique will win higher scores in today’s game.
Shawn Hill is a principal at Chicago-based The BSC Group, where he provides mortgage brokerage and financial consulting solutions to self-storage and other commercial real estate owners. He is a former senior vice president with Beacon Realty Capital. To reach him, call 773.517.8504; e-mail firstname.lastname@example.org.
Minh Tran is the managing director of brokerage/east at Storage Investment Advisors and can be reached at 713.376.3107 or email@example.com.