This month, our roundtable of broker experts gathered to discuss the state of self-storage real estate in the Northeast. Let’s hear what they have to say about their respective cities and regions. Our panel includes: Guy Blake, Upstate Commercial Group, Kingston, N.Y.; Linda Cinelli, LC Realty, North Branch, N.J.; Joe Mendola, NAI Norwood Group, Bedford, N.H.; and Chuck Shields, Beacon Commercial Real Estate, Conshohocken, Pa. My comments are in italics.
How are local self-storage lenders reacting to the so-called “credit crunch”?
Blake: We’re seeing much tighter underwriting standards from the local lenders in Upstate New York and higher cap rates on the properties that are for sale.
Cinelli: Lenders are re-looking at many deals. Unless the facility is in a prime location with high occupancy, lenders look at the trailing 12 months of income and not the pro forma financials.
Mendola: The local New England lenders are being accommodating toward lending needs. They don’t have the same loan-portfolio challenges of the larger national lenders. The whole sub-prime event has made everyone cautious, but good borrowers with strong signatures and well-thought-out projects have no problem.
Shields: Locally, our lenders seem to be following the patterns of most of the country in that interest rates still seem to be reasonable but lenders have tightened underwriting standards. Lenders have become more selective, require more detailed financials and look for more conservative pro formas. In many cases, they look for more equity in the deal.
The “credit crunch” is quite real and still has a long way to play out. While residential loans have been clobbered, commercial loans appear to be holding up well. However, a recession could negatively impact rents and occupancies. Given the loose underwriting of many recent commercial loans, there’s certainly a possibility for the infection to spread. Luckily, self-storage has the lowest default rate of any real estate class, and most of the facilities we see are moderately leveraged.