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Finding Self-Storage Construction Lending

Richard Hill Adams Comments
Continued from page 2

Align yourself with a successful builder who has experience building this product, has excellent references and a solid financial statement. The lenders want to know your builder is substantial and can afford to run operations and pay employees during construction while waiting for the loan draws to be advanced to pay his invoices on your project.

The marketing and management for your project can be undertaken by a professional management company that can assist you in taking your new project from construction completion to full occupancy in the shortest amount of time.

If you are not comfortable presenting your business plan and financial package to the lender, you would be well advised to seek professional assistance from a loan broker who has strong relationships with the lending community. These are the people who know who is in the market and can assist you in the professional presentation of you loan request. Think about this: You can hire better qualified talent in five minutes than you can become in the next five years.

Permanent Lending

Permanent loans are typically written with 65 to75 percent loan-to-value ratios, with debt coverage ratios of 1.25:1 to 1.35:1, and will use the lenders capitalization rate, which may be 75 to 100 basis points higher than the prevailing cap rate on existing projects sold in the current market. Permanent lenders are focused on the management of your facility. The credit committees are concerned about the experience of your management.

Permanent lenders want you to have skin in the game and a minimum of 15 percent, hard cash equity left in your project after you’ve refinanced your construction loan. They’re looking for stabilized properties—12 to 24 months of trailing income and expense information—proving this project is successful, profitable and well-managed. To stabilize your property you need to operate at a 90 percent occupancy level over this time period.

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