Local, regional and national banks, life insurance companies and traditional lenders are currently receiving more self-storage loan requests than they have available money to lend. To ensure they select borrowers with the best ability to meet a loan’s requirements, these lending institutions have become more conservative in the past year with their storage program parameters and underwriting criteria.
Today, it seems lenders are interviewing property owners more than the other way around, which was the perceived modus operandi in recent years when debt capital was more plentiful. Because of this relatively new dynamic, your relationships with lenders are critical to achieving your borrowing goals.
A lender familiar with a borrower, financials and self-storage properties, and has the ability to meet loan requirements is more likely to believe in the validity of your financing request. Lenders are not only “investing” in the property, but in the borrower as well. It is incumbent upon you to build these relationships to support your financing requests.
Loan size is another factor in choosing the right lender. A storage property owner who needs financing between $1 million and $10 million would likely have the best prospects with a local or regional bank; while an owner requiring $10 million or more might start with a national bank or life insurance company.
Borrowers must recognize that regardless of the loan request size, lenders view each transaction differently. For example, a local bank will have different loan requirements than a life insurance company. Much of this is due to the lender’s threshold of exposure and risk.
Another byproduct of the credit crunch is lenders are more closely adhering to their minimum and maximum loan amounts. There is some room for flexibility on the minimum, however, and it usually comes under the condition of the property owner providing future business to the lender. In general, lenders look at self-storage properties in early stages of lease-up phases as more risky investments.
Big, Small, Local, Regional, National
For transactions that are local in nature, a local bank is likely the right financing source, especially for smaller loans and/or construction loans. The bank will finance based on personal relationships and is more apt to want to personally inspect a property. As a borrower, you may receive more favorable terms and flexibility.