Many owners have become accustomed to being able to take additional proceeds out either beyond the current loan amount or, in some cases, beyond the initial costs. Pulling additional equity out in the form of debt will be increasingly more difficult in 2009.
On top of it all, we are dealing with volatility on steroids. Market movement in a single day can be more than we have seen in a previous year’s worth of time. It is impossible for any of us to make predictions on what lies ahead. You can only position yourself to reduce your risk and stay as far away from the breakpoint as possible.
Who You Know
One way you can possibly avoid reaching a breakpoint is by establishing depository relationships with your current banks. Let’s not fool ourselves: Capital sources today are trying to obtain as much capital infusion as possible. By the same token, you may want to diversify your banking relationships.
The banking system is in the middle of a de-leveraging period, or trying to reduce loans to many customers. Many banks are facing regulatory closure and others are consolidating. With all this movement, your well-established banking relationship could disappear overnight, or from a more positive perspective, it could prove to be the difference in receiving a loan.
It is also very difficult to know which lenders are in the self-storage market at any given point. Therefore, in addition to your banking connections, you may want to seek professional advice from a mortgage broker you can trust to provide you with current and objective market information.
How Close Are You to the Breakpoint?
If you own a stabilized self-storage property investment with long-term financing that matures in five or more years, you are as far from the breakpoint as you can be. That’s a good spot.
If your stabilized property has a loan maturing in three to five years, you need to stay aware of markets and potentially refinance to lengthen your loan’s maturity. You may want to start by visiting your current bank, drawing upon your banking relationship, and renegotiating the term length.