The future for self-storage financing is going to look a lot like it does today. Listed below are some current underwriting criteria that lenders are now using.
- Minimum of an 8 percent cap rate on trailing 12 numbers
- Debt-service coverage levels at a minimum of 1.3
- Leverage levels as low as 50 percent and as high as 75 percent
- Interest rate floors of 7.5 - 8.0 percent
- Amortization terms are typically 20-25 years, rarely 30 years
- Recourse is typical in today’s market
Underwriting standards have become extremely conservative and that is expected to continue in 2009. An issue that real estate investors will face is that there is a limited supply of capital available in 2009 to finance real estate. There are going to be a multitude of properties available for sale across all sectors of real estate and access to that capital is going to be extremely competitive.
Investors and owners who have loans maturing within the next 15 months need to seriously consider refinancing options sooner rather than later. An issue that will arise is when investors wait until the final months before maturity to begin searching for financing options may find themselves in a situation where financing seems unavailable.
Minh Tran is the managing director of brokerage/east at Storage Investment Advisors. To reach him, call 713.376.3107; e-mail firstname.lastname@example.org.