Self-storage brokers in the Southwestern United States explore the impact of the current economic recession on self-storage customers, buyers and sellers. Below, this month's panel discusses current lending practices and whether self-storage is recession-proof. The panel includes:
- Dale C. Eisenman, CCIM, of Midcoast Properties Inc., Hilton Head Island, S.C.
- W. Frost Weaver of Weaver Realty Group in Jacksonville, Fla.
- Bill Barnhill, CCIM, Stuart LaGroue and Shannon Barnhill Barnes of Omega Properties Inc., Mobile, Ala.
- Grady Riggs of Long and Foster Real Estate, North Bethesda, Md.
What has been your experience with the current lending practices of both local banks and the larger regional or national banks?
Barnhill: Local banks are the best source for financing in the current climate. Their feasibility and underwriting are more stringent with a lower loan to value (LTV) and higher debt-coverage rates. Banks want owners with a solid track record, and the larger banks are typically only interested in solid performing properties.
Eisenman: Lenders fall into two basic categories: recourse and non-recourse. For non-recourse loans the properties have to be stabilized (not in rent up), income-producing facilities. Typically, portfolio lenders such as life insurance companies who keep the loans and take the risk are making non-recourse loans with 60 to 70 percent LTV ratios with conservative underwriting standards. Recourse lenders such as community and regional banks are making recourse loans to borrowers with good credit, substantial net worth and cash flowing properties at up to 80 percent LTV.
All lenders are discounting future projections and focusing on the most recent actual performance. Generally the tolerance for risk is small among all lenders; they all want good loans. Stated another way: If you don’t need the money you can probably qualify for the loan!
Riggs: National and regional banks are not lending aggressively and their terms are difficult to meet for most buyers. However, what I have found in many rural communities is that local banks are willing to work with buyers, particularly if they are familiar with the business. Though they may have tighter guidelines than before, they are still more flexible and aggressive than most large banks.
Additionally, there is a little known government program that is often overlooked. The USDA Business and Industry guaranteed loan program is targeted at rural communities with populations less than 50,000 and may offer alternative financing up to $10 million for new buyers.