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Financial-Crisis Survival Guide for Self-Storage Owners

H. Michael Schwartz Comments

As the economy continues to struggle, even top economists are unable to say definitively when we’ll see an upturn in the market. This uncertainty has frozen the real estate markets, making acquisition a challenging process during the past year and for the foreseeable future.

Complicating things further, we don’t know how and when the government bailout dollars will reach the market and what it will take to shake that money out of financial institutions.

But on the bright side, transactions are still getting done, especially in the self-storage market. We are seeing opportunities in the marketplace for skilled but cautious investors willing to dig deep and recognize opportunity.
Debt vs. Equity: Has the Money Pipeline Opened?

As of the first quarter of 2009, debt remains extremely difficult to obtain, and if investors can obtain it, the terms are often less than favorable. We’ve seen lenders who have changed rates at the 11th hour and sellers who have balked at closing.

It’s clear that buyers and sellers need to be more creative by including the assumption of existing loans and seller financing as part of the discussion. Those kinds of things weren’t even contemplated in the sellers’ market of recent years.

As part of the equation, it’s more important than ever to be sure of the conditions on assumable loans. Be especially cautious of commercial mortgage-backed securities (CMBS), special servicers who attempt to change the terms of the original loan, as they scramble for better guarantees or improved creditworthiness of their borrowers. A loan purported to be assumable may not, in reality, be given this tactic.

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